Leaving a Legacy is All

About the Future:

Enterprise

Transformation A BUSINESS CASE FOR STREAMLINING LEGACY SYSTEMS

PRESENTED BY

Charlie Weidman, Commerce Bank, Project Manager, VP, NCP, PMP

Brandon Kunz, ProfitStars, Sr. Manager, Product Strategy & Marketing

Introduction

• Financial institutions are under continual pressure to improve

productivity and reduce operating costs

• Check processing industry has already reduced costs significantly

in the post-Check 21 era

• Untapped opportunity for cost reduction is in legacy back office

systems

Reasons to Replace Legacy Systems

• The benefits of Check 21 enabled the U.S. payment system to

save more than $3 billion in 2010(1)

─ Low hanging fruit in cost reduction has been picked

• Increasing operating costs as paper processing volumes decrease

and unit costs once again begin to rise ─ The number of checks paid declined from 41.9 billion in 2000 to 18.3 billion in 2012

─ The rate of decline continues to accelerate (between 2003 and 2012 check paid

volume declined at a CAGR of 7.04%, and 9.2% between 2009 and 2012)(2)

• The challenge faced by financial institutions is to drive processing

costs downward faster than the decline of item volume

• Further meaningful reductions require replacement of legacy

check processing systems

1) Source: Humphries and Hunt, Federal Reserve Bank, May 2012 “Getting Rid of Paper”

2) Source: The 2010 and 2013 Federal Reserve Payments Studies

The Legacy Ball and Chain

• Significant source of financial institution operating costs is related

to legacy software systems ─ 77.6% of total IT investments in North American banks goes to maintenance rather

than new systems(3)

• Arguments for inaction are familiar ─ Too many tentacles between the legacy system and the rest of the organization

─ We can keep the present system going with patches and upgrades

─ Checks are declining anyway, how can the cost of change be justified?

3) Source: Celent - “IT Spending in Banking: A Global Perspective”

Limitations of Legacy Systems

• Lack of support

• Costly customization

• System complexity

• Rigid release structure

Advantages of Modern Systems

• Processing flexibility

• Image centric agility

• Enhanced customer experience

• Opportunity to collapse Day 2 to Day 0

Charlie Weidman, PMP, NCP

• Project Manager, Vice President – Operations Analysis & Strategic

Planning, Commerce Bank

• Commerce Bancshares, Inc. is an over $22 billion regional bank

holding company

• Charlie has over 25 years of check processing management

experience

• Currently, project management role for Day 1 and Day 2 check

processing

A Cobble Stone Path

Or a Cobbled-Together Solution

Legacy Solution

Critical Success Factors

• Don't "rebuild" old system

• Reduce the maintenance expense related to ongoing check

processing software

• Don’t require internal downstream partners to make changes

• Implement new solution with no negative customer impact

• Establish a stable check processing environment replacing

cobbled together legacy infrastructure

• Complete on time and on budget

Due Diligence

Third Party Review

• Highly experienced consultant hired to support or challenge

our decision

• In-depth review of current environment

• Review Commerce’s internal requirements

• Reviewed ProfitStars’ response and proposal

• Identified areas for additional information and clarification

• Review validated Commerce’s decision

Internal Requirements

• Four days of meetings with internal stakeholders

─ Impacts to other systems

o Posting Extracts

o ISN requirements

o Image Storage

o Timing

o Float

─ Customer requirements

o Reporting

o Timing

─ Business Rules / Sort Pattern Considerations

─ User Requirements

─ System performance

─ Rules and regs

o Compliance with X9 and other rules

Getting it Right

• 11+ pages of Requirements

• Gaps in Functionality

─ 14 gaps addressed with internal coding

─ 13 gaps addressed with vendor coding

• 6 Change Requests

• Reports

─ Canned reports within APG

─ Reporting Database - 8 new reports developed between IT Support and Float

using Business Objects

• 4 Environments

─ Test, QA, Prod, DR

Training

• Vendor technical training conducted for IT Support and Float

• Vendor user training conducted for Transit leadership

• Sort Pattern change control training conducted for Float

• Hands-on user training conducted by Transit leadership

• Business Objects – Report generation

Testing

• Methodology ─ Requirements > Business Use Cases (BUCs) > User Experience Models (UEMs) > Test

