Have you ever thought about updating your core banking? Today, the global finance sector is actively disrupting. Neobanks target underbanked customers, offer accessible mobile products. Many traditional banks enter the digital space. And it seems that it’s time to catch the wave if you want to optimize processes and retain loyal customers.
From this guide, you can learn about digital core banking basics, challenges, and benefits. We explore different transformation ways and the most popular solutions, such as Oracle FLEXCUBE. If you’re preparing for digital evolution or just interested in this topic, read on! But don’t forget that core banking upgrades require detailed and all-around planning.
The Essence of Digital Banking
In a nutshell, digital banking is a comprehensive approach to various bank-related processes that migrate to digital platforms. For instance, traditional document flow can be digitized so employees can work with electronic papers. The same is true for all other processes: reporting, accounting, customer service, and so on. FinTech teams often go digital entirely. Neobanks refuse to open land-based branches; they exist as sites or mobile apps only.
However, we think that traditional banks should combine both physical and digital strategies, build physical ecosystems. Thus, they can attract and retain all clients, including tech-savvy newcomers and people who’re used to personal interactions.
Let’s now look at the benefits of digital core solutions:
- Automated operations. Many redundant tasks and flows can be optimized through modern tools. RPA and AI are top options to help with this.
- Improved experience. Nowadays, clients appreciate convenient and quick services. Now, they can get what they need much faster.
- Regulatory compliance. Thanks to unified data storage and processing systems, banks can quickly send reports and communicate with regulators.
- Security. While this point requires significant investments, it leads to more reliable digital systems than less controllable physical processes.
- Simple operations. Both workers and clients can easily access accounts, process transactions, check info, get money. No personal visits required.
Now, it’s clear that digital banking can be highly beneficial. But why should businesses move to it? And how to migrate to a modern core software?
Different Ways to Core Solutions
In the analytical study, McKinsey experts report that 70% of banks are thinking about core banking systems’ updates. There’s no surprise that companies want to meet new requirements, provide better services, build more reliable fundamentals. Overall, there are four areas with pressing challenges where banks can benefit from new solutions. These areas include costs, time to market, personalization, and UX, and partnerships through ecosystems.
As well, McKinsey suggests businesses to review three approaches to migration. It’s not a simple process. Hence, it’s essential to choose the most suitable strategy or plan your journey from old core platforms to updated alternatives.
The first strategy is for teams that want to change everything. It relies on monolithic upgrades that occur every several years, according to the roadmap. Banks can build or purchase new modules from other vendors. It’s important to remember that you can see the clear difference only after full migration and decommissioning of legacy parts.
- Risks: high.
- Speed: low.
- Average spending: $100-$500 million.
- Who needs it: banks with an outdated core that must be replaced urgently.
This one is the most popular approach. Banks keep legacy basics but upgrade them iteratively, building new modules and reducing the importance of older parts. Often, companies go for microservices as alternatives to more traditional monoliths. In this case, you can evolve safely but may face slow progress.
- Risks: low.
- Speed: medium.
- Average spending: $50-$200 million.
- Who needs it: banks that still can support the current core and don’t want to risk.
The idea here is to work differently with different customers. According to the strategy, new clients go to new platforms with updated core banking basics. Simultaneously, existing users are offered to migrate through re-enrollment. Thus, banks can keep loyal clients away from the risks of new modules until their reliability is proven.
- Risks: medium.
- Speed: high.
- Average spending: $50-$100 million.
- Who needs it: banks that prioritize speed and want to experiment with tech.
5 Examples of Modern Core Systems
Now, as you know more about core banking migration and benefits, let’s briefly review examples. We’ve prepared five popular core banking tools. Many companies use them so you can find something suitable for your business, too. Note that entries are ranked alphabetically as we don’t rate them here by quality or other parameters:
- Backbase. The company focuses on traditional financial teams in retail, corporate, and wealth management sectors. Backbase works with over 80 banks and 90 million end-users. Its clients include Deutsche Bank and Barclays, to name a few.
- Finacle. Developed by Infosys, this system is a top choice for 1,300+ banks with over 1 billion clients! It helps with all traditional banking services, provides open APIs, and has unique options for Islamic businesses.
- Finastra. Being one of the most demanded products, Finastra serves 9,000 banking teams with 175 million accounts. It works with corporate, retail, treasury, capital market, and lending banks. And it offers modular technologies for faster deployment.
- Mambu. This company focuses on lenders and mobile banks. It works with 150 companies and 14 million end-users, including N26, Orange, and Santander. Mambu offers cloud solutions and convenient portfolio builders.
- Oracle FLEXCUBE. It’s one of the oldest players, but it remains highly demanded. FLEXCUBE is used by more than 600 banks and 90 million clients. It offers both basic modules for newcomers and advanced services like ML insights.
- Temenos. And this one is the oldest company on our list. Founded in 1993, Temenos helps 3,000 banks and microfinance organizations to satisfy 500 million clients daily. It provides various products and integrations.
Choosing Your Ideal Software
Of course, there are more examples. But this article can be your starting point in the long journey towards new core banking software. Still, it’s essential to choose the system correctly. You should find a tool that meets all your critical needs, have customization options, offer sufficient security and ROI. Your vendor should have experience in building or migrating core banking systems. Ideally, you also want to get full support and maintenance.
Al in all, core banking transformation is complex but beneficial. If you’re ready, start working on it now, not to lose the competitive advantage.