An Introduction to Core Banking Systems

[Work in progress]

What is a Core Banking system ?

According to Gartner, a core banking system is responsible for processing banking transactions and updating accounts. Core banking systems generally support deposit accounts, loans, mortgages and payments. These services are usually made available via different customer channels – bank branches, mobile banking, internet banking and ATMS.

Some of the functions performed by core banking systems are :

  1. Opening customer accounts.
  2. Managing customer accounts.
  3. Maintaining records for all the bank’s transactions.
  4. Cash deposits and withdrawals.
  5. Processing payments and cheques.
  6. Interest calculation
  7. Customer relationship management
  8. Creating and configuring financial products offered to customers. For example configuring the interest rate, overdraft offered, or number of withdrawals allowed on deposit accounts.
  9. Product management workflows
  10. Customer product application workflows

Legacy Core Bank systems vs Cloud Native Banking

Traditional legacy banking systems are characterised by a monolithic architecture, are batch based, and usually run on premise. They can have non-standard APIs making integration difficult. Some are based on poorly documented legacy code and mainframe systems, that are difficult or expensive to change. Some banks have siloed systems for their different business units, making it difficult to have a single view of customer data or to support omni-channel journeys.

On the other hand, new generation cloud-native core banking solutions are built on modern cloud architecture. They are usually based around a micro-service architecture, are containerised and run in a container orchestration system like Kubernetes.

There is a difference between cloud-based and cloud-native solutions. Legacy banking systems can be cloud based. In this case, they can be simply ported to the cloud. Cloud native solutions are designed for the scalability of the public cloud and bring the advantage of metered subscription models.

4 key drivers for cloud native solutions

There are 4 areas where legacy systems inhibit banks, and where cloud native solutions provide value.

  1. Cost. Legacy systems are can be expensive to run and change due to accumulated technical debt. Some require manual processes leading to low straight through processing rates. Modern cloud based systems can reduce operational and change costs by using automated cloud based deployment services.
  2. Time to Market. Making the changes in legacy, siloed systems required to launch new products can take a long time. New generation cloud-native solutions support hyper-parameterized product configuration, automated testing and deployment to accelerate time to market.
  3. Siloed customer data. Banks tend to store customer data in multiple product-aligned legacy core systems. This makes it difficult for them to have a single-source of truth on customer data and inhibit the launch of customer centric propositions. Cloud-native solutions present a single customer view, and usually have real time analytics, machine-learning and AI capabilities that enable better management decision making.
  4. Poor partner integrations.

Cloud Native Core Banking Architectures

Pricing structures

List of providers

I provide a list of core banking platform providers here.

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