The quest for banking heaven

The Integration Consortium’s Michael Kuhbock explains why integration of new technologies will ultimately get the customer what they want.

Financial institutions have something of a reputation for their aging legacy core systems. But what problems do these systems pose as organisations look to integrate new technology and how is the legacy of core systems affecting the ability of FSIs to meet customer requirements and address their business strategies?

According to Michael Kuhbock, the primary focus for all organisations, including financial institutions, should be how they service their customers. “One of the major IT mantras out right now is focused on building a complete and robust customer centric view. To achieve the environment of universal customer visibility, all of the disparate applications, silo systems and data silos have to be accessible in real time. When you define integration as the successful communication between data, applications, processes, people and companies, then you can start to imagine how an impenetrable legacy system can create major issues for companies.”

However, as legacy core systems are the heart of most FSIs, it is not so easy to rip them out and replace them from existing organizations. As Kuhbock explains, this is why the ability to integrate new technologies is so important: “All organizations are driving growth and profitability, as such there is a continuous requirement for new technology to support corporate development, the integration of new technologies can often be a stumbling block. Fortunately, the integration industry has reached a level of maturity to a point where a number of the major issues have been addressed and overcome.”

Kuhbock outlines some of these issues specific to the financial services industry:

•Data quality issues due to a lack of enterprise wide meta-data management resulting in inconsistent usage of data across products silos.
•Ineffective business processes which are needed to manage customer data.
•A lack of real time information, which prevents the introduction of new capabilities and services.
•A lack of common business rules across an enterprise is preventing standardization of information integration technologies.
•Delivery systems implemented in different eras using different, incompatible technologies and standards.
•Operational and timing gaps between new web based services and the legacy backend systems with batch processing constraints.
•Redundant interfaces which need to be maintained and supported.

Beyond integration, though, banks still often lack efficient processes for handling new business, customer service and financial transactions. “As it relates to customers, the legacy issues boil down to problems encountered in communication with and within a financial institution,” says Kuhbock. “Have you ever tried to apply for a mortgage online, to open an account, wire money, or withdraw money internationally? How about transfer a loan or account, or apply for a credit card or loan? These customer activities are never smooth and seamless and the core institution services are the root of the problem.”

So where does business integration come into it and how can the financial services industry benefit from strong integration strategies? Firstly, Kuhbock sets the record straight on what integration is and isn’t: “Business integration does not come in a shrink-wrapped box. Despite the promises and predications of the late 1990s, it is not a single product or technology, nor is it a final endpoint accomplished with a single project.” He explains that integration focuses on improving the efficiency and effectiveness of the processes that run the business and service the clients and customers. “Integration is about communication, inside and outside of the enterprise domain. It includes improving the quality and timeliness of information, and providing information on demand and where it is needed, regardless of the source system. In essence, integration facilitates business agility.”

But this business agility cannot be achieved simply by implementing integration technologies or methodologies on a project-by-project basis without an overall strategy of how it all fits together. As Kuhbock explains: “Rapid implementation of the business strategy requires an enterprise-level integration strategy to make the implementation a reality. The business integration strategy ultimately reduces the time and cost of managing information and IT resources while preparing the enterprise to leverage dynamic market opportunities, business assets and effectively servicing the customer.”

He adds: “For the financial services industry, the realised value of integration and a coherent strategy is quantified in the reuse of existing systems, immediate access to business critical internal and external information, which of course reduces costs and increases profitability. For the customer, it means that everything is transparent, that historic and current client information is secure and available to everyone.” Importantly, this means greater recognition of the customer by their institution, regardless of business unit.

Of course a successful integration must be carefully planned like any business component and incorporated into a business’s long-term vision and strategy. “Analysing where you are, where you want to go and finally how to get there is how great organizations operate and succeed,” says Kuhbock. “Why should Integration be left out?” As he is keen to point out, enterprise integration is an underlying business component of any organisation, like manufacturing or marketing, and as such is one the ‘primary cogs in every organization’s wheel’. “Integration now must step up and be recognised as a discipline unto itself and thus follow sound and fundamental business practices that every other division within the organization follows.”

