A bank’s core banking system is the underlying engine that drives and supports its key activities. It’s such an embedded and integral part of any bank that there might be a temptation to take it for granted. This would be a big mistake.

In fact, core banking infrastructure represents the lion’s share of any bank’s cost base and operational capabilities in and around its core services to customers. As a result, it is critical in enabling and supporting relevant and compelling customer interactions, ranging from delivering various types of products and services to meeting customers’ growing needs and expectations for fast, responsive and personalised experiences.

In playing this pivotal role, core banking spans the entire breadth of banking activities, ranging from savings accounts and secured or unsecured lending in the retail space, to corporate finance and capital markets in the corporate space. And if you look at a bank’s overall anatomy, core banking not only encompasses the majority of what it does today – but also the majority of what it could do better or differently tomorrow.

Core banking’s potential to enable the bank to do new things in new ways is now becoming more vital than ever, as banks seek to harness the power and promise of digital to position themselves as the “Everyday Bank” at the heart of their customers’ lives.

To help them realise this goal, banks are pursuing a three-point agenda around their core banking: become leaner in their operations; gain greater agility in responding to change; and put digital at the core of their business. And, in the post-crisis world, they’re striving to deliver on this agenda in the face of rapid and unprecedented change in the regulatory landscape.

Against this background, the prime focus of banks’ leadership in the past two to three years has been to balance the trade-offs between regulatory pressure, cost efficiency, and positioning themselves for future growth through digital. And to help them strike and sustain this balance, they’re investing increasingly in new capabilities in areas like automation, robotics and analytics, and in customer-focused product innovation in categories like unsecured lending.

However, for banks to be truly fit for the digital, customer-centric future, something more is needed: a restoration of the public trust that has been so deeply damaged by the experience of the crisis and subsequent regulatory scandals. In the second blog in this series, I’ll take closer look at how and why banks must rebuild trust – and then go on in subsequent blogs to examine the changing dynamics in the fast-growing unsecured lending segment, and the power and implications of robotics as a driver of banks’ future growth.

2 responses:

  1. A couple of thoughts that have been coursing through my mind, why do banks need to own the core banking platform at all?

    A distributed ledger is one possible alternative to an expensive core banking system, which is both less expensive and provides the atomic transaction capability that banks need to ensure. The supporting systems surrounding it can be acquired piecemeal. The core would also be open source technology that is as transparent as can be in terms of technology. The other thought is a more conventional, cloud-based core banking system, so it’s basically a core banking system as a service, which banks can build services on top of it and provide differentiation.

    1. Absolutely – indeed that has long been the model for some banks, buying ‘white labelled services’ from other banks. Interestingly though the underlying challenges of aged technology and relative slower pace of change has also impacted some of those models. More recently with the realisation of cloud, many Core Banking solutions now include hosted and managed technology services as part of their extended offerings – and looking further ahead the potential with blockchain technologies and genuine distributed ledgers sharing the cost of processing could be an interesting space.

      Adopting such models absolutely leaves banks, and more creatively, other players, to enter into the financial services market to differentiate and disrupt by bringing innovation into different parts of the value chain.

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