Adoption Trends and Observations

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1 Packaged Solution Adoption Trends and Observations Packaged Solution Sees the Transformational Changes Submitted By: Shiwani Mishra Cell:

2 Abstract The needs of customer are transforming rapidly, demanding the banks to be more adaptive towards the business changes thereby improving the overall customer experience. Banks are finding new ways of connecting, sharing and collaborating with customers to large extent by expanding IT capabilities. The advancement towards adoption of packaged solution and the alteration, in accordance with changing business trend, is one of the pivotal driver towards IT capabilities expansion. Changes in the way banks work demand the packaged solutions or The Products ; to address the key challenge of ensuring speedy implementation and seamless integration with the banks environment. Bankers across the world have different perspective towards the readiness and maturity for adopting the packaged solution over custom built solution. The trend or the adoption behavior is mostly driven by the multiple factors including the regional spread, higher percentage of customizations required and dealing with numerous regulatory compliances. This whitepaper studies the packaged solution adoption trend amongst banks spread globally and the factors driving the changes in packaged solution offering and how testing and quality assurance services needs to be aligned with these changes. Please note that this paper presents opinions intended to apply generally and that the Banks must take appropriate care to evaluate the adoption in light of their specific needs.

3 Packaged Solution Adoption Trends and Observations To Build vs. To Buy The genesis of To Build vs. To Buy decisions lies with the business benefits, easy to list in terms of the three key competitive differentiators and the unavoidable cost of compliance, every Bank look forward to: Time to market; Customer service; Operational efficiency; Compliance. Time to market Adapting to business change by binging in innovation to the legacy banking environments has its own constraints. Whether the business initiates a change in response to customer demand or a competitive threat, invariably the timescales associated with changing the many different legacy systems to support the revised feature and ensure continued compliance result in a competitive disadvantage against those banks who already benefit from state of the art packaged solutions. Customer service Customer service is a function of the combined experience of interactions with the bank and, in most legacy banking environments, the inconsistencies imposed by different business silos and channel processes. This often results in an inability for staff in practice despite best intentions to deliver the values promised by the brand. By contrast an integrated package solution has the ability to deliver a single view of customer which brings together all of the different products and services and a consistent set of processes which operate seamlessly across all of the different distribution channels. In doing so it allows the bank s staff to deliver the kind of responsive customer service which opens the door to successful cross-selling of additional products and services. Operational efficiency

4 Operational efficiency has a lot to do with cost but also with how effective the return is on the investment made. Banks with legacy banking environments often have a very high cost of IT which impacts the overall cost/income ratio the most commonly used means of measuring operational efficiency. Modern package banking solutions seek to improve operational efficiency. Compliance The ongoing cost of compliance with regulations and corporate governance requirements is an aspect of running a banking operation which results in nondiscretionary spending. In legacy environments a single regulatory change often impacts a large number of different systems and as a result the cost of achieving compliance can be excessive. This, rather sadly, means that many compliance projects fail to achieve a genuine change in the underlying operational efficiency and risk management practices that could benefit the bank and instead simply seek to do the least possible to obtain approval. One of the clear advantages of a packaged banking solution that has been implemented in a large number of banks and countries is the way in which the cost of compliance is spread across many organizations. This is important to organizations operating in highly volatile markets, or with many new product or service offerings, or start-up companies, where it may reasonably be expected that The ability of packaged solution to deliver accelerated entry into market is based on a rapid banking implementation without the longer term risks and costs associated with a more services based business model.

5 process changes will be relatively frequent and will require changes to how software operates and how information is used. The subsequent section studies the certain observations and trends pertaining to packaged solutions. Size of Bank Large multinational banks expects the packaged solution to offer the convergence of specific domains with Banks landscape and multi component solutions that work well together but can be implemented in stages over time. For the smaller banks, the choice of adopting the packaged solution depends on its simplicity from the business coverage as well as the technology footprint. Mid-sized banks have a challenge. They need to select between these approaches and will need to factor in growth and expansion strategies to ensure they don t pick a dead end platform Regional Adoption With regard to packaged solution demand, three distinct geographical regions are considered: Americas Europe, the Middle East, and Africa (EMEA) Asia/Pacific (including Japan) (APJ) The Americas (North America and Latin America) continued to account for over one-half of worldwide packaged software consumption (domain packaged solutions). EMEA accounted Source: IDC Market Analysis for nearly one-third of worldwide revenue. Asia/Pacific (including Japan) accounted for the remaining share of worldwide software revenue.

