Coreless Banking: The Future of Banking Technology
In the ever-evolving landscape of digital transformation, banks are faced with a dilemma. Traditional core banking systems, developed several decades ago, are constraining their ability to meet the demands of today’s fast-changing consumer preferences, technological advancements, and regulatory requirements. These legacy systems were built on outdated technology platforms, paling in comparison to the computing power and cost efficiency of modern smartphones.
Banks, however, are eager to leverage newer, cheaper, and more powerful technologies that enable scalability, agility, and innovation. Unfortunately, their reliance on core banking solutions, which form the backbone of their operations, has hindered their ability to migrate or replace these systems.
To adapt to evolving product lines, the introduction of new channels, and changing regulatory frameworks, banks developed additional systems that relied on the data held by the legacy cores. This integration created complexity, as replacing or changing core banking systems necessitated the simultaneous re-integration of numerous interconnected systems. Furthermore, these legacy cores lacked real-time capabilities and required overnight downtime to balance ledgers, preventing banks from offering round-the-clock services to their customers.
The rise of the internet and smartphones has exponentially increased customer expectations. Customers not only demand 24/7 availability but also expect banks to regularly innovate and deliver new products and features, inspired by the ongoing updates provided by their other mobile applications. This, combined with the emergence of Open Banking in 2017, has introduced a new competitive dynamic where FinTechs with access to banking data have redesigned customer experiences. To keep up with these developments, some banks have begun partnering with third parties to distribute their products and provide embedded finance.
Recognizing the need to keep pace with technological advancements, banks are now embracing the power of artificial intelligence (AI) to enhance their operations. Rather than relying solely on coded logic, banks are replacing legacy software with embedded AI that leverages the institution’s data. This shift allows AI to dynamically drive decision-making processes and perform calculations, resulting in improved KYC/AML checks, more accurate credit risk assessments, and personalized product offerings.
Enter coreless banking—a paradigm shift that unleashes banks and other financial institutions from the limitations of monolithic legacy systems. Coreless banking, supported by an API-powered infrastructure and guided by MACH (microservices, API-first, cloud-native SaaS, headless) principles and the BIAN (Banking Industry Architecture Network) framework, offers banks the opportunity to choose the best market tools, add or replace technologies easily, and reduce operating costs. With AI driving dynamic decisioning and business flows, coreless banking delivers unparalleled agility, flexibility, and future-proofing capabilities, empowering banks to innovate and minimize costs. The banking industry is moving closer to its technological nirvana and the long-awaited promised land.
The advent of coreless banking introduces a third option for banks. Previously, they had to either make do with existing systems and work around their limitations or undertake the risky and costly endeavor of replacing legacy core banking systems. Now, banks can adopt coreless banking, which allows them to innovate, operate more efficiently, and achieve agility without impacting their core systems. It’s akin to changing engines while flying the plane.
Over the next few weeks, this blog series will delve into the concept of coreless banking and explore its opportunities and challenges. It will highlight the benefits of liberating banks from dated infrastructure and provide insights on how they can navigate the complex landscape to deliver seamless digital-first services that cater to the needs of their retail and business customers. Additionally, it will cover three journeys that banks have embarked on: their technological journey and their efforts to transform the way they interact with and serve their customers.
Ultimately, coreless banking represents a monumental leap forward for the banking industry, propelling it into a future where innovation, customer-centricity, and cost-efficiency go hand in hand. As banks embrace this transformation, they have the potential to revolutionize the way they serve their customers and cement their relevance in an era of rapidly advancing technology. The next Big Bang is upon us, and coreless banking is at its epicenter, poised to reshape the banking world as we know it.
