Navigating tech-enabled transformation of core banking processes | Part 2: IT development and testing - Financial Services

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In an environment where change is constant and customer expectations continually evolve, this blog series guides change leaders in the Financial Services sector through the intricacies of tech-enabled transformation of core banking processes, with a focus on lending.

In this second blog, we deep dive into the IT development and testing phases, highlighting their critical role in successful tech-enabled transformations. We explore common challenges that financial institutions face and, drawing from our extensive experience in Switzerland and internationally, we share lessons learned and success factors to ensure your bank achieves a successful tech-enabled transformation.

In today’s rapidly evolving financial services environment, where technology is a primary driver of change, structured IT development and testing are not merely operational necessities but also critical drivers of business success, forming the backbone of successful digital transformations of core banking processes. According to Deloitte’s recent Measuring Value from Digital Transformation survey [1], ~70% of respondents agree that tech-enabled digital transformation is the single most important investment for driving enterprise value.

End-to-end (E2E) tech-enabled transformations within a Financial Services Institution have six phases. Phases 1 – 3 involve strategy and design. Phase 4, transformation readiness, is the link between Phases 1 – 3 and subsequent implementation (Phase 5) and was explored in detail in the first blog of this series. Phase 5 is composed of three sub-phases:

  • Phase 5.1, IT development, comprises all the activities related to IT technical implementation and integration, such as the development of features, including further detailing, adjustments and clarifications as well as tracking and reporting until release.
  • Phase 5.2, Testing, includes preparing, coordinating, and conducting the four testing phases in the software development lifecycle [2], i.e., Unit Testing, Integration Testing, System Testing and User Acceptance Testing, including respective sub-phases (e.g. performance, penetration or regression testing).
  • Phase 5.3, Non-IT change management, includes all the change management activities related to the transformation, such as internal communication and commercialisation strategy, regulatory compliance, update and specification of controls, training, or update of policies and procedures.

Phases 5.1 and 5.2 (dark blue in Figure 1) are the focus of this blog article, while 5.3 is the focus of the next blog article of the series.

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Figure 1: Overview of E2E tech-enabled transformation approach

In Phase 4.2, IT implementation readiness, the business requirements documentation is already prepared, namely:

  1. Detailed features / user stories backlog aligned within the bank, with clear owners, priority, acceptance criteria, and dependencies documented in tools such as JIRA or Azure DevOps
  2. Clickable prototype of the new process (using tools such as Figma or Adobe XD) to make it tangible for all stakeholders, allowing early and continuous feedback and minimising the risk of misalignment on the final product
  3. Technical specification document that includes unique data fields (UDF), first parametrization elements, business logic, among others

The extent and detail of this documentation depends on the implementation approach adopted by the bank. Waterfall requires comprehensive documentation of the E2E process business requirements before development starts, whereas Agile primarily requires documentation of requirements for the initial sprints.

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Figure 2: Waterfall vs Agile

Agile has become the predominant development methodology, with ~60% of organisations adopting it [3]. Research indicates that organisations embracing Agile have experienced an increase in productivity of up to 25% [3] and that Agile projects are three times more likely to succeed than Waterfall projects [4]. In a recent tech-enabled lending transformation project in a globally systemic bank (G-SIB), we observed that using an Agile methodology reduced the time from development start to go-live by ~60% compared to Waterfall for two equally complex credit products, even though the requirements for Waterfall were fully documented at the beginning.

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 Figure 3: Stacey Matrix Agile vs Waterfall [5]

During Phase 5.1 – IT development, the three business requirement documentation elements mentioned above (features, prototype and technical specification document) form the basis for implementation, both from a front and back-end perspective. As implementation progresses, these elements require further detailing, adjustments, and clarifications, as not all details are known before the implementation starts, especially in large-scale transformations, where usually more than one system is released (e.g. loan origination system, mobile app and credit decision engine). Thus, it is crucial to maintain a bridge between the different teams involved in the IT implementation, namely the Product Owner and Development Team (inshore or offshore) and Business Units, such as Branches, Risk or Compliance. The goal is to ensure that business requirements have the appropriate level of detail and are correctly interpreted by the Development Team as well as to keep track of overall progress and compliance with business goals, namely release timing.

