In spite of continued global uncertainty, M&A still is a widely chosen route for global growth in the banking sector. Consolidation between banks and financial intermediaries through mergers have been on the rise. The key reasons for the same include taking advantage of synergies between institutions and being able to scale up quickly and gain a large number of new customers.
With the growth of M&A in the banking industry, one of the key challenges the banks have to be ready for are issues that may arise with the integration of IT platforms across the merged entities. When the platforms used by both the banks are same, there are limited challenges in the consolidation of data and provision of a single source of information.
Where there are different platforms used by the two merged entities, there is a massive challenge on which platform to be used and how to migrate the data from one platform to another. While the acquiring bank has a major say in finalizing the platforms of the merger entities, they take a rational decision by considering the advantages and disadvantages of the platforms which are in consideration. Post finalization of the platforms, there will be a roadmap planned to move the data from the source system to the target system. With careful planning and with a right approach, the challenges that might arise during the migration can be mitigated.
Things to consider before consolidation of account platforms
Banks should plan the consolidation and integration process in such a manner that there is no delay and loss of data so that the customers do not face any inconvenience as a part of the platform consolidation exercise. A few events to plan for so as to ensure a smooth integration across the banking and savings platform (as a part of Core Banking migration) are:
- Platform selection- The banks involved in the integration merger must go ahead with a banking platform that supports consolidation of various products and accounts without major complications and issues. This should be done by the banks while planning their IT integration model. Banks can opt for a model where the smaller bank’s data are moved and both the banks use the bigger bank’s system or vice versa. They can also implement a hybrid system where the most effective and efficient systems from both the banks are integrated.
- Deduplication- There may be cases where a customer’s data would be available in both platforms (having accounts in both the banks). During migration, there should be a process in place to run deduplication of customer data so that there is only a single record against each customer. The system should have the capability to identify all potential duplicates and consolidate the record under one customer ID. It is important the banks keep a backup of the data before running deduplication so that no data are lost during the process.
- Single customer view- Banks will have large volumes of customer data based on the longevity of the customer’s association. When a banking merger takes place, the parties should ensure that this vast data are available against the respective customer in the consolidated platform. This makes it easier for them to service their customers better and offer personalized products by studying their past interactions and preferences
- Ghost account creation- Sometimes an interim solution of creating a ‘Ghost Account’ of ‘Mirror Accounts’ could also be done so as to mitigate the risk of losing records.
- Account number considerations- If the total digits in the account number of the merged banks are different, it may be an area of concern to plan ahead for. Banks may have to create new account numbers in the system for customers if the banks involved in the merger have different naming conventions. This would also have a deeper impact on areas relating to debit/credit card issuance and change in branch codes in the system after the merger.
- Account type migration- The banks involved in the merger might have various accounts that extend different features under their Savings and Current account product offerings. This must be taken into consideration and banks must check how best they can integrate these accounts into their platforms and continue servicing existing customers.
- Capturing non-financial transactions- While implementing the new banking platform, the banks must also look at what approach needs to be taken to ensure capturing of non-financial transactions and details and moving the existing data into the new system.
- Ensuring complete data migration- The data migration approach should support reconciliation feature that ensures all the data are successfully migrated to the new target platform so that there is no hindrance after migration.
- Stability before integration- While migration of data is a major aspect in the consolidation of multiple platforms, there should be considerations from a system integration perspective as well. While the new services are being built/customized, the target system should also be stable before we start the integration. Interfaces will have to be carefully looked into and the solution around the interfaces will have to be planned accordingly.
- High legacy maintenance costs- On many occasions few assets remain in the legacy systems leading to higher cost of maintenance of multiple systems which will have to be mitigated by careful integration / migration approach
The HCL Experience
HCL has helped multiple banks in their integration journey. In one such case of integration of banks, HCL was involved in the consolidation of the banking and savings platform for two merged entities. HCL teams were involved in providing solutions during various phases of the integration and migration right from planning and application portfolio analysis till decommissioning of the migrated platform including business analysis, remediation of target systems, data model mapping, data migration, audit and reconciliation, harmonization, customer communication, as well as card integration and archival that covered products from Current Accounts and Savings Accounts. The applications that were decommissioned were to be supported till retirement.
The key objectives of the project were:
- To enable the bank to move toward a single strategic platform for current and savings account
- To complete customer data migration with minimal impact to customers and business areas
The project did come with business and technical challenges as there were issues regarding clarity and stability on the project requirement. There were minimal or no supporting documents on the interfaces to be integrated. Multiple customer systems and core banking systems were involved. A quick turnaround to produce the statistical reports by the team was also expected as they form the key inputs for decision-making on further integration-related changes.
The key highlights of the solution were:
- An extract engine was built which could extract the data and generate information required to produce operational reconciliation details
- Accounts which were extracted were marked as ‘identified for migration’, which were then closed via an account disablement process so that no other processing can happen to the accounts
- Extracted data were transferred directly to the target platform where the data were transformed and loaded to the target system
- An automated catch-up process was used in case of financial transactions and a semi-automated approach was used in case of non-financial transactions
- Post migration, operational and financial reconciliation were performed to ensure that all the extracted data have been successfully migrated on to the target platform.
By making use of this solution, the bank was able to save a huge sum annually that would otherwise have to be spent on consolidation. All the migrated accounts and non-migrated accounts were fully functional on the target platforms post migration. Also, the regulatory requirements for access to historic data and management of existing data were met by this exercise.
System integration and consolidation of large amounts of data is one of the key components of any banking merger. A thorough due diligence of the IT systems and platforms in place is a must so as to check if the IT integration strategy is in line with the overall business strategy. The management should prioritize risk management and ensure mitigating policies are in place so that any problem that arises during the integration process can be dealt with immediately and rectified.