Today, 80 percent of U.S. bankers would like to modernize their core deposit systems and they see a wide range of benefits in innovation, functionality and the overall financial return. Conversely, only 15 percent of bankers believe a new core deposit system will be installed in the next three years. This exclusive research from NTT DATA Consulting, unveils what factors are supporting and hindering core deposit system replacement today. For more information or to receive the white paper visit: http://americas.nttdata.com/Services/Services/Consulting/research.aspx

1. © 2016 NTT DATA, Inc.
Innovation in the Digital Age
April 19, 2016
Don’t Fear Modernizing Your Core

2. © 2016 NTT DATA, Inc. 2
What are the factors supporting and
hindering core deposit system
replacement?
2
Can banks’ existing core deposit
systems enable the innovation
required to compete in an increasing
digital financial marketplace?
1
Do banks believe they need to
modernize their core deposit
systems, and if so, are they
planning to?
3
Is there a rising threat as
consumers look for
banking alternatives?
4
What is the path for success to
modernize their core
deposit systems?
5
Key Questions: Investigating Core Deposit System Modernization

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Survey
Snapshots
Banker:
• 114 banker surveys
conducted with core
deposit executives
• Director level bankers
and above
• Distributed between small,
regional, and national banks
Consumer:
• 1,010 consumer
survey responses
• Online survey
• U.S. based
• Reflect higher income
• Required to be 18+
Household Income
19%
21%
55%
5%
Less than $49,999
$50,000 to $99,999
$100,000 to $249,999
$250,000 or more
Age Distribution
Overall mix of respondents reflects a
higher income base
Even distribution of respondents
across age segments
31%
50%
19%
18-34
35-54
Over 55
Bank Interview Summary
114 surveys were conducted to understand core deposit system status, roadmap and performance
40%
24%
36%
Top 5 Nationwide Banks (U.S. Bank, Wells Fargo,
Citigroup, Bank of America, JPMorgan Chase & Co.
Large Regional Banks (PNC, Citizens Bank, SunTrust,
Capital One, BB&T, etc.)
Other Banks (Community, Brokerage, Insurance, etc.)

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Rise of Expectations:
• Consumers want and expect real-time and intuitive financial transactions
• Millennials are raising the expectations in consumers who have significant assets
Market Factors Make the Need to
Modernize Banks’ Cores More Urgent
Consistent Experience Across Channels:
• Mobile has already surpassed online for some banks
• Consumers still want branches
Banks’ Best Customers are at Risk:
• 60% of banking profits are at risk from FinTech1
• 40% of revenue could disappear by 20251
Inefficient Legacy Applications:
• 78% of IT budget is spent on maintaining legacy systems
• 70% of bankers do not feel their processes can quickly adapt to change
1. McKinsey & Company, "The Fight for the Customer: McKinsey Global Banking Annual Review 2015"

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Major Challenges with Current Core Deposit Systems:
37%
Major Challenge
% Responded 8-10
The cost of maintaining legacy systems
Complexity of integrating with other systems
Cost of product development
Scalability of the systems to support growth
Improving the customer experience
Cost of responding to regulatory 35%
29%
29%
28%
26%
26%
Q16 On a scale of 1 to 10,
please rate the degree to
which each of the following
is a challenge or limitation
with your organization's
current core deposit
system strategy.
Bankers Identified at Least One Major Challenge
with Their Existing Deposit Systems
2
3

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More than 50% of bankers expect that a new core will enable
faster response to customer expectations
New products/innovation ………………………………………………….. 53%
Improvements in processes within the business ……………………... 49%
Increase the customer experience ………………………....................... 48%
Improved agility to respond to business needs …………………........ 48%
Ongoing cost and maintenance ………………………………………….. 46%
Overall financial return on investment ………………………………….. 46%
Improved functionality …………………………………………………….. 45%
Major Business Benefits of a Modern Core Deposit System:
Q24. On a scale of 1 to 10, please weigh each of the following business benefits that would result from investing
in a modern core deposit system
Bankers Expect a Wide Range of Services3
4

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0% 10% 20% 30% 40% 50%
1 in 10 banks are making
fundamental changes
But Struggle to See the Path to Modernization
Current Architecture and Product Strategy:
Adding new functionality through
external and third party applications
Significant changes to the core deposit
system to support new functionality
Little to no investment to add new
functionality to the core deposit system
Fundamental "re-architecture" of the
core deposit system in process (or being
considered) to support 21st
century initiatives
Complete change to a new core system
in process (or being considered)
Q18. What is the bank's current position on the architecture and product strategy for core deposit systems over
the next 3 years?
Top Modernization Fears
1. Information security risk
2. Catastrophic failure
3. Implementation and integration
4. Public image
5. Dependence on specialized
vendor resources

