Welcome to Tuum Talks Episode #8: Navigating Tomorrow – Innovations and Trends in European Core Banking.
Watch the recording and dive into the future of core banking with insights from industry leaders Javier Diaz-Maurino Jiménez of Accenture and Edgardo Torres-Caballero of Tuum.
Recorded Live: Wednesday, July 24th, 2024
Host: Edgardo Torres-Caballero, CRO, Tuum
Panelist: Javier Diaz-Maurino Jiménez – Managing Director, Accenture
Episode Topics Include
- Core Banking Evolution: Learn about the transformation of core banking systems and how they’re adapting to modern demands.
- Payment Innovations and Regulations: Discover the latest trends in digital payments and the impact of regulatory changes.
- Leveraging Cloud Technologies: Understand how cloud and multi-cloud solutions provide banks with unparalleled flexibility and resilience.
- Balancing Customization and SaaS Benefits: Find out how banks can balance the need for customization with the advantages of a SaaS model for flexibility and cost-efficiency.
Key Insights
- Core Banking Evolution: Modernizing core banking systems is essential to meet today’s demands.
- Digital and FinTech Impact: The rise of digital players and FinTechs is pushing traditional banks to innovate.
- Interoperability and Coexistence: Integrating new technologies with legacy systems to enhance business agility.
- Regulatory Pressures: Addressing technological obsolescence and compliance with evolving regulations.
- Cloud Adoption Trends: Embracing multi-cloud strategies for flexibility and resilience.
Stay Tuned for More
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Watch, read or listen to the conversation below:
Navigating Tomorrow: Innovations and Trends in European Core Banking
[Full Transcript]
[00:00:05] Edgardo: Good morning, Javier. How are you?
[00:00:09] Javier: Good morning, Ed. Not too bad. How are you doing this morning?
[00:00:09] Edgardo: Pleasure to host you on our Tuum Talks.
[00:00:12] Javier: Thank you. I think it’s a pleasure and thank you for having me at this site.
[00:00:17] Edgardo: Absolutely. Javier, let’s begin with a small intro. Tell us a little bit about you and your years of experience in financial services at Accenture.
[00:00:27] Javier: First of all, I have been working for more than 25 years at Accenture in the financial services industry. My whole life has been focused on core banking transformation programs, mainly international programs. I’ve been leading different opportunities and implementation and deployment activities worldwide.
During the last 10 years, I’ve been focused on getting specialized and experience around how to follow out from the core, how to modernize legacy systems, de-risking implementation delivery. I am part of a global banking team. Our main mission is to try to support this complex transformation programs that we try to guide through different modernization strategies. As part of that global team, I am the go to market lead. I’m also responsible for core banking transformations across Spain and Portugal.
[00:01:32] Edgardo: Outstanding. That’s an amazing experience. Based on a little bit of this experience, what do you see and what does Accenture see as trends in core banking transformation initiatives? Especially a topic that is on the table these days is, is there migrations happening? Is there a possibility or maybe the need? Because these systems may be coming to an end, then what will be next if you transform? Is there a coexistence in between the systems? Is it an absolute necessity to then necessarily migrate certain systems, decouple them? What do you see in that space?
[00:02:08] Javier: Definitely this is a huge topic, and it’s getting traction in the market worldwide. If we were to put a heat map in terms of where are we from a core banking modernization perspective, I will probably say that the market is heating significantly, especially in Europe and Latin America. North America is catching up as well. But we see that the next 5 to 10 years, we’re going to have a heat wave in terms of core banking modernizations.
We are getting into a period where our clients need to keep up to date with business and regulatory demands, which we will cover afterwards. Now they need to rethink about what’s the role that the existing core banking systems will play, and and how these critical components as part of the enterprise architecture need to evolve in order to let them become a truly enabled digital bank.
From an Accenture perspective, we have identified an increased need for total reinvention, where our clients need to rethink their overall strategy around how business and IT will interact together, and how the core banking platform can be an enabler or stopper towards that digital reinvention, and what’s going to be the level of modernization that they will be willing to adopt.
From a banking landscape perspective, we’re seeing a significant increase in terms of digital new players, and fintechs and big techs winning a significant market share around the financial services business. However, these attackers are impacting mostly origination and value-added services on the business side; where entry barriers are minimum and profits are higher.
However, we see that such changes are also being adopted by incumbent banks. Those changes, which are mainly focused on the customer engagement layer, are not enough in order to be able to deliver a truly digital core. We see the need for our clients, which are the traditional banks, to have a space in order to start thinking about how to shape the journey towards core banking modernization, to lead mainly the evolution of new products and services so that we can meet business demands and enable new business models, and also on the other side free up resources in order to cover additional investments.
