Core Banking Upgrades: Managing Risks and Expectations for All Stakeholders

In recent months, Nigerian banks like GTBank, Zenith Bank, and First Bank have embarked on ambitious upgrades to their core banking systems. While these changes aim to offer enhanced functionality, streamline operations, and bolster security, some of these transitions have been rocky.

From disrupted transactions to prolonged downtimes, these system upgrades impact a broad network of stakeholders, including customers, employees, regulatory bodies, shareholders, vendors, and partners.

It has been so bad in some cases that the Central Bank of Nigeria has reportedly directed commercial banks to get regulatory approval before changing their core banking software.

Here’s a look into why these transitions matter, the role of each stakeholder, and a roadmap for smoother core banking upgrades.

The Need for Core Banking Upgrades

Core banking systems are the heart of any bank’s operations. They manage everything from account data to transaction processing and regulatory reporting. For many Nigerian banks, these legacy systems have become increasingly inefficient, lagging behind modern requirements in digital banking, customer experience, and security. For instance, with the rise of fintech and digital banks offering seamless, mobile-first experiences, established commercial banks are under pressure to provide similar, if not superior, service levels.

Banks overhaul their systems to remain competitive, address security vulnerabilities, and meet evolving regulatory standards. However, transitioning from a well-worn system to a new one introduces inherent risks. This journey, when poorly managed, can result in system outages, data errors, and customer dissatisfaction — as seen in recent Nigerian banking upgrades. To avoid these pitfalls, banks must carefully manage every stage of the transition.

Requisite Preparation for a Smooth Transition

A successful core banking upgrade requires meticulous preparation. Banks need to consider several aspects:

1. Comprehensive Project Management: Implementing a core banking system upgrade requires clear timelines, budgeting, and resource allocation. Each step must be tracked carefully to prevent delays and budget overruns.
2. Change Management: Employees are at the frontlines during these changes, and ensuring that they are equipped with the right training is critical. Customers, too, need proactive communication on how the changes may impact their transactions and what temporary disruptions they may face.
3. Risk Assessment and Rollback Plans: Transitioning a core system is akin to a heart transplant for a bank. It is essential to identify potential issues ahead of time and have rollback procedures in place should major issues arise. This ensures the bank can revert to the previous system in extreme cases without risking data loss or prolonged outages.
4. Business Process Re-engineering: Overhauling the core banking system often requires re-thinking and updating internal processes. For instance, new systems may enable faster loan processing, which would then require changes in back-office operations.
5. Customer Engagement: Customers should be notified well in advance about the transition, and banks should outline any temporary disruptions to services, including when they expect normal operations to resume.

Key Stakeholders and Their Roles

Every core banking transition impacts multiple stakeholders, and understanding their roles and expectations is crucial.

1. Customers – These are often the hardest-hit group, as they rely on uninterrupted access to funds and services. Customers expect minimal disruption and want clear communication about any issues that may affect their transactions. During recent upgrades, customers have reported issues with failed transactions and difficulties accessing their accounts, leading to widespread frustration.
2. Employees – Employees, especially those in IT, customer service, and back-office functions, are instrumental in managing the transition. They need detailed training on the new system to support customers effectively and resolve issues quickly.
3. Regulatory Authorities – Nigeria’s banking regulator, the Central Bank of Nigeria (CBN), requires assurance that these transitions comply with national banking standards. Banks must report their transition plans and provide proof of compliance, particularly on data privacy and customer protection.
4. Shareholders – Investors in these banks are keenly interested in the financial impact of these upgrades. While a successful transition can lead to improved performance, unexpected delays or disruptions can harm the bank’s reputation and impact its stock price.
5. Vendors/IT Partners – External vendors often supply the technology or manage the upgrade process, and they need to be tightly integrated into the project team. Any miscommunication or lack of collaboration between the bank and its vendors can lead to project delays and technical issues.
6. Senior Management and Project Teams – Project leadership must oversee all aspects of the transition, from planning to execution, risk management, and communication with stakeholders. Their primary responsibility is ensuring a smooth, timely, and cost-effective transition.
7. Business Partners – Payment processors, credit bureaus, and other banking partners also rely on the core banking system to conduct seamless transactions. These partners require uninterrupted data flows to maintain service quality.

Common Issues and Pitfalls in Core Banking Upgrades

Core banking upgrades in Nigeria have been plagued by several issues, affecting the public’s trust in these institutions. Customers have reported transaction failures, prolonged downtimes, and, in some cases, temporary loss of access to their accounts.

Such issues usually stem from:

1. Data Migration Errors: Moving data from a legacy system to a new one is complex and often results in corrupted or incomplete data, causing transaction errors.
2. Downtime and Service Disruptions: Transitioning to a new system often requires some degree of downtime, but prolonged periods can frustrate customers and damage the bank’s reputation.
3. Technical Glitches Post-Launch: Bugs and integration issues can surface once the new system goes live, resulting in customer issues such as failed or duplicate transactions.
4. Poor Customer Communication: When customers are left in the dark, frustration grows. In recent upgrades, many customers felt abandoned as banks failed to communicate anticipated downtimes effectively or provide adequate customer support.

Roadmap for Smoother Core Banking Upgrades

A structured approach can greatly enhance the likelihood of a smooth transition. Below is a roadmap that Nigerian banks can follow to reduce the risks associated with core banking upgrades:

1. Pre-Upgrade Planning:
   • Conduct a detailed feasibility study and secure buy-in from all stakeholders.
   • Develop a clear project plan with timelines, budgets, and a risk management strategy.
   • Involve regulatory bodies early in the planning stage to ensure compliance.
2. Data Migration Testing:
   • Before the full transition, perform data migration testing on a smaller scale to detect potential issues.
   • Conduct multiple test runs to ensure data accuracy and integrity.
3. Employee Training and Change Management:
   • Train employees across all levels on the new system to minimize knowledge gaps.
   • Establish a dedicated customer support team specifically trained for handling transition-related issues.
4. Stakeholder Communication:
   • Communicate openly with customers and other stakeholders about the transition timeline, potential issues, and expected improvements.
   • Provide real-time updates via social media, SMS, and email.
5. Pilot Testing and Rollback Plans:
   • Conduct a pilot launch in selected branches or regions to identify potential glitches.
   • Develop a rollback plan to revert to the old system in case of major issues.
6. Post-Upgrade Monitoring and Support:
   • Closely monitor the system’s performance post-launch to address technical issues promptly.
   • Continue open communication with customers, updating them on any issues or improvements made.

Building Resilience in Core Banking Systems

While core banking upgrades are necessary for Nigerian banks to remain competitive, the process needs to be managed with precision and transparency. By taking a structured, stakeholder-focused approach, banks can improve their chances of a smooth transition, minimize disruptions, and build trust among their stakeholders. With careful planning, effective communication, and a robust project management framework, banks can navigate these challenging transitions and ultimately provide better services for Nigeria’s banking customers.