This has not been the case in the past, with enterprise integration projects often producing questionable outcomes and excessive expenses. Kuhbock explains that they also had unacceptable failure rates, as companies in the past purchased an integration tool or solution without an enterprise-wide integration plan or strategy in place. “Quantifiable returns, sustainability and management acceptance are only achievable if there is an enterprise integration strategy and business plan in place prior to the initial pilot or acquisition of a solution tool or product.”

Central to creating a successful integration strategy is the application of fundamental business and integration principals to ensure success, including the ability to:

•Align integration plans with business strategy.
•Establish a integration competency centre of excellence.
•Use a process-driven approach for end-to-end solutions.
•Establish clear lines of ownership and accountability.
•Enforce an enterprise wide service oriented architecture.
•Mandate integration requirements for new applications.
•Develop a common representation of data and process.
•Test early and often.
•Re-factor interfaces constantly.
•Evolve business processes through experimentation.

With legislation putting mounting pressure on financial institutions in Europe, effective integration could also prove valuable in helping them to meet compliance demands. As Kuhbock explains: “Integration is the safeguard for ensuring the financial security of both customers and shareholders, and also ensures that honest executives can stay out of jail.” He points out that compliance budgets and activities are growing today, at the expense of over other marketing and operational activities. As such, key initiatives are being delayed. “Organizations will be looking for ways to better manage cost in the future,” says Kuhbock, “but the difficulty lies in the future unknowns with Basel II and SOX, hence why having a stable integration strategy and infrastructure in place is a priority for financial institutions.”

When it comes to mitigating business risk, integration clearly has a defining role, as Kuhbock outlines: “Having solid IT governance in place – policies established that should cover everything from security to operations with associated IT controls in place – is the best way to mitigate business risk. This is also a fundamental component of an integration strategy.” He continues: “When we look at specific integration activities that address business risk, one sees new risk-management solutions that have slowly started to appear over the past two years, under the banner of continuous monitoring. These solutions integrate with existing systems and provide ongoing assurance through detection of events of risk-management interest and notification of stakeholders.”
The key focus for continuous-monitoring solutions, as Kuhbock sees it, is to reduce recurring manual compliance effort, chiefly through replacing manual controls with automated ones. “Compliance and cost reduction aside, these solutions can increase assurance of financial integrity for an enterprise.”
Rolling out any new technology is never going to be without its complications and integration strategies are no exception to the rule. In fact, as Kuhbock puts it: “Rolling out a coherent integration strategy can be akin to herding cats with a broom.” He believes the greatest challenge can be people, as they can be very close-minded with often strong philosophical anchors in place. “The rejection of an enterprise integration strategy and the roll out of such by stakeholders of both business and technology professionals can be addressed by employing an effective change leadership programme, says Kuhbock, adding: “This differs from a change management programme, as management is reactive where leadership is proactive. By addressing the human challenge prior to the roll out of an integration strategy you can increase the chances for acceptance and success significantly.”

He adds that a silo’d strategy without business buy in and full proactive hands on participation can be the death of an enterprise integration roll out or even a single project.

“Assuming that all of the proper groundwork has been done and the integration plan is properly in place, accountability or lack there of can be another giant killer. This is why establishing proper governance and something as simple as an integration competency centre within your organisation can add to the probability of success. It is all about managing your own destiny throughout the process from conception to activity.” As business runs with a constant change philosophy, organisations must be flexible and robust enough to deal with whatever tomorrow might throw at them. The same goes for technology, and specifically integration products and solutions. As Kuhbock says: “Life is a journey, not a destination’ and this applies to enterprise integration also.”

Returning to the opening issue of meeting customer requirements – the growing trend towards which is currently the hot industry topic – how ultimately does the end user benefit from their financial institution implementing an effective integration strategy? Kuhbock responds, saying: “The primary benefit to customers would be that they no longer fear or hate going to banks to obtain the services that they require and which the banks are in business to provide. Integration strategies and enterprise wide deployments of that strategy facilitate cost reduction, which then can be transferred to the customer along with improved customer service which is what everyone today is looking for.” Furthermore, when a bank is fully integrated, customers have the assurance that security is in place, that the bank is fully compliant, and ultimately therefore that their money is in good hands.

“Finally, customers will feel that they are somebody, fully recognised by all of the different business divisions of the bank, and that they (as represented by their data) can be securely recognised and accessed in all methods on a real time basis. This is the banking nirvana we all are looking for!”