[00:05:00] Edgardo: That’s a very important you bring in relation to strategy, around launching these new products. Legacy may bring certain limitations. Some of the systems are decades old. Some of them don’t have proper support even, some of these licenses might have been exhausted by now.
In a process where you’re decoupling some of these old systems, how does new digital technology play in that coexistence in between the old and the new? What does the strategy at Accenture recommend with clients that you are working with at the moment so these initiatives can progressively allow the bank to modernize?
[00:05:43] Javier: That’s a really good question. What we are seeing is we see that our clients are getting into the legacy truck. It means that they have the old monolithic platforms that are not fit for change. The fourth-generation platforms will enable that change.
In order for our incumbent banks to be able to adopt these new fourth generation platforms, which will change mindsets and the paradigm around core banking; before, core bankings were built to last now, and core bankings need to be built in order to enable change. This is what we see, fourth generation platforms enable that change, introducing time to market and faster adoption of new products and new services to enable new business models, as I was mentioning.
However, incumbent banks will find that their existing technologies will provide with specific bottlenecks in order to enable that pace of change. We see that customer experience is not unified. There is a lack of single customer view, in order to be able to share not only with the legacy systems, but also with new platforms that will be interconnected with legacy systems, monolithic and coupled legacy code that doesn’t allow to gain time to market, and benefit from these new technologies.
The power of data is critical. Fourth generation platforms will enable power of data in order to enable business at a scale. We see also significant risk in terms of resources and also ensuring new skills. These are the challenges that we see.
Our clients need to start thinking about how these monolithic applications need to be broken down into smaller components, to be able to cope with these technical bottlenecks.
[00:07:56] Edgardo: I fully agree with vision about how to modernize and all these specific value components to get the organizations to access better data, apply that data so they can increase their capacity to provide products to their customers that are satisfying their needs.
There’s always a challenge in implementing new systems, even more challenging to maintain legacy and extend them. But what are the typical challenges you guys see around digital core implementations and these initiatives? What would be a good risky measure to those things?
[00:08:36] Javier: Of course speedy implementation – the ability to implement faster. The need to build a specific interoperable architecture that will allow the coexistence between the new and the old. For that, we need to start thinking about how to break down different components that will allow for such coexistence. Coexistence, I like to call it more interoperability. Interoperability between legacy and new platforms need to come at two different layers.
Interoperability in terms of business logic, I need to have business components that are able to maximize whatever I’ve built in the legacy systems, but are also able to interoperate with new platforms. This is for example flexible payment changing, have a unique customer 360 view reporting statements, offer management, try to have a single product catalogue or single offer catalogue where I can have all my products and services published, and through which I can start introducing hyper personalization. Have a data layer that can work in three different angles. It can work from an operational perspective, it can work from an information management perspective, and it can also be the foundation towards artificial intelligence and generative AI. I think this is is going to be critical.
[00:10:17] Edgardo: You’re adding two very important topics. One is you lightly touched on the regulatory side. What do you see in relation to trends on that space? There’s been a lot of pressure on new operations around regulatory aspects. Legacy systems may also be pressured in relation to their businesses, their performance, all these transformation initiatives and what does it do for the business.
In general terms, what would be, in your view, the largest topics and regulatory aspects on these transformation initiatives?
[00:10:50] Javier: Probably the most important one, and this is where the key activities will come in the upcoming years, is going to be technological obsolescence and technical depth. I think the regulators are putting a significant amount of pressure in our clients in order to get rid of technological obsolescence and also get rid of those legacy codes, especially because of the risks that these legacy systems imply for all the financial industry.
It means that skills are getting old; they’re getting retired. Knowledge is complex to gain, especially because they are really old technologies. We see regulators putting a strong focus on that.
The second area that we see probably is going to be more focused on payments. There is a strong push towards putting some specific focus on payment regulation, especially around financial inclusion and customer protection. The main regulatory changes are going to be aimed at drive our clients to provide greater consumer protection and privacy. I think this is going to be one of the major ideas.
The third one is a compliance regarding new payment models. PSD-2 was already implemented. However, open banking will still be crucial in order to maintain trust and protect the consumer interests.
[00:12:32] Edgardo: Even PSD-3, we have an additional layer and it continues to evolve. Definitely within the context of this end customer review, in relation to the customer protection, which is very necessary.
Now, it’s quite interesting then if we were to summarize a little bit of the legacy challenges, business requirements to attend to new business models, regulatory landscape in relation to tech obsolescence, which I fully agree with you, the tech depth, I think it’s a compelling event for a banking institution to do something because it’s been attacked from multiple different angles.
