We bring you an interesting case study on how a leading Sri Lanka bank moved to a modern core banking system – with help from Infosys and its banking solution, Finacle, The study was conducted by analysts Ovum.
Hatton National Bank (HNB), is one of the largest and one of the oldest private sector banks in Sri Lanka. The bank traces its roots to the Hatton Bank founded in 1888. The company operates primarily in Sri Lanka, where it is headquartered in Colombo. The bank’s employee strengthis 4,357 This large, well-established private sector bank had been grappling for years with two core banking systems – one, a decentralized in-house package and the other, a Temenos solution working on a legacy database platform.
The complex legacy architecture was posing several problems to the Bank, including daily disruption of the ATM network and dropping of transactions. What’s more, because the in-house solution was not centrally hosted, HNB was forced to deploy IT support staff at every branch. Frustrated by their 10 year–long unsuccessful attempt to expand the scope of the Temenos solution, in 2007 the Bank finally decided to move all its branches and core operations to a new core banking system.
The Bank’s IT leadership correctly believed that extensive customization would negate the strengths of a packaged solution besides inflating cost and risk. Therefore, they were keen to choose a solution which was closely aligned with their specifications and could be deployed ‘out of the box’ with minimum customization. HNB also insisted on working with a partner with a sound track record in the Sri Lankan market.
After a rigorous screening process, Finacle from Infosys was finally selected from a short list of three. Finacle’s out of the box features, which were well aligned with the Bank’s Request for Proposal (RFP) stipulations; experience in the local market; and low Total Cost of Ownership swung the decision in its favor.
The pre- rollout stage, comprising the pilot phase, customization, data migration, testing and User Acceptance Testing (UAT) was completed in 9 months. Infosys deployed approximately 30 employees on-site and another 15 members from its offshore team, whereas HNB provided 20 developers and testers, and another 25 members from its IT infrastructure team during this stage.
Next, the ‘model branch’ created during the pilot phase was evaluated for compliance with RFP specifications. For a period of 3 months, between 25 and 50 personnel from HNB’s various business units received training at Bangalore, which the Bank acknowledges as a key factor in the project’s success. Both HNB and Infosys employees conducted gap analysis during this time. The Bank’s IT team worked on Data Migration in parallel with custom and interface development projects, which were being led by Infosys. Finacle was deployed in High Availability configuration, and new disaster recovery infrastructure was set up.
It was now time to educate users and test their acceptance of the new system following which there was a simulation roll out and launch at 5 pilot branches in the next month. The Bank’s staff handled most of the rollout at the remaining 180 branches, with only 2 Infosys employees to support them. This was remarkable considering that the team had to implement a separate instance at each branch, usually during the weekend, because their in-house solution was not centralized. The project, which was initiated with the model branch phase in September 2008, culminated successfully with the last rollout in August 2009.
In addition to the intensive training that all users went through, a big reason behind HNB’s smooth change management was its clear communication that employees were expected to adapt to the system and not the other way around.
It is fair to say that the Bank played a big role in the project’s success by adapting its processes to the new software to limit customization to what was agreed in the RFP and hence avoid scope creep, as well as securing the buy-in from stakeholders across the organization in order to enforce a high level of project management discipline. Credit is due to the IT chief - who also headed core operations - for taking a ‘hands on’ approach to the project.
At the project level, the Bank established a sound governance structure in the form of a steering committee – reporting directly to the CEO – which was responsible for monitoring progress against a set of 12 milestones and securing the CEO’s approval for policy decisions when required.
Already, the successful implementation of Financle at Hatton National Bank has delivered impressive results – in the first 5 quarters after rollout, the Bank recovered 50% of its investment in implementation, software licenses and ongoing hardware additions by way of staff cost avoidance coupled with a 10% expansion in the number of branches.
In addition, by migrating to Finacle, the Bank has reduced its core banking maintenance effort – which in the previous decentralized environment necessitated deployment of IT staff and duplication of work at every branch – by a massive 87.5%! Consequently, the Bank has redeployed its freed up IT resources into strategic innovative and transformational projects.
The transition from a decentralized system to Finacle has done away with the need to maintain hardware and software systems at every branch and brought down the lead-time for effecting minor changes from a few days to a few minutes. It has also enabled the Bank to transition a number of processes including account opening and clearing to its centralized operations.
Last but not least, the Bank has reaped several operational benefits, the most important of which is the availability of a single, unified customer view, leading to better regulatory reporting and it is hoped, a higher cross-sell ratio over time. Improvement is also seen in quality of customer service, speed of new product launch, branch productivity and reconciliation. What’s more, with Finacle, HNB is able to capture rich data to generate insightful reports. Once the Bank completes a number of planned initiatives, made possible by the new core banking environment, it will derive even greater value from this transformation.
Summary: The Finacle implementation project at HNB is remarkable for more than one reason. The entire implementation project, from the pilot phase to full rollout was executed in about eleven months. The project was also remarkable because the challenges faced by the bank prior to vendor selection was no less complex than what banks typically face with legacy banking platforms.
Key strategic and operational benefits post deployment of Finacle were: A single unified and centralized core banking system; a single consolidated view of the customer now available; reconciliation problem eliminated; reduced time to market for new product variants; customer service can now be standardized across branches; client -facing personnel now have more time to cross sell. June 29 2011