Nordea’s Digitisation Journey

Simplifying the core bank

Joseph Edwin, Head of Core Banking Programme
Helsinki, 24 Aug 2016
Today’s agenda:

 Lessons learnt from benchmark study

 Case for the Core Banking Platform replacement?

 What is Core Banking Platform?

 The journey & progress

 Investment case
A bit about me first

Startups, Consulting, Banking

Core banking at Commonwealth Bank of Australia (CBA)
FACTS AND FIGURES
 5 Year Programme
 $ 1.3Bn AUD expenditure (approx. EUR 850m)
 SAP and Accenture along with a number of other
vendors and system integrators
 CBA was in the driver seat
 CEO was the executive sponsor and chaired the
Executive Steering Committee
 Scope: customer data, term deposits, savings,
transactions, loans, payments etc
 Aggressive delivery with two releases in parallel
 Product by product migration approach with a
regional pilot and phased rollout
CRITICAL SUCCESS FACTORS
 CBA in the lead (retained programme
accountability and design authority)
 Very strong internal delivery capability built up over
time
 CEO was executive sponsor – helped with
prioritisation over other initiatives
 Iterative delivery of scope (deliver success early
and often)
 Limit platform customisation to a minimum
 Focus on people – look after them to keep it
sustainable (e.g. mandatory programme shutdown
over Christmas)
How is Nordea applying learnings?
 Simplification programme has the highest priority after critical compliance work

 Nordea in the lead with strong governance anchored with Board and GEM

 Allow room for the complexity in our planning (4 platforms to 1 is hard)

 Initial simplification by drastic reduction of account products

 Align products and processes across the Nordics (reduce local variations)

 Model bank approach (adopt standard package from Temenos across the Nordics)

 Incremental & frequent delivery using agile principles to de-risk delivery

 Hire experienced transformation specialists into Nordea

 People management: actively rotate programme staff back to the line to manage sustainability and
anchor change strongly in the bank

 Migration first approach – prioritise migrating the legacy bank

 Prepare the organisation for the change: early and regular engagement with frontline customer
facing teams to prepare for aftermath of migrations
Case for the 14

Core Banking Platform replacement?

 Banking: an industry in transition – and more disruption lurks
around the corner

KEY TECHNOLOGIES IMPACTING BANKING MORE DISRUPTION COMING

Big Data –
Mobile – always
relevance &
accessible personalisation

A digital
revolution

Cloud –
Social Media –
profitability at lower
networks redefined scale E.g. Blockchain
Banking customers: Same needs as before but changing behavior

CHANGING CUSTOMER EXPECTATIONS… …AND CHANGING CUSTOMER BEHAVIOR

 Impatient & empowered - 24/7 availability  Are becoming less loyal

and immediate delivery
 Use several channels in combination
 Knowledgeable - Specialised and tailored
advise that complements the research we  Use digital channels more intensively
have done ourselves
 Use digital channels to enforce:
 Integrated & connected – Integrated into
my process and connected/compared with Network
Personalisation building Co-creation
peers

 Require relevance - Personalised

products, services and interaction
 Also Nordea’s customers are changing their behavior
Relationship banking is turning digital fast End-to-end digital response required

Netbank 60
■ Digital response required

■ Front-end solutions will not suffice

Transactions
Millions

22
■ Automated end-to-end processes across the
Mobile
full value chain is a must
Branches
3 ■ Consistency and endurance in execution to
unlock benefits
Q3/10 Q3/15
Share of Remote

Ability to execute
Meetings
(Percent)

17%

10%

3%

Q4 Q2 Q4 Q4 Q4 Level of digital response

2014 2015 2015 2016 2017
Fintechs exploiting regulatory arbitrage, high costs, high friction

Automated
Lending financial
management

Corporate
FX
banking

Neobanks Payments
 Surge in new operational regulations
Operational
regulations
Balance sheet
Recovery and Machinery
regulations resolution
EMIR PRIPs SEPA room
MiFID II
Capital
Structural reforms requirements Data
MAD FATCA
for banking protection

