It is critical to have a future-proof digital core banking system to accelerate innovation, satisfy shifting client demands, and react quickly to changing environments.
Traditional core banking no longer delivers the necessary customer experience to attract, keep, and develop new clients. Legacy systems and disjointed data hold many banks from completing the required end-to-end digital banking transition. The term “Digital Core Banking” has been coined to describe the new approach banks must take to better serve their customers and digitally change themselves, such as Flexcube implementation. Client demands are rising, the environment is changing, and technology is progressing.
Personalization and efficiency are becoming more important to customers. Digital services and solutions should be available to them when and where they want, on their preferred devices. This means that digital transformation should begin at the top and work its way down to the bottom, allowing seamless customer-centric service that offers precisely the proper engagement at precisely the right moment.
A fancy app and website with capabilities like a chatbot or Al may have already been embraced by banks. However, genuine digital transformation is still a long way off.
The underlying technology is frequently too stiff and sluggish to serve consumer expectations for change just at the channels. Digitization is only possible when employed across the bank, and banks are beginning to realize this. To become genuinely digital, banks should also spend in updating the core universe to fulfill increased customer expectations and react more swiftly to changing surroundings, some of which may not be currently recognized.
The success or failure of most banks may be determined by the quality of their core banking system. Customers and regulators want banks to be able to meet their ever-increasing expectations, operate as efficiently as possible, and offer new products in a matter of minutes, regardless of the bank’s size and location.
Core Banking in the Digital Age
For a bank to successfully transition from its traditional core to a digital core banking system, the following considerations should be considered:. Cloud-Readiness and Open Banking are only some of the benefits of removing an application’s core.
Hollow the Core
The pricey and stiff monolithic core is a drawback. The monolithic core is difficult to maintain and rigid because it cannot respond rapidly enough to new requirements arising from shifting consumer or regulatory demands, making it an expensive option. For the most part, this “hollowing the core” notion aims to make core financial platforms merely function as systems of record or posting ledgers.
If a bank or area needs a unique feature, it should be built outside the core. The watchword for the new core is zero customizations, ensuring that the standard product is described or shown to the company in a consistent manner.
Hollowing out or abstracting the product processors’ basic functionality allows IT teams to build up platforms for a contemporary, ready-to-use design driven by the newest and best in class technical solutions, allowing for more flexibility and creativity.
Flexcube core banking products may be tailored to specific consumer groups, or company needs using a modular and componentized framework called a “Digital Core Banking system. Using a component-based design, the bank may choose what components to deploy and when to install or update them.
Discrete and smaller components with eventual flexibility are the hallmarks of the future generation of banking software. While maintaining the basic banking product innovation, processing ability, security, performance, and reliability, componentized modules provide real-time digital processing capabilities and the possibility for banking modernization options.
An architecture that uses components instead of channel applications is called a component-based architecture. Existing IT investments may be safeguarded, freeing up resources for the development of new products and services aimed at retaining and attracting new clients to the bank. Customer-focused, agile business practices; new product and service offerings; and corresponding pricing are the goals of a component-based approach to core modernization.
The banking software industry has attained a new milestone with the implementation of a functionally rich microservices-based architecture to alter core banking systems at scale and revolutionize banking. There are actually advantages to using microservices rather than traditional monolithic core banking systems.
Even if the old systems are no longer needed, it is possible to implement core banking microservices independently of them in the business environment. Microservices allow banks to provide an agile, service-based architecture for additional financial apps and digital client journeys.
Microservices enable banks to reduce their total cost of ownership for their existing core banking platform while also quickly responding to market opportunities, such as building extensive sets of standalone microservices services for Payments, Dedupe, Fraud Management, Account and Deposits, Lending, and Product Catalogue, with no downtime and minimal impact on ‘business as usual.’
Despite being relatively new, cloud-ready core banking technologies are expected to gain traction in the near future. There are various problems with core banking that can be solved with a cloud platform, such as high IT infrastructure costs, frequent hardware updates, 24/7 availability, the most current security standards, and the capacity to scale up and down. However, the banking sector is still reluctant to use cloud-based solutions owing to fears about data leakage. The newest cloud-based solutions, on the other hand, have security requirements that outperform those of on-premises alternatives.
Instead of concentrating on IT, security, and operational challenges, a cloud-based platform allows you to put more work and money into areas where you can provide your consumers a “wow” experience. Traditional and digital-only banks have both successfully used cloud-based core banking technologies. There is little doubt that cloud adoption will be a key differentiator in separating leaders from laggards. In this new era of digital core banking, leaders will emerge as early adopters who provide easy digital experiences for their consumers while trailing banks will struggle to compete.
There is a limited window of opportunity for banks to both reduce costs and increase scalability and flexibility by migrating key banking systems to the cloud.
With cloud banking, you can automate business activities and minimize the time it takes to complete them. The Cloud’s potential should be maximized by designing software and hardware components that are interconnected. As a consequence, operating expenses are decreased, and operational effectiveness is improved. Instead of spending time maintaining old technology or managing complicated interfaces with legacy systems, you can concentrate on better understanding consumer demands and improving customer service. It’s become evident that banks that depend on old architecture and old systems will fall behind their digital counterparts in terms of innovation. For customers and new product development, the bank needs a cloud-based platform. Architects and bank executives alike should consider moving core financial processes to the cloud now that the moment has arrived.
With open APIs, banks can connect with the FinTech ecosystem and improve customer service while also reducing their reliance on legacy systems in favor of lightweight architectures built on microservices and the cloud. Open APIs also help banks reduce their dependence on legacy systems by enabling them to use lightweight architectures built on microservices and the cloud. The banks had been ignoring Fintech competition for a long time, thinking that it would go away on its own.
Customer data must be released by banks in a safe, standardized format so that it may be shared across authorized organizations online under the terms of the Payment Services Directive 2 (PSD2). This component of open banking allows for the transmission of consumer information to third parties, who may then utilize the information to develop new products. If customers provide their approval, it is a method of facilitating consumer data exchange in order to increase competition amongst financial institutions (banks).
As a result of this open banking architecture and standards, a significant portion of future transactions will be processed via channels owned and operated not by banks but by FinTech and third-party technology businesses operating inside the new enterprise ecosystem. Customer experience is a primary concern, and it is expected that, as a result of the anticipated exponential rise in transactions as a result of digitalization, banks will find it challenging to maintain or compete on outdated systems in the near future. When it comes to challenger banks, open banking provides a once-in-a-lifetime chance since clients may quickly transfer banks to benefit from better products and reduced costs. This will result in more competition between banks, FinTechs, and other service providers, enabling clients to more quickly transfer between providers, according to the report.
Changes in business operations need the ongoing modification of historical core banking systems, making it more challenging to maintain them. To update core banking systems, banks must thoroughly investigate the Oracle Flexcube universal banking universe. Core modernization takes time, and those who begin this year can anticipate the incremental digital core universe to be completely realized by three and a half to four years. Preparation and pilot programs typically take 6-12 months; implementation takes 2–3 years on average in the conventional model.