Core migration: six key considerations for success

In today’s dynamic financial world, the process of migrating core banking systems presents banks with key challenges and opportunities. This blog post sheds light on the importance of flexibility and scalability in this context and explains how banks can strategically and technologically prepare themselves to avoid the risks associated with major transformation projects.

1. Understand the need for flexibility in future-proofing core banking systems

Before embarking on a core migration, financial institutions must carefully assess their future business model and how they intend to organize daily activities in the years ahead. Some institutions operate with straightforward business models that place minimal strain on their core banking systems. For these firms, a pre-configured, standard setup is sufficient. Others, like private banks, face distinct challenges. They must remain flexible in terms of product offerings, provide cross-jurisdictional advice and continually innovate to cater to their discerning client base. Private banks also emphasize wealth creation, often dealing with securities that demand specialized platforms. Meanwhile, larger universal banks require a platform that can handle a diverse array of banking services and products, high transaction volumes as well as investment themes. This is why flexibility is becoming a decisive factor for core banking systems, encompassing technical adaptability, functional scalability and regulatory compliance to meet ever-changing market requirements.

2. Navigate challenges and prioritize preparation for successful core migration

Financial institutions need to juggle multiple critical factors before embarking on a core migration. They must meticulously manage timelines, align stakeholder expectations, assess costs and anticipate future business needs. This can sometimes lead to delays in decision-making and last-minute change requests. Yet, Avaloq’s experience shows that staying the course through long-term modernization initiatives is a key driver for the future success of financial institutions. One common pitfall is trying to handle too many special requests right from the start of the project. This often leads to a loss of focus and increased complexity. Instead, it is crucial to concentrate on preparation. Firms need to address two fundamental questions early on: which processes and data need to be transferred from the old system? Is the organization ready for this change? When migrating from one core banking system to another, a thorough clean-up and documentation of data and processes are essential. Specialist teams within the financial institution play a critical role in ensuring a smooth transition.

3. Balance specialized and legacy systems for optimal business operations

Financial institutions typically have a choice between single-provider and best-of-breed setups. The latter often involves a blend of different core banking systems or an enhancement of the core banking system with specialized products, such as those used in portfolio, risk or client management. The choice between these approaches largely hinges on the specific flexibility requirements of each institution. Avaloq for instance allows firms to deploy and run a specialized core banking system for their private banking and wealth management operations, while simultaneously preserving a portion of their legacy platform for the less complex retail business. This approach enables the bank to protect its existing investments while effectively catering to the critical areas of private banking and wealth management. Nonetheless, it is worth noting that from a data management standpoint, it is generally simpler to process as much banking business as possible via a single platform rather than multiple ones. Consequently, financial institutions should weigh these factors early in their decision-making process to chart a path that promotes long-term success.

4. Initiate proactive measures for efficient core migration

A core migration also involves other critical aspects, such as data migration from legacy systems, cutover management, data quality management and data archiving. It is therefore crucial for banks to thoroughly document and clean up data and processes as early and as much as possible. This includes tasks such as identifying and correcting or removing corrupt or inaccurate data records, checking if data meets certain criteria or standards (e.g. if all email addresses are in the correct format) or mapping all the processes used in the organization to help identify redundancies or inefficiencies. This proactive approach helps in mitigating any unresolved issues that could lead to time and resource overruns during the migration. Avaloq employs a standard known as the “Global Implementation Method” (GIM) for all migration projects where it acts as the general contractor. This allows Avaloq to guide the financial institution through the initial steps, identify potential challenges early on and swiftly address most issues, ensuring a smooth and efficient migration process.

5. Anticipate strategic challenges and foster organizational involvement for effective change

Changing core banking systems presents strategic challenges for financial institutions, particularly in anticipating future shifts in their business models, such as market positioning and product portfolio. But when it comes to planning a core migration, the analysis is based on the costs, income and volumes of existing services and products. In general, financial institutions have a good understanding of what they need to do to remain successful. However, as in other industries, board members also face the challenge of having to make decisions with an impact horizon that often extends beyond their own mandates. These decision-makers, who may change roles before the benefits of the migration are felt, are responsible for the implementation and any migration difficulties that arise. Similarly, how change is dealt with in financial institutions is primarily a cultural issue. Individuals often resist change when it impacts their own comfort zone. This is why it is so important for the management board to involve the entire organization as early as possible.

6. Implement fresh requirements and foster collaboration for continuous core banking system development

Throughout the migration process, fresh requirements surface and are gradually implemented once the new system is in place. This is followed by a period of ongoing development, support and maintenance, requiring close collaboration and communication between the financial institution and the technology provider. Avaloq’s clients typically aim to delegate not just the operation of the core platform, but also the handling of securities, payment transactions and back-office processes. Avaloq also diligently monitors the market landscape, enabling it to offer proactive support in ensuring regulatory compliance across jurisdictions. This approach empowers Avaloq’s clients with the flexibility and freedom to focus on optimizing their value propositions and expanding services into new markets and client segments.

The path to successful migration involves careful consideration of existing processes, diligent data management and strong collaboration with technology providers. Looking ahead, financial institutions should continue to assess their needs, anticipate future business models and foster a culture of change. By doing so, they will be well-positioned to leverage the benefits of core migration, driving innovation, enhancing client experience and securing their place in the future of banking.

Avaloq has been working with banks and wealth managers for nearly 40 years, helping firms to successfully migrate their core banking systems. As a trusted orchestrator of the financial ecosystem, Avaloq has always delivered a project once started. More than 170 banks and wealth managers in over 35 countries entrust Avaloq with maintaining and enhancing their IT systems. Read their stories here.