Transparency
Leverage AML Directive
Banking union
ratio Dodd-Frank

Deposit Payment
guarantee
TLAC & OUR CUSTOMERS package
FTT Benchmark
regulations
Corporate
Investor SFT governance
Shadow
compensation transparency
banking Long-term
AIFMD financing
UCITS Short selling
Living Solvency 2 CSD
wills Mortgage regulations
PSD II
Directive Prospectus Securities
NSFR Fundamental Directive legislation
review of the Bank MMFs
trading book account Margin for IORP II
derivatives Products
IT complexity in large legacy banks

Complex, risky, expensive & slow – hinders compelling customer experience

Source: BCG
What is Core Banking 14

Platform?
For Nordea the strategic response to the industry transformation is
“Simplification” – the corner stone of our transformation

One operating
model

Compliance Simplification Digital offering

Cost and
capital efficiency
One building block in the Simplification Programme
Initial • Simplification of products, data and processes
simplification

Simplification • Focus all development activities towards supporting simplification

compliance

Core Banking • Customer information, savings, deposits, transaction and loan products in all business
Platform (CBP) areas

New Payment • Domestic, international and SEPA payments for all business areas
Platform (NePP)

Group Common • Consolidate the existing data warehouses into one to meet both regulatory requirements
Data (GCD) and changing customer demand

Simplification by • Simplify the system landscape and end-to-end processes outside CBP, NePP and
cluster GCD

Legal Structure • Merger of Norwegian, Danish and Finnish subsidiary banks to parent company to
Programme create a more efficient structure that decreases administrative complexity
What is Core Banking Platform?

Easy Automated &

tailoring digital

Savings & deposit Lending

products products

Improved
relationships

Customer Transaction Relationship

Simplified products
data banking pricing
& processes
Compliance
made easier

One standard IT Product & service

platform delivery

Much faster digital

delivery Improved product
Reduces risk management
 CBP enables our four strategic capabilities…

Value to customers

Relationship banking Know, advice, service and stand by

Four strategic capabilities Agility Competence Resilience Scale

Key activities Simplification activities

Other key activities

 …shaping the future relationship bank

• Build the ‘engine’ for Great customer experiences

Agility faster reaction to
customer needs
”Easy to deal with,
• Reduce operational relevant and
Competence risk due to complex competent, anywhere
and old IT landscape and anytime, where
the personal and
digital relationship
• Quickly respond to
makes Nordea my
Resilience regulatory
safe and trusted
requirements
partner”
• Improve operations
cost efficiency
Scale
• Improve IT cost
efficiency
The benefits of a new and simplified core

WHAT CBP ENABLES

Channel-neutral customer One user interface for core

experience (assisted & digital) banking services

Enhanced sales & service

One Nordic way
capabilities in mobile & netbank

New services and products

Enhanced product tailoring
created more rapidly

Straight through processing, task Quick adaptation to market

automation and real-time banking changes
The journey: securing 14

execution success
Managing Execution Risk through comprehensive due-diligence and
preparation phase
2013-2014 2H 2014 Jan – Jun 2015 Jun - Sept Sept Onwards
Pre-study phase Start Phase I Phase 2

Validation of Software
Contract High level programme delivery
transformation journey, demos
negotiations approach and plan development
selection process &
Gaps

SIMPLIFICATION PROGRAMME
mobilisation with
identification
McKinsey / Bain
in vendor Migration strategy and plan
Vendor engagement
solution development
Reference calls with other model development
banks (CBA, ABN, ING etc) ANNOUNCED Customer
to validate roadmap & reference Examination of desired Nordic
vendor ecosystem Visits Final vendor + SI processes against
selection & board Temenos model bank
Scalability & approval
performance
Market insights from testing Temenos initial system build
research firms (Forrester, including Nordea model bank
Programme delivery
Gartner, ovum) Proof of
strategy development
concept
CBP programme pilot defined and
Solution deep-dives with kicked-off
Vendor due diligence and vendors
risk reviews
RFP process
Programme resource on-boarding
(incl. demos,
and training
workshops)
Legal contracting review
and input Initial simplification Ph I Initial simplification Ph II (reduction
(reduction of products) of products)
High-level delivery and migration plan for Core Banking Platform
2015 2020
SV / SI selected 1 2 3 4

