5 March 2020

From bank to platform13 min read

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As in many areas, digitisation is one of the megatrends in banking. In addition to individual measures such as Robo-Advisory and specific CRM solutions, the core banking system is at the heart of a good digitisation strategy. Michael Dolzer, Chief Operating Officer of Bank Frick, on the challenges of such systems, the consistent focus on relevant processes and the transformation from the bank to a digital platform.

From individual solutions to standard software

The first core banking systems in the form of standard software were created about 30 years ago. Prior to that, banks developed their own software tailored to their needs. At the beginning of this development, the required software components were limited to a few programs without great complexity. Standard software prevailed for various reasons:

  • The number of products and services on offer grew strongly.
  • The complexity of some of these products and services also increased significantly.
  • As a result, the development and support effort for in-house developments became ever greater, the development departments grew as did the required storage space. Not to mention the costs.
  • The banks therefore sought their salvation in the purchase of standard software that would solve the following problems:
    • The development of new functions no longer had to be done in-house.
    • The innovation was delegated to the software manufacturer.
    • The development and resource risk was thus borne by the software provider.

From the rain into the fire

At the beginning of this development, the banks could actually sit back and operate a bank with relatively little effort. This solution was particularly beneficial for smaller financial institutions. But the turning point came relatively quickly – as is well known, appetite comes with eating. Once innovation had been outsourced to software manufacturers, the banks now began to develop new products to a large extent, thus taking innovation back into their own hands. The know-how in the banking sector was much smaller with the outsourcing companies than with the banks. As a result, from the banks’ point of view, innovation at the outsourcing partner was too little and far too slow.

The software manufacturers quickly reached their limits. The functions for mapping new products had to be developed in ever faster cycles. The exorbitant increase in complexity in the new requirements of the banks made things even more difficult. In addition, the banks began to develop their own products in order to stand out from the competition. For the software manufacturer, this meant that different software versions had to be developed and maintained for different banks. And as if that wasn’t enough, after the global financial crisis in 2007, a real regulatory boom set in that continues to this day.

Walking with Dinosaurs

The development described above led to the classic core banking systems becoming large, powerful and all-encompassing. The situation is enriched by development purists who are striving for gold-plated solutions. What problems do these dinosaurs pose for a bank?

  • Many of these core banking systems have grown over the years. Although the functionality is extensive, it leads straight to the next problems:
    • Ergonomics suffers. The countless functions, fields and wizards lead to a confusing user interface.
    • The complexity in the applications is high. Employees have to be trained massively and need support from external consultants.
    • The complexity of the functions forces the employee into the processes of the core banking system. An optimal design of the functions to the bank’s work processes is usually not possible or very complex and expensive.
    • The possibilities for parameterization are given and sometimes gigantic, but without the use of massive external consulting, it is not possible.
  • The sheer size and mass of the modules makes innovative development impossible.
    • Many functions have been running for years or decades, are complex and no longer transparent. Every change involves enormous risks.
    • There is a lack of employees with the appropriate know-how to adapt such functions, because they have also become outdated together with the applications.
    • This, in turn, leads to building or rather tinkering around these core functions.
    • An adaptation in such core functions is then also a corresponding lottery.
    • On this basis, innovations are hardly possible or only possible at great expense.
  • The points mentioned above lead back to the well-known problem. The need for resources has not only grown, it is now enormous:
    • On the one hand, support for the core banking system ties up internal resources such as staff and computing power.
    • On the other hand, it is now common practice to employ a whole armada of external consultants for support, which places an even greater burden on the budget.
    • In addition, there are the horrendous basic costs for the core banking system such as licenses, maintenance, etc.).
    • It gets adventurous with software upgrades and releases. The software manufacturer forces these updates and releases so that he no longer has to support older versions. As a customer, the bank is forced to invest many resources in such an undertaking, again internal and external resources. The bank’s employees have to test intensively with the knowledge that after installation there will still be errors in individual functions.

The above enumeration contains only a few of the main problems of core banking systems. The list could be continued at will. However, this situation has given rise to new solutions.

