Testing times: solving the cost conundrum in a disrupted market

Peter Gould, Orbium – finding new ways to deliver cost efficiencies

Doing more with less is an important goal for any business. In the world of banking, an increasingly complex market is driving firms to uncover new ways to deliver cost efficiencies, writes Peter Gould, associate partner at Orbium.

Growing competition from specialist providers continues to disrupt the traditional banking model. These firms are using new technology and an agile workforce to build niche products without the overheads. More established firms with a broader offering must update legacy technology to compete. In addition, the growing burden of regulatory compliance and burgeoning data volumes add to the cost pressures.

All this means that banks are having a fundamental rethink of how they streamline costs – including exploring new opportunities in their technology. One area where they are making savings is in the testing of core banking platforms. Testing is an essential task when implementing, upgrading or enhancing a platform. The problem was that, typically, it involved many labour-intensive and costly elements – but that has started to change.

There are three principle ways to lower testing costs – reduce the amount of labour through automation, reduce the cost of the labour through off-shoring, or free up resources entirely through outsourcing.

Accessing greater automation
Manual processes increase costs and also slow down the testing process – in turn slowing down the overall platform implementation or upgrade. Automation is clearly more efficient, but the automated testing tools available historically were too generic. More often than not, they required a considerable amount of configuration to suit whichever platform the bank had chosen.

The emergence of testing software designed specifically for individual core banking platforms has opened up the possibility of greater automation to many more banks. Increasing complexity and system sizes mean that automation is more than justified – whilst there is still a small amount of upfront configuration, banks can achieve a greater return on investment.

Crucially, these automated testing tools come with a library of pre-defined, ready-to-use test cases, which can be used and reused across multiple, similar testing environments – avoiding duplication of resources.

The rise of off-shoring
Onshore resources can also be a big expense. Off-shoring is a known option for reducing the cost of labour but data security is a major concern.

Less costs, more efficiency – the order of the day

For adequate testing, banks need to use realistic data sets. They have to test as many scenarios as possible and that means using data to accurately represent a maximum number of situations. Real data is the most reliable but banks are understandably nervous when sensitive customer details move outside their own walls. In some cases, regulations restrict what they do with data and mean they cannot send it outside national jurisdictions.

This is an obvious problem for off-shoring but there are two ways banks are overcoming the hurdle – through synthetic and anonymised data. Synthetic data is entirely made up with the objective to be as realistic as possible while anonymised data changes the sensitive details in the original information. Both approaches combine realistic data with lower risks of confidential information leaking if the data is intercepted.

Another challenge is that, while off-shoring reduces labour costs, there is a danger that high turnover of specialist staff can negate the benefits. There is usually a higher risk of this when off-shore centres have simply extended their existing development teams to cover testing. That’s because they don’t always have the techniques and career development in place to retain the testing experts. However, centres designed from the ground up with core banking testing in mind can be sure to embed training and clear career paths from the outset.

Time to outsource
A third option for reducing costs is to outsource testing to a third party. While banks can never hand over the actual responsibility, they can hand over the bulk of time-intensive work.

Banks using this option will often go down the business process outsourcing (BPO) route, where they shape their own processes to fit an off-the-shelf core banking platform. This means they can outsource to a third party that specialises in their platform and, therefore, has tried and tested processes already in place. The outsourced centre can pool test cases across multiple banks using the same platform – and the banks benefit from the resulting efficiencies.

A combined approach
On their own, each approach can make a big difference – for example, a bank may simply introduce more automation. However, perhaps the real gains are made when banks start to combine the three options to suit their own setup. Some will opt to off-shore but not outsource, so they set up a testing centre with their own employees. Others will choose to outsource the whole process but keep it onshore and avoid potential data security issues.

Whichever they prefer, the end goal is the same – reduce costs. What’s clear is that competition will continue to increase and new regulations will inevitably arrive. Forward thinking banks have chosen to confront the challenge head on and others will need to follow. With the arrival of more options for testing, banks of all sizes have a growing armoury at their disposal in the race to stay ahead.