Application Consolidation: The Panacea for the BFSI Sector

The world is changing fast and rapid changes are taking place in the banking and financial services industry (BFSI) vertical. In addition, the demographic changes are dictating terms in the marketplace which traditional bankers would not have dreamt of, even in their wildest dreams. The future is looking very complicated. Adding to the complexity is the presence of multiple applications in multiple regions (or geographies) requiring the bankers to spend more time and money. There is an acute need to move away from multiple applications and this can be achieved only through integration and simplification.

The presence of many multiple applications in the same bank operating in multiple geographies is contributing to yet another issue – varying end-user experience. The customers of the same bank experience varying standards of service and this negatively affects the bank’s image. To solve this problem the banks must simplify these multiple applications, reducing the number of business functions/processes, lines of business, and strategic initiatives.

Some of the largest banks hold huge number of application portfolios – for example 11,000 to 12,000 applications in Bank of America and 7,000 to 8,000 applications in JPMC.1

Banks are motivated to consolidate the number of applications to ease business operations and increase operating profits. Application rationalisation is easily the best small step these banks can take, as there are a number of applications and banking business basically is the same wherever their location.

Therefore this proposition appears to be an attractive one. Once this consolidation exercise is completed, it will be easier for the banks to expand into new locations quite quickly. Having laid the rationale behind the move to consolidate the number of applications, how does the bank go about doing this?

Consolidation Perspectives

Some banks have multiple applications to handle the same business function and process – either due to legacy regional approaches or regulatory requirements, or due to mergers and acquisition (M&A). One can look at the consolidation exercise purely from a business function and process angle. One can also look at consolidation from geographic considerations – working on a global application or a manageable number of regional applications. In addition to these basic angles, the present trend is to look at consolidation from strategic initiative angle – to retain or fold or to consolidate the business. To attain higher business volumes and values, therefore, it is important to explore analysis of portfolio of applications.

Consolidation Objectives

As seen above, each business unit in the same bank has multiple applications: in addition, these applications overlap among other business units as well. There is a strong business case for a consolidation exercise to rationalise them within each business units. The objectives could be rationalisation of overlapping applications among business units, rationalisation of applications within each business unit, decommissioning applications which are rarely used or obsolete, and retaining or replacing with more efficient applications that are specific to the business unit and has no overlap either with the business or other business units.

Functional Analysis for Consolidation

Banking business per se is a function or transaction-oriented business. In an ideal consolidation exercise, a repetition of the number of same functions/processes or same transactions is looked into first to draw out a complete list of such functions. Thereafter, the criticality of each of these functions/processes is looked into, categorised and a variance analysis is drawn. Less critical functions and processes are either dropped or combined to reduce their numbers. The strategic business initiatives are also crucial inputs for arriving at such a target or future state functional requirements.

Technical Analysis for Consolidation

Technology assessment is the starting point for technical analysis for consolidation. After this, target architecture is arrived at taking into consideration the revisited functional specifications as above. While arriving at this future state, strategic business initiatives are also inputted. To reduce time and efforts leading to cost control, scope of reuse of extant technology pieces or frameworks should be explored and exploited to the maximum extent.

Financial Analysis for Consolidation

Last but not the least, the financial analysis would include arriving at projected cash flows, payback period, internal rate of return (ROR) and return on investment (ROI). This analysis is very important for the decision makers as without this essential analysis the consolidation exercise would be incomplete and may not be worthy of consideration. In addition to facilitating business requirements, the consolidation exercise is expected to result in a direct reduction of ‘business as usual’ cost.

Value Parameters for Consolidation

Thus in an ideal consolidation the parameters for consolidation would include functionality coverage, performance, standardisation index, complexity reduction, reliability and commercial viability.

Different Phases in Consolidation

Different phases in consolidation are: consult to consolidate, design to deploy and operate (CDO) if it is internally funded. Most of the present consolidation exercises are run on this model. One can even think of consult and consolidate, design and deploy, operate, recover and transfer, wherein the service provider could fund the investment upfront and recover the investment over a period of time after consolidation. Hosted models may also be evolved if the concept matures.

Factors Influencing Consolidation

Some of the factors influencing consolidation are: increasing competition, rise of emerging markets, rapid change in customer preferences, dialogue demand for uniform end user experience, more complex supply chains, growth of online business, growth of social media, volatile economic environment, fast changing regulatory environment, changing technologies, demographic changes and cost consciousness.

Consolidation Benefits

Some of the benefits of consolidation are: reduced cost, new markets entry, revenue growth, information security, creation of new products and services, ensuing regulatory compliance, securing financial stability, effective risk management, business processes streamline, adapting to a new business strategy, increased competitive advantage, improved business efficiency, effective internal collaboration and operation, anywhere/any time secure access, enriched customer engagement and uniform end-user experience.


One may now agree that application consolidation may be the panacea for all of the ills of the BFSI sector. There are two types of technology players in the market place to cater to the needs of the BFSI. They are pure ‘financial technology’ (FT) players and the other ‘generic technology’ (GT) players. The FT player by virtue of its hold on the BFSI domain will be in an advantageous position to understand the financial landscape and can architect the financial model for the line of business under service. It will then get into a discussion mode with its customers to identify and understand the exact functional requirements and characteristics. Surely an FT player can deliver a higher value to the customer when compared with a GT player, who will expect the customer to spell out what they want.

1Source: Chris Skinner’s blog ‘Heard the Word from Hurd Oracles Strategy for Banking Markets’.



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