What would be in Accenture’s view and in your view, that the risky measures to undertake it is never easy. The price tag might even be important, not because maintaining the old one is already expensive, but rather to transform I also have a price tag behind it. But somehow something has to be done. What typical risky measures do you see, and how do you tackle these? What are the strategies to approach it? Because it’s clear; you’ve made a compelling event. There are legacy issues, there’s business requirements, there’s regulatory requirements. What’s next. What is needed for these banking institutions to start decoupling it, de-risking it? Because it’s not an easy task, I would say.
[00:13:50] Javier: We don’t have the secret sauce. We tend to say that there is not a one-size-fits-all. From our point of view in terms of core banking modernization, the main approach will be to think big, but start small. The pathway towards modernization will be to first consider what’s going to be the strategic IT target state. What’s the North Star beyond core banking? We need to understand that core banking modernization is not about software. It’s a it’s about transforming the whole entity from a business perspective, down to operations and also technology.
It is to define that North Star, and then think about how to start small in order to take activities to the risk the program. Balance in terms of required investment, and also generating timely business outcomes. We cannot embark ourselves in a 5, 10 to 15 years journey. We will need to make sure that we get tangible business outcomes throughout the whole delivery roadmap.
[00:15:04] Edgardo: Okay. I have a few other topics on multi cloud deployments and these sorts of things. Larger organizations have their big contracts with public clouds, some of them still operate on their private cloud or on-prem mechanisms.
If you allow me, there’s a few questions from the audience as well. I will be tackling some of those questions, real time attending to them, rather than leave them for the end. But on the multi cloud approach, what do you see in relation to Accenture and the strategies that have been deployed? I’ve seen a little bit of an appetite for a multi-cloud strategy. Like, I have seen banks having multiple different providers present at their operations, especially larger ones. Others have gone the path of maintaining some of the stuff in house as well, the private clouds. But in your experience, what are these trends these days in relation to cloud adoption?
[00:16:04] Javier: First of all, in the banking space there are some contradictory messages around cloud adoption. Meanwhile, based on the cloud altimeter that Accenture launched a couple of years ago, probably around 80% of the sea levels were thinking about how to shape their cloud adoption journeys. Most of the applications that are surrounding the core banking platform probably have been moved to the cloud. However, the real core, so the kernel of the processes, is not yet there.
From an Accenture perspective, for sure software as a serviceis going to be a pattern that will be gradually adopted, not only by small banks, but also from tier two and tier one banks. In terms of the cloud strategy, we see a clear roadmap towards adopting hybrid models. It means our clients will have their on-prem capabilities, and they will go to cloud whenever there are specific demands or peaks that we will require with some scalability needs. For example, Black Friday. If I need to scale, I can have my own infrastructure on-prem in order to be able to support day-to-day activities. But for those specific picks, they will probably go into a hybrid type of model.
This is yet to come, because data synchronization is going to be a key enabler across those kinds of strategies.
[00:17:37] Edgardo: We had a question in relation to that as well, how to increase the adoption of public cloud. But I think it’s within the context of what you’re explaining. Another big topic, which is always on the table and we have some questions about it, is artificial intelligence. What is the play? How does this play all across the financial institutions, I would say, rather than a specific area? Highlight on the view on artificial intelligence.
[00:18:01] Javier: From an Accenture perspective, we are heavily investing in terms of becoming an NI-enabled financial institution. That’s going to be critical for us. As part of our banking architecture we have designed and we have simplified the overall architecture, it is founded on three major areas. The first one is the AI based platform, which is going to be the bank of one engine. It is going to be a bank ruled and governed by generative AI agents, that will decide which is the best choice off features for a specific customer at a given point in time. It means that we will even go to not having the need to configure products. It means that products will be built and bundled as we go, supported by these generative AI agents. We’ll decide which are the best features and what’s going to be the best pricing strategy for a specific customer, giving his context and the activity that he’s running within the bank. We see generative AI significantly being spread across financial services and banking processes.
The second layer, as we were mentioning, is interoperability and composability. We know that change is going to require some time. That’s why interoperability will enable the coexistence between the new and the old platform. At the end, the hybrid core strategy, which is having different processors interoperating among each other, either on-premise or on cloud. Even software as a service, working together under a business fit for purpose approach. It means that based on this hybrid core approach, we will enable interoperability and we will enable changes faster.
[00:20:10] Edgardo: That’s a very important point. I fully agree. This coexistence of all systems, some of them don’t even expose APIs, which even makes it more complex into these modern platforms. What do you see in relation to options there in the market for integration layers and orchestration capabilities? In my view, a core banking system ultimately has products, and there’s transactions interacting with them. But there’s so many business rules within these layers. Is this what you see as an extension of the core capabilities, or this is something that the bank has to own and companies like you on the integration side control?
