Core banking systems help to deliver uniform experiences in different bank branches and online. They also support financial institutions in meeting new standards and customer expectations. A modern core system supports a range of back-end functions, including deposit and loan processing, KYC and AML processes, credit management, and more. These core systems are highly scalable and integrate with other banking applications.
1. Data Management
Whether it’s data transfer between departments or the ability to link to a fintech, strong integration capabilities are an essential feature for many banks. Bankers also often mention the importance of their core banking platform being easy to learn, which can help streamline training for employees and ensure a smooth transition during implementation.
Many legacy core systems are based on monolithic architecture, meaning that each technological block is autonomous and independent from other blocks — a model that makes it difficult to add new features. Additionally, most monolithic systems were developed using COBOL, a computer language created in 1959 by mathematician and U.S. Navy admiral Grace Hopper. Newer core banking platforms use open API-based architecture to integrate more seamlessly with internal and external systems.
2. Payments
A financial institution’s core banking system is what allows depositors to access their money at any branch or ATM. It’s also why they can transfer funds in real time and why businesses can check their balance at any point. A core banking platform needs to provide a flexible and scalable public cloud-based infrastructure that promotes third-party API integrations, financial innovation and interoperability. A generic design that can accommodate a bank’s products and services is also important.
Many banks struggle to replace a legacy architecture because it can take years and significant cost to complete such a large-scale conversion. Moreover, replacing a core system involves reworking the entire stack of channels, customer relationship management systems, and data architecture. This can cause major disruption and increase risk.
3. Transaction Processing
Core banking systems must reliably and accurately manage deposits, loans and credit processing. They must also support general ledger systems, reporting tools and other transaction-related functions. Bankers look for a platform that is intuitive and easy to navigate with consistent, straightforward language, clear data and accessible tutorials. They also seek platforms that abide by UX design principles such as natural hierarchy and aesthetics.
Traditional core banking architectures typically rely on monolithic software solutions that require substantial time to upgrade and add new functionality. Newer, more agile architectures based on APIs, digital technology and cloud computing enable banks to deliver services faster and more efficiently. They also offer better scalability, making it easier to adjust to changes in client demand or transaction volumes. The result is higher customer satisfaction and lower operating costs.
4. Risk Management
A core banking system is a back-end IT solution capable of supporting deposit, credit, and loan processing functions as well as publishing updates to accounts and financial statements. It’s also designed to integrate with customer relationship management solutions, channel infrastructure, and technologies aimed at processing payments and transactional data from multiple unrelated platforms and technologies. As a result, it’s important that banks plan and execute proper risk management processes before, during, and after undergoing core banking transformations to minimize critical risks. These include establishing strict KYC norms, ensuring that all employees are properly trained in the new software, and setting up a central helpdesk to handle questions during this period.
This risk assessment document serves as a checklist/guide for IT security professionals and risk assurance analysts to identify critical vulnerabilities and risks associated with the core banking application solution and its underlying infrastructure, their impact on business operations/reputation, and ways to mitigate them.
5. Customer Relationship Management
A cash management system is a central repository for account and general ledger information and also provides a platform for online banking and ATMs. It also supports transactional functions, such as calculating interest earnings on deposit accounts and loan payments, determining new account openings and escrow processing. Traditional core systems often have a monolithic architecture based on a single code base, making it difficult to upgrade and change their functionality. They are also usually developed in COBOL, a computer language that was created in 1959.
Conclusion
A modern core banking platform offers a more adaptable approach, enabling financial institutions to easily add or alter features without impacting existing functionality. It is also based on an event-driven architecture and has an extended API layer that simplifies third-party integrations.
