How modern finance systems help banks connect across disparate data sources

In the current volatile economic situation, banks are planning for a sustained period of higher inflation. They’re running internal health checks, monitoring whether clients could pay back loans, and advising caution when it comes to deals.

While higher inflation is often viewed as a positive for banks – with higher interest rates boosting profitability – a sustained period would pose risks to banks due to lower originations, increased credit reserves, and the risks to longer term assets that we have seen bear out in the latest banking crisis. The International Monetary Fund (IMF) has identified inflation as a top risk that could derail the global economy and stock markets.

Against this backdrop of risk and inflation increases, CFOs in the banking and capital markets sector are coming under pressure to shift from being a transaction-based finance department to an analytical department that’s helping solve business problems. One of the biggest challenges to achieving this is often a large portfolio of legacy applications and data silos that exist within their organization.

This makes getting access to data from all their systems of record and pulling it together in a cohesive way that maintains the integrity of the data at a granular level, very difficult. If banks are looking at the numbers, they need confidence in that data to get insights, make decisions, and sign off reports.

However, the way that most banks have evolved makes this difficult. With dozens of core banking systems – loans & deposits, trading systems, credit card systems, treasury management systems – along with a whole set of interfaces that feed risk and treasury, and then another set of interfaces that feed SEC general ledger, it’s hard to seamlessly share operational data with other systems.

This is borne out by the findings in our 2022 global study, Closing the Acceleration Gap: Toward Sustainable Digital Transformation. Four in 10 financial services executives say that data is somewhat or completely siloed, with only 14% reporting that data is fully accessible to team members who need it. Meanwhile, 65% say they need technology to better integrate data between disparate systems.

What many banks are looking for is one central source of data that has everything they need for finance, risk, and treasury stakeholders. But getting banking infrastructure ready for this is a huge challenge because they’re still running legacy systems for core banking functions, and, from an organization perspective, many still run distributed vs centralized operating models.

More concerning is the fact that the mainframe experts that support legacy systems are retiring, and the technology isn’t being updated, creating a constantly increasing trajectory of operational risk. This leaves banks considering how best to reduce their infrastructure footprint down from the dozens of applications they currently operate. While these infrastructure changes are costly, banks will be less dependent on resources that are no longer in the market and can take advantage of the benefits of modern platforms for their core banking, and middle and operational management workloads.

Change starts at the GL

According to Finextra, many legacy banking systems have been running for more than 30 years. But with about £2 trillion pounds passing through legacy banks every day, making changes to these systems is extremely risky and complex.

By investing in a modern cloud-based system, banks and financial institutions can move away from their dated and prohibitive applications and replace legacy financial management systems. Creating a modern backend for financial reporting and financial management has been shown to bring considerable value in both access to and analysis of critical data.

Legacy on-premise software from PeopleSoft, Oracle or Infor, present cost and talent problems for banks. But core banking systems built on legacy platforms are not the best place to start with infrastructure change. Banks should initiate change starting with General Ledger (GL), as it is a system that can be replaced quickly and can establish your finance team on the cloud for the biggest workloads managed within the finance, architecture and application footprint. Once the GL is established, banks can gradually add core banking systems.

This approach also ensures banks avoid the talent management issues that legacy systems cause. Organizations that invest in a modern platform that is user-friendly, innovative, and creates opportunities to learn will find it much easier to attract new talent and retain existing staff.

A great example of this approach is KeyBank, which replaced Infor General Ledger for Workday Financial Management, along with implementing Workday Accounting Center for its instrument subledger and management ledger.

KeyBank started with the products it was most difficult to get the necessary regulatory and profitability data from, which was loans. Going live on Workday Financial Management, including Workday Accounting Center, the first system the company tackled was the interface that feeds loan data to Finance, followed by mortgage servicing platforms and other products.

Using Workday as a single platform across its entire finance function makes it easier for the 200-year-old financial institution to integrate disparate systems and data, and to make sure Finance, FP&A, and Treasury is working from one authoritative source of truth that is always reconciled to Finance. That, in turn, saves staff time and reduces dual maintenance and reconciliation headaches that stem from the use of multiple systems.

Solving the talent problem

Banks holding back from updating to modern technology like Workday don't have the data they need or the single pipe of information, and they're spending a lot of money on manual work and reconciliation.

You also end up with a talent problem. Many of the people who know those legacy systems from 20 or 30 years ago aren’t in the workforce anymore. The fact that all these legacy systems have been highly customized over the years, and the people that did those customizations are no longer part of those organizations, adds an aspect of operational risk.

On the other end, new entrants to the workforce don't want to use old systems. They expect modern platforms that make it easy to do their job and add value to the business. In an industry where seasoned staff are looking to retire and attracting and retaining new talent is essential to the success of your organization, having a modern, intuitive system becomes even more important for this specific sector.

Banks in general have also understood the importance of continuing to offer the flexibility of hybrid working arrangements. At Workday, we've worked with our customers to build some new business processes around setting up a hybrid work agreement to help enable banks to respond to and manage that challenge.

A common data platform

Banks don't want to have a finance platform that requires them to hook up 50 core banking systems. Some have tried to reduce the core banking systems first. For example, before building eight interfaces for eight different loan systems, it makes sense, where possible, to rationalize those down to a strategic set of core banking systems.

However, there are certain core systems that are too embedded in banks to rip out and replace. Take the Hogan deposit-booking mainframe system – it's too customized and ingrained, with hooks into every part of the organization. Banks are abandoning their efforts in favor of leveraging and mapping the data. This is where banks can see real benefit when moving to the cloud, which serves as the data foundation for the finance data warehouse, financials, loan subledger, and HCM platforms, rather than the industry-specific legacy systems.

We’re not saying rip everything out. It's more of a coexistence strategy, a modern layer over the top of core legacy applications. You can take three separate loan systems and map them to one set of loan data in one set of financial dimensions in Workday Accounting Center, for example. You can then report on that data together, enabling common data models and one-stop shop reporting.

If you continue with your three standalone loan systems, you need an IT person who understands how to get the data out of them, and a finance person who understands the different values used in those systems for companies and cost centers and accounts. Instead, use a common data platform that standardizes the data, so you can put one reporting tool on top of it and support your financial, risk and treasury stakeholders.

Some of our banking customers use Workday to do accounting – they’ve already got an enterprise data warehouse that sits in Hadoop or Oracle or Google Cloud, and they just want to hook up to it. In some cases, clients want us to just take their data and provide a summarized accounting view of it. These options are all possible – it's about coexistence and supporting the various data strategies in banking.

Our goal is to help you digitize your financial processes, offer your employees modern, user-friendly technology, and create a more efficient and resilient bank, running off accurate, integrated data to optimize your organization’s performance, make your finance organization a true business partner, and be ready to meet any future challenges.