According to Gartner, a core banking system is a back-end system that processes daily banking transactions and posts updates to accounts and other financial records.
Legacy core banking has been the mainstay of banks all over the world and they have spent millions of dollars to maintain these systems which usually interface with tens or hundreds of applications. Core banking software handle huge volumes of transactions and are expected to function without interruption, and they have traditionally been reliable.
While failures are rare with core banking systems, with the arrival of digital banking, cloud, and APIs and the sustained development of the fintech sector, the way banking products and partnerships are constructed underwent a significant shift. Traditional core banking falls short in providing the required customer experience to acquire, retain and grow customers.
To tackle these issues, a new breed of core banking systems emerged with faultless transaction processing, which are cloud-ready and open-banking compliant, and have very advanced architectures that make frequent feature releases smooth. They also offer great customer experiences are reasonably priced to replace core banking.
As banking continues to be disrupted, a lot of banks are already setting in motion their strategies to transition to a new system. Banks are realizing the importance of digital transformation and the critical aspect of selecting the right strategy.
Consumer behavior has changed with demand for services that are personalised and efficient. They seek access to services and solutions digitally, anytime from anywhere. The bank’s focus is on meeting the challenge and delivering as per customer’s expectations. As banks prepare themselves for their core banking transformations, they focus on taking a digital-on-top approach to deliver new innovations without casting out legacy investments.
A future-proof digital core banking system is essential to meet changing customer needs, speed up innovation and swiftly respond to the changing environment of technological evolution. Banks need to establish a more holistic customer experience approach and digital transformation strategy. They need to chart the right roadmap based on factors like the requirements of the stakeholders, existing core system’s capacity, goals of the bank, etc.
With regular changes in banking business practices, legacy core banking systems have been constantly modified to deal with the changing landscape, and this has led to the systems becoming more complicated to manage. A lot of banks have also adopted an app or website with features like chatbot or Al, but real digital transformation can only happen when digitization is used throughout a bank. To be truly digital, banks need to invest in modernising the core system to meet higher client expectations and adapt to changing environments, some of which may not be presently known.
A core banking system designed and build digitally can make a difference between success and failure for most banks. With a modernised system, regardless of the size and location, banks will be able to successfully address the increasingly demanding needs of customers and regulators, operate efficiently and cost effectively, and launch new products swiftly.