How Coreless Banking Can Give Banks a Competitive Edge in Today’s Financial Landscape

In today's fast-paced financial landscape, the idea of a bank stopping a customer in their tracks to say, “I need to contact my core provider,” is no longer a recipe for success. Over the years, legacy core banking platforms have become rigid, dictating the terms under which banks can engage with fintech providers. 

However, forward-thinking banks are challenging this status quo by investing in modern platforms that effectively "hollow out" their core systems. The industry has also referred to this as coreless banking, where the legacy core system is stripped down to just its fundamental functions. This innovative approach gives banks greater flexibility and control over their ecosystems. 

The reason behind this shift is apparent: innovative technologies empower banks to expand last-mile delivery, whether through their own digital apps or those of their fintech and brand partners. The demand from consumers for innovative technology through mobile banking is clear. 

Let's explore how coreless banking can help banks seize this competitive edge.

Last-mile Delivery Expansion

Last-mile delivery can represent a part of a hybrid go-to-market strategy for banks, bolstering their growth in the process. We can categorize last-mile delivery under two banners. First, "Owning the last mile" means banks exert direct control over the customer experience through their bank-owned applications, including digital-only brands. On the other hand, "sponsoring the last mile" involves banks extending their reach by offering banking products and services through third-party applications, using APIs and pre-fabricated solutions that can be seamlessly embedded.

However, banks have often found it a significant hurdle due to the lack of control over the last mile. They rely on legacy core banking systems and digital applications that have been in place for decades, laden with numerous ancillary anchors. When banks collaborate with third-party Banking-as-a-Service (BaaS) providers, they further distance themselves from controlling the last-mile experience.

So, what does a bank need to launch a digital brand (owning) or partner with a fintech through a BaaS portal (sponsoring)? The answer lies in a coreless banking platform capable of seamlessly distributing banking products and services in a modern fashion. This reduces the legacy core to just a few operational accounts that are settled at the end of the day.

Back to Basics

Imagine stripping away decades of bolt-on features from legacy core systems, leaving a streamlined virtual account system in its place. This would maintain customer and account records and facilitate money movement with a general ledger. And what if you take this simplified platform and make it cloud-enabled for scalability and resilience? And finally, what if instances of this platform could be set up in a matter of weeks at a fraction of the cost of legacy systems?

Today's innovative platforms offer precisely this focused capability, enhancing banking through elegant simplification. This also empowers banks to create their ecosystems without the baggage of legacy systems. These coreless—and compliant—banking platforms can fuel new business models, ranging from digital brands and BaaS to commercial sub-account ledgers and smart accounts.

By stripping away all but the basic fundamentals, banks reduce their entry costs and shorten timelines for adopting new channels. This can be achieved while maintaining control over customer and account data, as well as regulatory compliance in areas like Anti-Money Laundering (AML), Know Your Customer (KYC), and Know Your Business (KYB).

Coreless Banking 

The solution comes in the form of coreless banking, allowing banks to manage customers, accounts, and products independently. It's important to note that coreless platforms still rely on the core system to settle operational accounts at the end of each day. It’s just that they are not designed to replace the core entirely, mitigating operational risks that would apply if you went down the alternative path of core replacement.

The advantages of coreless banking are fourfold:

1. The ability to create and maintain accounts at a fraction of the cost of a legacy system

2. Systems are bank-controlled to maintain regulatory compliance and operational oversight

3. A SaaS-based solution to remove any IT or development effort by the bank

4. The expansion of the bank’s last-mile distribution to grow deposits, loans, and non-interest fee income

Alongside these benefits are various use cases, such as enabling player wallets for gaming brands, facilitating VC capital call accounts and swift money transfers, managing employee accounts for payroll and earned wages through real-time transfers instead of ACH (Automated Clearing House), and aggregating and syndicating Buy Now, Pay Later (BNPL) loans, among many other possibilities.

It’s clear that as banks seek growth, they need to expand their last-mile delivery capabilities. The catalyst for this next wave of banking platforms comes from the advancement in banking technology through the recipe of elegant simplification laid out above. By adopting coreless banking, banks can navigate the complex financial landscape, staying ahead of the curve while delivering innovative and efficient financial solutions to their customers.