6 Domain Adoption Packaged software is generally geared toward either a vertical market, in which the system performs a range of specific business functions such as Commercial & private banking, Capital markets, payments and transaction banking, or a horizontal market, in which the system can serve a wide variety of industries (not specific to any industry or business like CRM ). For the bank, with domain and function specific requirements, generalized or custom software solutions is not an option but a solution targeting with specific needs. It is generally observed that the Core Banking domain covering Commercial, Private, Retail banking; transaction banking involving cards and payments are more motivated towards adopting the specific and targeted packaged solution. These solutions offer them unique advantage of Zero inhouse development starting point with specific business process defined and built-in. Product Vendors The most reputable vendors have invested enormous effort and expense in incorporating world-class functionality into their products, which a company acquires along with the package. Duplicating such expense to develop similar functionality in custom developed code used by one company has become, in many cases, prohibitively expensive. Technologically the platforms previously thought of as very flexible but only able to handle the capacity of the smaller institutions are now scaling up and reaching the tens of millions of customers so there will likely be some blurring of these lines, but vendors have realized that each type of bank is looking for something different and is making the necessary steps to adjust to Banks requirements. The focus for banking software vendor is more on creating one size fits all solution for Banks. Implementation Partners The fear of Implementation going wrong needs to be put in perspective of choosing the right implementation partner. implementations fail? Why do complex package The contended major causes of such implementation failures include: Incomplete or poor planning of the implementation, wrong choice of implementation partner and expectation mismanagement.

7 Implementation partner is expected to derive more business value for Banks from packaged solution implementation. The approach needs to be business-led and technology-supported underpinning the deep and broad expertise in banking and in latest advances in its Packaged Solution, allowing our Banks to gain the advantages of more powerful platforms with less risk and investment. Testing Partners The best Banking packaged solution implementations often accumulate their share of challenges. One may find that the software is more customized than it needs to be. Perhaps the system isn t performing to industry standards because the original implementation was rolled out without sufficient consideration of the business requirements. Or maybe there are integration challenges because of too many interfaces. With greater focus on improving the customer experience & meeting business objectives, it s vital to have niche & dedicated team of testing experts to build & offer product testing services with a holistic thought process on product testing. The success of solution implementation lies on providing the highest coverage testing solutions with focus on business processes and identify the totality, security, correctness of implementation as per the business need & finally quality of developed product. Typically Banks look for an early exit from an implementation/upgrade life-cycle as bulk of the investment gets consumed in the product purchase itself. Smart, short but comprehensive implementation life-cycle is critical..! Successful product implementation means functional comprehensiveness, seamless integration with Bank s running business process in a shortest possible time with minimal cost. Logically this phenomenon holds good for Package Solution Testing life-cycle as well. Package Solution Testing demands contextual & specifically tuned life-cycle approaches & methodologies, tools & techniques, and solutions. While the lifecycle phases (ST/SIT/NFT/UAT) remains to be constant in Package Solution scenario, more thrust requires to be on customization, interfaces with Customer s upstream/ downstream/ reference applications.

8 Emerging Trends The advancement of packaged solution, in accordance with changing business trend, is one of the pivotal driver towards IT capabilities expansion. Bankers across the world believes that the cost of complying with regulation represents the biggest challenges to their businesses. The compliance testing needed for the regulatory compliance assurance is picking up fast. With introduction of regulations like FATCA, BASEL II, the core banking products are undergoing the new wave of technology changes. The increasing volume of mobile banking users gives unique advantage to bank to increase the customer reach. Many of the core banking product companies are launching "Mobile Banking" version to enable the superior customer reach.

9 References E&Y: Global Banking Outlook 2013 IDC Market Analysis