News & Views - Savantor

Card Business Transformation

Tuesday, 01 February 2005

Evidence suggests that the continental European transaction processing industry will be markedly different ten years from now. New processing solutions are emerging from traditional global players and others are joining forces in an effort to provide solutions to the Central European market. 

There is no doubt that competitive pressures are moving the industry toward sophisticated applications serving a multi country/multi currency/multi card issuer base. At the same time, banks are forced to address cost reduction and look toward the advantages of combining forces to create scale. Clearly the pressure is on for today's transaction processing associations in Europe to upgrade systems, cut costs and consolidate in order to achieve economies of scale. 

When similar market conditions were faced in the USA during the 80's and 90's, credit card processing companies went into acquisition frenzy that resulted in the number of processors being reduced from around 30 regional associations to the handful that are active today. Further consolidation was driven by portfolio acquisitions at the bank level.

The European card transaction processing business is driven by local debit card schemes unlike the American model, which is based on credit cards. In Europe today, the local interbank consortiums supporting the debit industry are struggling under the weight of antiquated systems and/or insufficient scale to provide a cost efficient service. The required investment in the underlying technology and processes is considerable and is compounded through the challenge to support the cross border growth aspirations of owners seeking a pan European presence.    

European banks are now actively searching for flexible products to compete efficiently in the markets they choose to enter with sufficient scale to minimise costs.

If consolidation and transformation are moving forward in Europe, is the banking community properly prepared to take on the management of the change process? In the USA, it is not unusual for 100 million accounts to move from one processor to another in a given year representing up to 30 individual bank portfolios. This degree of change has not been experienced in Europe to date. 

What can we learn from the experience gained on the heels of trial and error in the US that will allow us to move into the new order smoothly?

The card Migration process is unlike any other in the banking and technology world. It involves critical, client facing applications, which must be available 24x7 without interruption and involve at least one, if not more, international schemes dedicated to global availability 100% of the time. Further, the platform migration will affect inputs and outputs to numerous other banking systems running on other platforms. 

Savantor works closely with issuers, acquirers and payment schemes utilising its knowledgeable advisors who have decades of hands-on experience in the card payment industry. 

The major phases in any successful migration process may be defined at a high level as follows:

·         Strategy

In this phase the bank's management must clearly articulate its objectives for the business, the parameters it must operate within and the on-going measurements to be employed to ensure the strategy is on track. 

·         Process Recognition and Engineering

Most banks complete an evaluation of the vendors and software solutions available to them. However, the most successful first ensure that they have a detailed understanding of themselves, their current processes and the key attributes of a new system/process  that will be essential to meet their strategic objectives.

·         Vendor Selection

The most important areas to look for in selecting vendors are:

§         Experience in the migration process backed by the references of clients who have gone through the process in the past three years

§         Day to day delivery to SLA's as perceived by current clients, not as reported  by the vendor

§         Innovation as delivered by the vendor

§         The development costs to offer new products

§         Time to market

§         Hidden costs not anticipated in the business case of recently converted banks

§         All aspects of the relationship between the vendor and their recently converted clients

This must be considered against the requirements of executive managers in their decision making process.  They commonly look at four primary factors:

§         The business case (emphasis on current costs versus projected costs)

§         Risk mitigation (vendor's experience in migrations and the bank's exposure)

§         Upside potential (what management is able to do with the new system)

§         Relationships established with the vendors and the political acceptance of the deal

·         Conversion, Migration, Development and Implementation

As a result of the industry consolidation in the USA, a core competency has developed there in the area of processing system migrations and data conversions.  In any given year, it is not unusual for as many as 20 to 30 banks to move the processing from in-house solutions to outsourced or between one outsourcing vendor to another. 

In Europe, the experience level is on a much lower plane except for a small number of specialist organisations. 

·         Preparation

The bank should be aware of its on-going responsibilities throughout the project. The bank should set up a Programme Structure with an Executive Owner at the bank who will stay close to the activities, a Programme Director, Business Project Manager, Technical Project Manager and Solutions Architect. The bank will also need to make subject matter experts available throughout the project with several Business Analysts dedicated full time to the project. 


·         Detailed Requirements

Initially the processor will ask the bank to give a presentation on its current environment.  The level of detail to which the bank can define its current situation will assist the vendor in accommodating the business results and offer process change recommendations to leverage its system. 

This is followed by the detailed requirements gathering, a GAP analysis, definition of system parameters, a data mapping plan and proposed bespoke solutions for non-standard requirements. 

·         Development

As the bank approves various Business Designs, the vendor will go to work with Technical Design and Coding. It is unwise for the bank to allow these tasks to be managed solely by the vendor. The Coding Phase should have milestones visible to the bank so the bank has a clear understanding of the progress of the vendor and can plan properly for the testing phase.

·         Testing

A vendor rarely plans for enough testing to satisfy a bank's need to mitigate risk. As development projects lag, or are reworked to fix misunderstandings, the final code is delayed.  The bank must insist on adequate User Acceptance Testing, including end-to-end testing with the bank systems and all related systems. The minimum criteria must be established to enable full regression testing and final conversion.

·         Conversion

The date the bank, the vendor and particularly the Project Team has looked forward to, for anywhere from 6 to 18 months, finally arrives. The people in the entire business will have a role in the activity, the vendor will have its team on 24-hour watch and Executive Management will have their eye on the activity.  No pressure!


The need for industry consolidation driven by a demand for flexible, competitive platforms and cost reduction is a reality. The process to find the right solution and execute upon it is fundamentally important to the financial institution that is "betting its business" on maintaining its services throughout the time period the process is being executed.

The successful banks – those who execute efficiently and move quickly into leveraging their new platform – will have planned every aspect of the business, have competent leadership and formed a partnership with all the stakeholders across the delivery spectrum. When completed correctly, the end result is a firm foundation for profitable growth and a new ability to control operational costs.

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