During Phase 5.2 – Testing, the three business requirement documentation elements mentioned above allow the creation of a detailed testing plan and test scenarios with clearly defined entry and exit or success criteria for the various stages, in alignment with the bank’s overarching testing strategy.

There are four testing phases in the software development lifecycle [2]. Unit testing is performed by the development team to ensure that each component functions correctly according to its design. Integration testing is performed by the development or testing team to assess the interactions between integrated components or systems to ensure they work together correctly. System testing is performed by the testing team to validate the E2E integrated system, verifying that it meets the specified requirements both from a functional and non-functional perspective. This includes performance, penetration, compatibility and system integration testing (SIT). User acceptance testing (UAT) is performed by business users and/or end users to ensure the system meets the business requirements and is ready for release. Initially it is executed in a testing environment and, before release, in a protected production environment with end users and real cases (pre-production). In all these phases it is again critical to maintain a bridge between the Development and Testing teams and Business to ensure defects are properly resolved within defined service-level agreements (SLAs), clarify potential questions on business requirements and regularly report the progress in testing activities and insights gained.

Currently, according to respondents to our Deloitte Banking Digital Transformation survey, ~70% of ongoing change projects within banks revolve around digitalisation efforts,[6] with IT development and testing central to these initiatives. Proper IT development and testing frameworks play a pivotal role in E2E tech-enabled transformations. They mitigate risks by identifying potential issues early, ensuring that digital solutions meet rigorous standards for quality assurance and align with overarching business strategies, ultimately enhancing market competitiveness and customer satisfaction. Measuring the success of Phases 5.1 and 5.2 involves tracking several key performance indicators. For Phase 5.1, IT development, typical KPIs include defect density, development velocity measured through sprint velocity and feature throughput, as well as adherence to schedule, evaluated by on-time delivery and cycle time. For Phase 5.2, Testing, KPIs include the defect detection rate and severity, SLA compliance, and test execution metrics like test pass rate and test cycle time. These KPIs help in assessing whether the phases were successful and in identifying areas for improvement.

E2E tech-enabled transformation development and testing: common pitfalls and success factors

IT development and testing are fraught with challenges that can derail every E2E tech-enabled transformation project. According to the respondents to our survey [6]:

Harvey Ball 1 67% report regularly experiencing insufficient granularity and alignment between IT and Business around business requirements / functionalities

This aligns with common pitfalls encountered in in our experiences in tech-enabled transformation projects. For example, inadequate communication between the Development Team and the Business leads to misalignments and misunderstandings that compromise the quality and effectiveness of the final product. Effective communication and regular touchpoints between these stakeholders ensure that all parties have a clear and consistent understanding of the requirements, minimising costly changes and reworking.

Harvey Ball 2 59% face regular issues with insufficient involvement in early challenging of product characteristics/design, leading to late change requests

Issues relating to product design reflect common pitfalls such as the misalignment between business needs and technical specifications. This results in features that don't meet user expectations or business goals. Moreover, frequent changes in project scope (i.e., scope creep), without proper review, can lead to project overruns and resource wastage. To mitigate these risks, it is crucial to establish clear project governance and standardised ways of working from the onset – for example, defining roles such as Product Owner, dedicated Development and Testing teams, enforcing agile ceremonies such as Sprint Planning or Sprint Review, or establishing regular reporting. This should be coupled with smart staffing and incentive schemes that foster collaboration. Furthermore, establishing early and continuous feedback loops between stakeholders ensures that any necessary changes are identified and addressed promptly, reducing the risk of late-stage modifications and ensuring alignment with business objectives.

  Harvey Ball 3

42% indicate a lack of a pre-aligned testing strategy and approach between stakeholders

These challenges are indicative of common pitfalls such as an undefined or unclear testing strategy, leading to confusion about roles, responsibilities, and timelines. Additionally, failing to encompass all relevant use cases in the test scenarios leads to undetected issues that impact user satisfaction and system integrity. A well-defined testing strategy that includes early and continuous testing, along with prompt and efficient defect resolution, ensures successful system implementation and builds user confidence.