Approach I: A new core banking system

A first possible solution is to switch to a new core banking system. The developers of the latest generation of core banking system naturally try to avoid the mistakes of the past. A newly developed core banking system also features numerous innovations and improvements. Among other things, they are characterized by process orientation, modular design with corresponding interfaces and the integration of the most modern forms of communication for direct exchange with customers.

But they too have to contend with the familiar problems. The range of functions is growing rapidly, which leads to the usual complexity. Alternatively, functions are dispensed with, which forces banks to procure missing modules from another provider. With modern core banking systems, this situation is defused by providing appropriate interfaces. Nevertheless, the bank usually moves from one unsatisfactory situation to the next.

Depending on the size and complexity of the bank, it can easily take two to three years for all processes to run smoothly again, not counting the evaluation.

Approach II: Outsourcing

Another solution is outsourcing. This means that corporate tasks and structures are transferred to an external service provider. Here, it is essential to define the duration and description of the service, which should now no longer be provided internally but by the external consultant.

A functioning outsourcing system enables the bank to refocus on its core competencies, namely client acquisition, client support and client development. In addition, a lack of know-how or qualified staff can be avoided. The outsourcing partner must take care of investments in hardware, software and new technologies. The bank, on the other hand, can clearly calculate the costs. It is also expected that costs can be reduced, e.g. by having fewer employees or not having to own the hardware.

In practice, the advantages that are actually clearly apparent are countered by various risks and problems, usually due to repeated errors in implementation. Here is a not complete excerpt:

  • Banks are in a dependent relationship with the provider, this has a negative effect, among other things when:
    • The eye level of the contracting parties is not adequate (a small bank, i.e. one of many customers from the provider’s perspective).
    • Other banks have different needs (innovative vs. conservative) and therefore innovation is inhibited.
  • The processes are not defined correctly or the processes of the third party provider are taken over unseen.
  • The services (Service Level Agreements) are rarely clearly and precisely defined, which allows for interpretation when providing services.
  • If innovation arises, it is not protected. If we deliver new ideas, it can be taken up and implemented by the partner. If the contract does not clearly define this, we do not benefit from our own innovation.
  • This leads to the next point, namely the lack of knowledge in the contractual issues.
  • In addition, innovation often does not take place because the implementation causes additional costs for the partner.
  • The employees are not involved, which leads to massive resistance and damage to the company’s reputation.

The trend towards outsourcing is still unbroken. At the same time, a countermovement can be seen. Costs can be reduced directly. However, in the case of poorly calculated projects, the opposite is also true in the short term. In the medium to long term, outsourcing projects generally become more expensive because requirements have been forgotten in the calculation. In the meantime, outsourcing is shifting from a cost view to a qualitative view – “run my mess for less”. Different forms of outsourcing are also possible. These range from outsourcing of hardware, software, etc. to the outsourcing of entire services such as payment transactions.

Status quo of digitisation

Digitisation not only creates new business models, but also allows existing ones to be converted step by step or adapted to new customer needs. Throughout the financial sector, companies are working on new ways of identifying customer needs and adapting their offerings accordingly. This new type of fragmentation of services is forcing companies to rethink and adapt their own business models and traditional business processes in order to remain relevant to customers. The outsourcing described above is one part of the cost side that can be restructured through digitalization. On the supply side, digital services enable companies to scale their own offerings. Up to now, the use of additional customer advisors has often been necessary to reach new customers. Today a comparable result can be achieved with the help of digital platforms or distribution channels. 

Digitisation at Bank Frick

Digitisation has also been practised at Bank Frick for years. The experience gained from this shows a clear picture and challenges us time and again.

Business process and customer

When the bank goes digital, it must address the right processes. So the first challenge is to identify the right processes. The focus is always on the customer. The process must generate added value for the customer, otherwise it will not be implemented. The added value can be seen, for example, in the improvement of the quality of a product or the coverage of a new customer need.

This consistent orientation of processes towards the customer inevitably leads to positive results. Processes that previously only served an end in themselves are recognised and eliminated. Resources are consistently focused on the customer. However, this orientation can also be used to reclassify and adapt processes that were previously considered unimportant. This creates added value for the customer that was previously not even recognizable.

