Evolved technology, growing customer demands, and rising competition are disrupting traditional financial services and forcing banks to relook at their core infrastructures. With their consumer base rapidly adopting digital technology in almost every aspect of their lives, and expecting seamless service across multiple channels in their banking transactions, making radical changes to core banking is no longer a choice. Future-focused banks are hunkering down to develop innovative business models that delight customers and open new revenue streams.

Gartner defines a core banking system as “a back-end system that processes daily banking transactions and posts updates to accounts and other financial records. Core banking systems typically include deposit, loan and credit processing capabilities, with interfaces to general ledger systems and reporting tools.” For banks, the core banking system is the underlying system of record for credits and debits that maintains transactions, histories, and balances. The core platform is the mission-critical banking systems that facilitate core transactions for banks. Most core banking systems had been designed and developed several decades ago. So transformational changes and upgrades need to happen systematically and carefully. Banks will need to be able to integrate third-party APIs, eliminate risk exposure and deliver access to services anywhere and at any time for customers. The ability to support real-time transactions without interruptions is also key, as more customers, especially millennials, demand a smooth, glitch-free transaction every time.

Core banking platforms today are expected to do much more than just act as the system of record for credits and debits. Banks can no longer stay competitive and profitable by relying on their existing, monolithic based core banking technology architecture, and must consider more meticulous approaches to making changes. Core banking system renewal must move banks toward a more vertical architecture that provides a modular approach to progressively enabling the bank to deliver fit-for-purpose business capabilities; a set of services that support these capabilities; and a significant uplift to speed, efficiency and data delivery. The ultimate target should be establishing a list of required capabilities and determining a mix of current systems and new modular banking technology to reach this target state in the most effective way possible. This means breaking the core into components and enabling capabilities one at a time, which allows the bank to work towards a more efficient and advanced core without the large-scale investment needed to complete a full core banking replacement.

Meeting the constantly rising demand for tailored banking products and services is a challenge that banks face. They must expand the choice they provide to customers: faster payment channels, easier-to-use multi-channel platforms and the ability to link all aspects of a financial account are all high on the list of client demands. Banks that can move away from generic “one size fits all” product offerings and use their core banking system to allow each customer to have a custom-made experience will set themselves apart from others and gain a much-needed competitive advantage. Banks must know what their clients want and deliver solutions customized to meet those specific needs. Products and services should be flexible, configurable and scalable.

While client expectations and regulatory response are extremely important in a core banking replacement decision, some banks defer a core banking replacement due to the high cost. Ripping out old infrastructure and replacing this with a newer, more efficient solution requires fundamental transformation across core processes, data flows, and architectures. A full core banking replacement is a multiyear transformation that can cost hundreds of millions of dollars depending on the size and complexity of the financial institution, the scope of implementation and the deployment approach.

Yet, the challenge of competing with new entrants and changing customer expectations must be solved. While a traditional core banking replacement promises lower costs of operations and higher efficiency, the payback is often too long given the volume of competing priorities. To counter this problem, banks can seek alternatives for short-term gains in parallel, including identifying and rationalizing platforms that are high-cost/low-benefit and replacing these with more modern components. Essentially, this means taking a bite-sized transformative approach to renewing their core banking system. This approach mitigates the risk of digital transformation by reducing delivery time, restricting the scope of data and process conversions, and minimizing the risk to legacy systems. It also enables core platform renewal without the need for the bank to make the massive investments required to fund a full core banking replacement.

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About the author

Tamil Bharathi is the Client Advisor at Zuci. He specializes in advising and offering critical customer-centric solutions to new and existing customers for the best end-user experience. He is a fun person with a great sense of humor. Check him out at Tamil Bharathi.