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Banks Want to Change
Their Core Deposit Systems
of banks will assess their
core deposit system
within the next three years
80%
Plans to Assess Core Deposit System:
Q17. Have you conducted an assessment of the costs and steps necessary to replace your core deposit system
16%
21%
37%
6% 80%
Have conducted an assessment
within the past three years
In the process of conducting
an assessment
Plan to conduct assessment
in the next 12 months
Plan to conduct assessment in
the next 36 months
Don't anticipate conducting
an assessment
20%

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of banks
expect to start a
modernization effort
0% 10% 20% 30% 40% 50% 60%
Increasing investments in the current system to ensure we
are competitive moving forward
Maintaining investments to the current system in order to
support business needs
Expecting to begin planning for a core system replacement
or transformation within the next three years
Replacing our core system over the next three years
15%
of banks
expect to actually replace
their core over the next
three years
4% More than
recognize that they will
need to increase
investments in current
environment to
maintain parity
1/2
Current State of Investment in Core Banking Deposit Systems:
Q15. Which of the following best describes the current state of investing in your core deposit systems?

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Bank Challenges vs. Customer Expectations
Customers expect to bank when and
how THEY choose
Customers want innovation:
1 in 3 consumers would strongly
consider switching primary banks for
better online or mobile technology
1 in 4 consumers would strongly
consider switching primary banks for
one they consider more tech-savvy
in general
Customers want access:
63% of banks acknowledge being
challenged by the complexities
of integration
Banks struggle to innovate:
The vast majority of spending, 78%,
within core deposit systems
is on maintenance and
regulatory compliance
Majority of core deposit systems were
architected 30+ years ago
Banks are challenged by integration:

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of consumers would consider
Target or Walmart as a
banking alternative
47%
Consumers are
beginning to think of
alternative providers
as “this is how
banking should be”
of consumers indicate
awareness of alternative
providers like Google Wallet
53%
46%
of consumers have an
account with an
alternative provider

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Bank Expectations Top 8 Things Consumers Want From Banks
Banks Need to Modernize Antiquated Core Deposit Systems
Access
Innovation
Incentives
New products/innovation
ModernizedCoreDepositSystems
Improvements in processes
within the business
Increase the customer
experience
Improved agility to respond to
business needs
Ongoing cost and maintenance
Overall financial return on
investment
Improved functionality
• Ability to use my money immediately
after making a deposit
• Better customer service
• Better benefits/cost of the relationship
• Best tools for money management
• Best online and mobile technology
• Better/more convenient bill pay
• More convenient locations
• Personalization

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Banks Should Not Fear Upgrading Their Core
Build Out the
Business Case
Find the Core That’s
Right for You
Determine the
Right Model
• Upgrade a U.S. platform
• Partner with a
non-U.S. vendor
• Partner with a
non-U.S. bank
• Big Bang
• M&A
• Shadow Bank
• Aggressively quantify
tangible benefits
• Get comfortable with
intangible benefits
• Identify risks
1 2 3

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Bank’s Struggle:
• Market forces are now hastening the need to update aging core systems
• Banks want to modernize their core, unfortunately this desire is tampered by the fear of failure and the view
that customers will not flee
• The response has been to “Band-Aid” solutions through third party and externalized apps
Consumer Expectations:
• While consumers are generally satisfied with their bank, they are open to switching banks for the right
innovations/incentives
• Consumers familiar with FinTechs describe them as “how banking should be”
Customer Retention:
• The best model to retain and grow customers is through:
• Providing innovative solutions
• Across all the customer channels
• While providing superior customer service
Path to Modernization:
• The path to modernizing success involves a rigorous plan to mitigate implementation risk and leveraging the
conversion model appropriate to the institution
Conclusion

15. Contact Us
NTT DATA Consulting, Inc.
704.936.1600 | ntt.data.consulting@nttdata.com
www.nttdata.com/usconsulting
@NTTDConsulting | LinkedIn: /NTTDATAConsulting
15
Peter Olynick │ Senior Practice Lead, Retail Banking
peter.olynick@nttdata.com