Grit for consistency

At this point, a significant component is added. The courage to build the process independently of the interests of all stakeholders. Even if there is a basic agreement in existing and especially new organizations that processes should form the basis of the process organization, this is often not lived out in practice. Most companies are still structured in their organizational structure when it comes to redesigning or building new processes. In this structure, employees and above all the management personnel are stuck in the pattern of thinking that their own castle must be defended. Resistance to change is correspondingly high.

Existing processes are often enriched with tasks that are no longer needed. This means that old plaits have to be cut off. Every step in a process is questioned. The bank is always most successful when it redefines a process from the ground up and keeps the focus exclusively on the client. The process becomes lean and efficient. In the second step, the bank checks which mandatory tasks need to be added, e.g. regulatory requirements. However, even in the case of regulatory innovations, critical questions are also asked as to whether a step is really necessary, up to and including checking with the legislator, the Financialmarket Authority (FMA), etc., whether a task can be omitted or handled more simply.

This approach significantly changes the working environment of bank employees. Accordingly, support during the development and implementation of a process must be ensured. This requires education or even training, open communication and, at times, gentle to less gentle pressure. In an environment shaped by changing customer needs, flexibility and the courage to try something new is one of the most important factors for a bank employee today.

It’s the mix

In order to be able to map processes optimally, the bank is offered various solutions. For example, the core banking system can be replaced. This takes the bank from one unsatisfactory situation to the next. The same applies to outsourcing. So what to do?

The solution lies in a mixture of different options. More and more providers offer specialized applications so that these functions can be removed from the core banking system. The core banking system is thus streamlined and ultimately contains only the information that is absolutely necessary for the execution of the remaining processes.

The other areas are removed from the core banking system. Bank Frick, for example, faced the challenge of providing a new onboarding process for all types of customers. After appropriate evaluation, it was realized that classic core banking systems, various specialized solutions on the market and outsourcing companies offer solutions primarily for private customers. As a result, the bank decided to create a structure in which it could develop processes and the necessary software itself. This is the only way to respond adequately to the requirements of the customers. Bank Frick now offers digital onboarding for all types of customers. It relies on a graphical development tool with which processes can be digitised as desired and all types of applications, interfaces, functions, etc. can be connected. By using this tool, the development cycles and the time spent on changes can be reduced to a minimum. The bank is no longer limited to two or three releases per year, but can even produce a new release every week if required.

This setup allows the bank to develop the best of the existing infrastructure. For example, the core banking system can be process-related linked with crypto exchanges and at the required speed. Especially the customers’ demands in the area of crypto and block chain require ever faster development cycles, which the bank can easily deliver with this setup.

The bank covers specialised requirements by purchasing the appropriate software or by handing it over to an outsourcing partner, whereby outsourcing can take place in various forms. The bank can outsource entire process clusters, individual processes or only individual functions of a process. Here, too, everything is networked via Workflow Engine. In the onboarding process, the customer enters his data in the front-end developed in-house, the background check is carried out at the outsourcing partner and at the end of the process all data is written to the core banking system.

From the bank to the platform

The latest generation of digitalized bank frills have been and will be developed in such a way that they can be integrated by the customer into his own software, such as the payment order. Here too, the bank consistently designs the processes to meet the customer’s needs. With the possibility of direct integration, complexity is minimized and the effort and sources of error in recording transactions are reduced to an absolute minimum. In this way, the bank generates maximum benefit for the customer as well as for itself.

The bank lives this approach consistently. It is reflected in the development of the bank. Thus, the processes are no longer limited to the bank. An actual network has been created that maps processes that connect and integrate customers, third-party companies and the bank. Third-party companies can be software providers, outsourcing partners, crypto exchanges or asset managers, for example. Together with its partners, the Bank offers a service universe on the basis of which it can provide its clients with tailor-made solutions.

Under this cross-over approach, Bank Frick offers its clients the ideal platform for implementing new goals with innovative solutions.


Michael Dolzer

Michael Dolzer has been Head of Business Technologies and Innovation Management at Bank Frick since 2012. After moving from hotel management to information technology, he is now responsible for process automation, among other things, and is driving the development towards open banking at Bank Frick.


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