From an architecture perspective, what is the vision from Accenture, is that core extended through orchestration layers? Or this is integration capabilities and Accenture would take on support for the bank, then you service it on these SaaS platforms that give you a more commodity based function, then the value component lies outside? From an architectural perspective, which one do you think is mostly a path forward for these banking institutions? In the past everything was built around the core, right?
[00:21:30] Javier: Yes, for sure. Systems of engagement are becoming more relevant in order to be able to differentiate financial institutions. This is where they should put focus. Even at the systems of engagement layers, they can take on a hybrid approach in terms of interoperating different platforms and even custom-built solutions. I think it’s a cost of opportunity not taking advantage of whatever has already been built. Think about how those commodities can be integrated and interoperated with a custom-built business logic. This is on the customer engagement layer.
On the systems of record and the core banking engines for sure, it’s almost a commodity. Especially when core banking platforms are getting thinner and thinner, it means that the core banking engines will be reduced to an account management system with general ledger capabilities, to maintain and update balances at the end. All the rest, which will run across three major components, which are going to be customer, products and contracts, will be sitting outside of the core.
Whether our clients will rely on a standard out-of-the-box solution or custom off-the-shelf solution, or they will decide to custom-built, first of all, it will depend on their level of appetite in terms of investment and also the technological capabilities that our clients might have around doing a custom-built solution. This is quite important. We need to make sure that we have the right skills and the right architects in order to be able to define the proper architecture that will allow us to assembly different type of components, based on events and also rest APIs
[00:23:28] Edgardo: Accenture I think is probably the largest advisor and system integration in the world. You engage with multiple different platforms, you have experience with different, new technologies. How do you see that those vendors evolving in the space? That can support most of the things we’ve been discussing today. They all have different flavours, different capabilities. Probably makes the case for this hybrid approach, because you may have a simpler, smaller operation that requires a lighter core. Probably you have larger, more complex operations regarding more depth of functionality and stuff like that.
How do you see that evolving with these different vendors? It comes from the experience of Accenture dealing with almost all of them, right?
[00:24:13] Javier: We have applied a division between two different tasks, in terms of breath of functionality and IT evolution or IT strategy. Meanwhile, we see traditional players that have a significant amount of functionality embedded in their existing platforms. From a technology perspective, they are adopting new ways of evolving the platforms. They are now implementing new extensibility architectures that will allow them to move from modular to composable. However, that’s going to take a number of years, and they will have to drive through complexity across how to maintain backward compatibility with previous platforms.
We see some of the major players that have changed dramatically their direction. Going into a fully fledged on-premise fully configurable solution, moving into a fully software as a service model with a very reduced functionality, and being able to be composable. We see also fourth generation players, which are more flexible. From a technology perspective, they tend to be up to speed in terms of new IT innovations. However, from a breadth of functionality, they are still growing.
At the end, there is no slippery glass around core banking platforms. I think everybody’s converging into the right path. The ones that will be successful will be the ones that are able to combine or find the equilibrium between both. Composability, meaning that I allow interoperable components to be flexible enough so that I can allow our banks to drive their own destiny, by leveraging on specific business capabilities. It can be a billing engine, it can be a reporting engine, it can even be a customer management system; working independently of the rest of the product package solutions and coexisting with legacies. Then increasing the breadth of functionality. It means that as we evolve this fourth-generation core banking platforms, breadth of functionality needs to be extended along the way.
I think it will be that kind of equilibrium.
[00:26:52] Edgardo: Outstanding. We got a question here taking the opportunity, asking about the priorities from Accenture in banking during this fiscal year. What are the primary areas where Accenture is focusing on?
[00:27:09] Javier: From a core banking perspective, we’re focusing in terms of interoperability and how to de-risk transformation programs. As we were mentioning, we know that that there is a huge cost of opportunity in terms of not doing, not taking core banking modernization as part of our roadmap. Linked with regulatory pressures, that’s going to be critical.
We all know that big bang approach is not suitable for most of the financial institutions. That’s why interoperability needs to be put in place. You need to set the foundation and allow for a transformation journey. That can take, as I was mentioning, 5, 10, even 15 years. Started gradually getting rid of that technology obsolescence that we were talking before.
[00:28:04] Edgardo: Outstanding. Javier, I think I covered most of the questions from our audience on our site. It’s been an absolute pleasure to collaborate with you here today and spend some time. You’ve given a masterclass. I would say that we deploy transformation initiatives, definitely leading the way of thought leadership in the market in relation to the things that have to be done. It’s an absolute pleasure again, to host you at Tuum Talks.
[00:28:31] Javier: Thank you very much for the time and have a good day. Thank you.
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