Country migrations done

Milestones

Contract signed
Decommissioning done
Business case +
migration strategy agreed
CBP implementation done
First version of model bank
implemented Pilot Implemented

Prep.
Pilot

Deposits
Key activities

Loans

Mortgages

Trans. accounts

Complex Customers
Data cleansing and decommissioning
High-level delivery and migration plan for Core Banking Platform
(A closer look at deposits delivery)

Key pre-requisites:
 Testing complete
 Mock migrations runs completed & New account
exit criteria met opening
 Business & technical deployment available for
readiness checklist completed staff, friends &
 Data cleansing activities completed
family
 Go/No Go decisions established
 Dress rehearsals completed Expand new
accounts
opening to all
customers
Customer
data load
completed Go/No Go
decision

Stabilisation Migrate wave 1 Migrate wave 2 Migrate wave 3

Period 1

Key operative milestones for

Limited new Full new Migration Migration
banking sales sales starts ends

Deposits
Investment case 14
2016-2018: Transforming for the future

Group total expenses development

“One Nordea”…
Transition period

…more efficient with simpler

structure & decreased
complexity…

’13A ’14A ’15A ’16E ’17E ’18E

• Execution of transformation agenda

• Investments in Core Banking Platform …enabling 2019-2022 cost
reductions
• Key activities to manage transition efficiently
IT savings related to the new platforms
COST DRIVER CBP IMPACT DESCRIPTION

Number of • Replacement of legacy applications by CBP rationalises landscape and

applications lowers maintenance efforts
Application
services

Number of • Replacement of legacy applications by CBP increases stability and

incidents usability of systems, decreasing number of incidents

• Decommissioning of vendor-provided legacy applications cancels

License fees
corresponding license fees

Sourcing of • Outsourcing of core package developments to CBP vendor decreases

Develop-

projects lifecycle cost of specific parts of IT projects lifecycle

ment

Complexity of • Standardised integration patterns and rationalisation of IT landscape

integration in CBP scope simplifies integration with surroundings

Number of physical • Decommissioning of legacy applications enables decommissioning of

structure

devices dedicated supporting physical devices

Infra-

Resources • Decommissioning of legacy applications reduces direct consumption

consumption of storage space and processing power

Number of • Decrease in IT services volume driven by business workforce

end-users reduction through operational efficiency gain
Staff

IT management • Reduction of overall IT workload allows for lighter and leaner IT

workforce management layer
Business savings related to the new platforms

COST DRIVER SIMPLIFICATION IMPACT DESCRIPTION

Straight through • Consolidation of IT landscape and improved systems integration

processing allows for increased straight through processing
Efficiency

• New IT platforms replacing manual processes allow for

Automation
increased automation in both front-office and back-office

• Faster and less expensive digitalisation of customer facing

Digitalisation
processes and channel integration (e.g. self-service)

Business • Provides improved business intelligence and allows for more

intelligence rapid and error-free processing (e.g. credit decisions)
Quality

Product • Centralised product factory facilitates the development and

parameterisation maintenance of products

• Consolidation of data sources and increases data quality

Data quality
through standardisation

Focus on business • User-friendliness requires less technical capabilities and

issues allows users to focus more on business related issues
Staff

Business management • Reduction of overall workload in the business units allows for
workforce lighter and leaner management layer
 Investment in Core simplification
DISTRIBUTION OF CAPITALISED VS NON-CAPITALISED INVESTMENTS, EURM

2016 2017 2018 ~90%

of total
Capitalisation ~180 ~200 ~200
investments
Total ~200 ~225 ~225
are
capitalised

Simplification programme: a cornerstone in achieving best-in-class C/I ratio

In summary

 Learnings from CBA and other banks applied in the programme

 Digitalisation is changing the world - fast

‒ Banking customers expectations and behavior is changing

 CBP is one building block in Simplification Programme

‒ A single Nordic platform replacing old country specific banking platforms
‒ CBP enables our strategic capabilities – shaping the future relationship bank

 The journey entails comprehensive due-diligence, preparation phase and

migration plan

 The programme is tracking to its plan and milestone delivery

 CBP enables IT and business savings along with other benefits

Q&A