Legacy Modernization in the Japanese Banking Industry, Part 2: Strategies for Digital Banking

by Eiichiro Yanagawa, March 17, 2017
Industry Trends
Asia-Pacific

Abstract

Celent has released a new report titled Legacy Modernization in the Japanese Banking Industry Part 2. The report was written by Eiichiro Yanagawa, a Senior Analyst with Celent’s Asian Financial Services practice.

This report examines the current status and a future direction of legacy modernization in Japan’s banking industry. It is based on a legacy modernization survey Celent conducted in 2015. The survey targeted mega banks, regional banks, entrants, and other financial institutions. The previous report spans the financial industry with an analysis of the results, key feedback from interviews, and the overall implications of legacy modernization trends across the industry.

This new two-part report narrows the focus to the banking sector. Part 1 offers an overview of the state of modernization in the industry. Part 2 builds on this to offer policy prescriptions and suggestions for industry players.

“Industry players should be ditching vertically integrated direct sales or so-called keiretsu, which are tantamount to direct sales routes, and be establishing delivery models that are more dynamic and open. Omnichannel initiatives are an opportunity not just to launch or shut down these channels, but rather to revisit and reconsider their optimal delivery model. Moreover, collaborating with non-financial sector players including startups could open the door to vast market frontiers,” Yanagawa commented.

“In the banking services value chain there are areas where firms can and should go it alone to generate their unique in-house high value-added services and products, and other areas where they stand to benefit by collaborating with other firms to drive down costs. Also, if firms thoroughly consider economies of scale and economies of scope, they might be able to parlay their cost centers into new profit centers and play a role in the industry infrastructure,” he added.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned subsidiary of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

Executive Summary

1

 

Key Research Questions

1

 

Definitions

3

Legacy Modernization in the Banking Industry

4

Why Modernize?

5

 

The Unbalanced Evolution of City Bank Core Systems

5

 

Regional Banks and Shared Systems

6

 

Questions That Executives Need to Ask Themselves

7

What Does It Mean to Modernize a Core System?

10

 

Unpacking the Meaning of Digital

10

 

Digital Framework in Banking

12

Five Approaches to Modernization

23

 

New Technology and the Need for an External Perspective

24

Celent’s Recommendations

26

 

Digital Financial Services and Legacy Modernization

26

 

Diversification of Technology Sourcing Models

27

 

Legacy Modernization Framework

28

 

Modernization That Avoids Recreating Legacy Issues

31

Proposals for Japan’s Banking Industry

35

 

In Search of a New Banking Model

35

 

The Ideal Architecture

40

 

Toward a Modern Core System

45

Digital Transformation of the Banking Industry

47

 

Modularization of Industry

47

 

The Banking Industry of the Future

48

 

In Conclusion

49

Leveraging Celent’s Expertise

51

 

Support for Financial Institutions

51

 

Support for Vendors

51

Related Celent Research

52

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