In a recent transformation project at a G-SIB, we observed the absence of a defined testing strategy and a properly structured UAT, with the development team primarily responsible for testing the functionalities and only a few demos provided to the business before release. By implementing a comprehensive testing strategy and a structured UAT phase, a ~120% reduction in production defects was achieved, significantly increasing products’ quality and market traction.

Overall, adopting Agile methodologies enables frequent iterations and comprehensive oversight across all product releases, facilitating early stakeholder involvement and responsiveness to market feedback. Moreover, cultivating a culture of continuous improvement and regularly scheduled releases ensures sustained project momentum and alignment between business and IT, enhancing product development and delivery. These practices help maintain a dynamic and adaptable project environment, crucial for the success of tech-enabled transformation projects.

Deloitte can assist your transformation

At Deloitte, we understand the intricacies of E2E tech-enabled transformations and the critical role of IT development and testing in it. With extensive experience in Switzerland and internationally, our approach combines best practices in agile methodologies with a customised strategy tailored to each client’s unique challenges and objectives, ensuring seamless integration between IT operations and business processes. This integration is vital to delivering sustainable, high-quality solutions that drive real business value and support clients' long-term strategic goals.

As you navigate the challenging yet rewarding path of E2E tech-enabled transformation, Deloitte is equipped to guide your organisation through the critical phases of IT development and testing with strategic insights and dedicated support.

Reach out to us if you want to participate in the Deloitte Banking Digital Transformation survey (2024 edition) and gain deeper insights into your bank’s positioning relative to industry peers, or if you want to discuss how we can support your next process transformation initiative.

In our next blog we will deep dive into Phase 5.3, Non-IT change management, and explore how to manage organisational change effectively to ensure smooth transformation and sustained success.

References
[1] Deloitte. (2023, February). Measuring value from digital transformation. Retrieved from https://www.deloitte.com/global/en/issues/digital/maximizing-value-using-digital-transformation-kpis.html
[2] International Software Testing Qualifications Board (ISTQB) (2021, June). ISTQB Certified Tester Foundation Level Syllabus.
[3] Enterprise Apps Today (2023, May). 15+ Surprising Agile Statistics 2023 Trends, Adoption, and Future.
[4] Scrum.org (2015, July). Key Lessons from Standish's 2015 Chaos Report.
[5] mgrush.com (2023, May). Agile vs Waterfall? Don’t Risk Failure By Using the Wrong One
[6] Deloitte. (2023, September). Deloitte Banking Digital Transformation Survey.

Key contact

EG

Eric Gutzwiller - Director, Financial Services Transformation

Eric is a Director in the Financial Services Transformation team of Deloitte's practice in Zurich. He focuses on leading process optimization and digitalization as well as TOM design projects. He brings over 11 years of strategy consulting experience in financial services for both leading global institutions and emerging players, as well as central banks and regulators in several established markets (Switzerland, UK, US, HK, Singapore, Germany, Canada) and emerging ones (CEE, Middle East).

Email | LinkedIn 

NM

Nadia Moutiq - Manager, Financial Services Transformation

Nadia is a Manager in the Financial Services Transformation team of Deloitte's practice in Zurich. She brings more than 6 years of experience at several financial services providers in Switzerland, Europe and the Middle East in medium to large, complex and tech-enabled front-to-bank core banking process transformation programs covering topics from change management, smart PMO, process optimization and re-engineering to testing capabilities, risks, controls and reporting frameworks.

Email | LinkedIn 

LS

Luis Silva - Assistant Manager, Financial Services Transformation

Luis is an Assistant Manager in the Financial Services Transformation team of Deloitte's practice in Zurich. He focuses on lending processes optimization and digitization, TOM design, cost optimization, pricing models and PMO. He brings over 7 years of consulting experience mostly in financial institutions, including banking, insurance and payment sectors, but also encompassing non-financial sectors such as telecommunications, media, technology, and energy, throughout Central and Southern Europe, Middle East, and Africa. He holds certifications as a Project Manager (PMP), Certified Customer Experience Professional (CCXP), Scrum Master (PSM), Financial Risk (GARP) and Cloud Infrastructure (Oracle).

Email | LinkedIn 

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