Scripts (roughly 400 test scripts)

• Testing Progression ─ Unit Testing > Integration Testing > System Testing > UAT / Downstream

o UAT / Downstream

> Internal – 30 Application partners

> External – 6 ICL Trading partners

• Ad Hoc Tests ─ Volume Testing – processing large volumes equivalent to a peak processing day or more

─ Stress Testing – multiple users using the application simultaneously

─ Time Testing – response times for various functions, extracts, and reports

Project Timeline

• Contract signed -12/31/11

• Project Kickoff – 1/23/12

• Requirements completed – 4/2012

• Version 9.0 installed – 7/20/12

• Version 9.1 installed – 10/12/12

• Downstream Test 1 – 1/23/13

• Last code drop – 3/20/13

• Downstream Test 2 – 4/10/13

• Live production ramp up – started 5/3/13; completed 5/29/13

Implementation

Sunday Monday Tuesday Wednesday Thursday Friday Saturday

1

2

3

BCR – NON BAL BCR - BAL

(2.0)

4

5

6

BCR – NON BAL

BCR - BAL

(2.0)

7

8

INCLG – VP (39.4)

9

INCLG – VP (39.4)

10

ALL INCLG (161.0)

11

12

13 ALL INCLG (161.0)

14

ALL INCLG (161.0)

ALL CDA (26.0)

15

ATM

ALL INCLG

ALL CDA (218.0)

16

ATM

ALL INCLG

ALL CDA

RDM

CICL

(274.1)

17 ATM

ALL INCLG

ALL CDA

RDM

CICL

(274.1)

18

19

20 ATM

ALL INCLG

ALL CDA

RDM

CICL

(274.1)

21

ATM

ALL INCLG

ALL CDA

RDM

CICL

HSC

WLB

(324.9)

22 ATM

ALL INCLG

ALL CDA

RDM

CICL

HSC

WLB

(324.9)

23 ATM

ALL INCLG

ALL CDA

RDM

CICL

HSC

WLB

BCR – BAL

(500.4)

24 ATM (

ALL INCLG

ALL CDA

RDM

CICL

HSC

WLB

BCR – BAL

(500.4)

25

26

27

28 ATM

ALL INCLG

ALL CDA

RDM

CICL

HSC

WLB

BCR – BAL

(500.4)

29

ADD BCR –

NON BAL

RAMP COMPLETE

(560.6)

30

31

What does it take?

What does it take?

What does it take? - Tenacity

What does it take?

• Over 30 Ops team members (8 core)

• Over 30 IT team members (7 core)

• 3 Project Managers

• Over 200 meetings and conference calls

• Over 145 tracked issues

• 5 vendor milestones

• 12,250 IT hours tracked

• Operations hours not tracked, but a similarly high level of effort

• Diligence, negotiation, attention to detail, teamwork

What software was decommissioned?

• IBM: (18)

CPCS, ESM, ICRE, MCRE, ECYC, Check Image Archive Load, Superfiche, Banner, Print Control, SUPV, Guardian, SPG, Image Payments Director, Image Gateway, IQA, Host Support, Sort Evaluator, and 6500 Band Printer hardware

• SEI: (3)

IQA, EIS, ETS

• FiServ: (7)

ACLS, ORS, TRAK, CASH, CSMF, Check Image Retrieval, Image Request Broker

• Other: (2)

ALS Image Host, Automatic Exception Match

Results?

• Cashflow – Breakeven in less than 18 months

• Savings on software maintenance

• 60% reduction in Day 1 software maintenance costs

• Staff reductions of in Operations and IT support –

• Day 1 check processing salaries down 22%

• Day 1 technical support salaries down 17%

• Critical Success factors -

Implement with no negative customer impact

Reduce the maintenance expense related to ongoing check processing

software

Don’t require internal downstream partners to make changes

Establish a stable check processing environment replacing the legacy

CPCS infrastructure

Complete on budget

Complete on time

Questions?