In simple terms, core banking points to the technology platform a financial institution deploys to sustain its key processes. It can be thought of as a central nervous system, delivering – from
the back end to the front – vital services, such as transactions, onboarding, account management, currency exchange, card issuance, financial accounting, reporting, and so on.
But by what criteria should banks select their core banking software? How can a chief technology officer (CTO) ensure she has landed on the best solution for her business? What does a future-proof, effective platform look like, today?
This article seeks to address these issues and provide CTOs with a mechanism to distinguish valuable core banking partnerships from those that are sub-par.
Here are 10 areas for consideration:
1. Cost
First and foremost, does the platform align with the budget? There are several figures to consider when calculating cost, including the purchase of the platform itself, the price of the setup, maintenance fees, integration costs, as well as system hosting
and software updates.
2. General ledger
The general ledger and accounting function is the foundational element of the core banking system. All financial transactions must be effectively recorded, tracked, and managed, so that a 360-degree view of the organisation’s financial health is attainable
at any time. As such, the ledger must be robust, effective, and nigh-on infallible.
It should also be able to produce insightful reports such as balance sheets, income statements, and cash flow statements, while complying with International Financial Reporting Standards (IFRS).
3. Compliance
With each passing year, the financial regulatory landscape becomes increasingly complex to navigate. Along with IFRS, some of the most pressing directives include the European Union’s
Digital Operational Resilience Act (DORA), the
third Payment Services Directive (PSD3), and, of course, the
General Data Protection Regulation (GDPR).
Ultimately, core banking platforms must be able to comply with these injunctions – as well as any new ones that will no doubt appear on the horizon, as financial technology continues to evolve.
4. Integration
As a foundational pillar of a firm’s operations, the core platform must be compatible with a raft of other applications and departments. Indeed, some firms are partnered with numerous third-party providers that deliver services such as payments, fraud detection,
or
Know-Your-Customer (KYC) verification. All these systems must be connected via
application programming interfaces (APIs), in order to facilitate clear communication with the core platform.
5. Usability
Usability is a broad area, encompassing the software’s functionality, features, and intuitiveness. The front and back-end must be easy to use for customers and staff, respectively. The more seamless, accessible, and responsive a financial institution’s core
banking system is, the better – but above all else, the solution must compliment a bank’s specific verticals and market segment.
6. Security
With increasingly complex technologies wielded by cybercriminals, like
generative AI, data security is for banks more important than ever. Indeed, firms face fines and other penalties from regulators if the appropriate guard rails are not put in place. This might necessitate
encryption,
multi-factor authentication (MFA), and regular audits of the platform.
7. Efficiency
Any modern core banking solution must be operationally efficient, which in practice today – in the age of
open banking – involves real-time capability,
automated processes and transactions, as well as branchless banking. With these kinds of efficiencies, errors are reduced, staff are freed up to focus on more complex tasks,
and customer satisfaction is boosted.
8. Analytics
Real-time data is also vital. With detailed information on transaction volumes, for instance, firms can spot patterns, better understand customer needs, then fine tune the offering. Analytics, in combination with artificial intelligence (AI), also greatly
improves fraud and anti-money-laundering (AML) detection.
9. Scalability
It is also vital to ensure that core banking platforms can scale up and down, to accommodate changing requirements, customer activity levels, and seasonal fluctuations in business. This is possible through
cloud-based services – enabling banks to shoulder increasing transaction volumes, process greater datasets, and work with new applications, as and when they are introduced.
10. Customisation
In time, a bank may wish to update and change its workflows, compliance protocols, transaction processes or user interfaces. This can be a time-intensive and costly process. Before selecting a core banking platform, CTOs must first understand what the organisation’s
customisation requirements are likely to be in the short, medium and long term. A best-in-class solution would be founded upon open architecture – allowing the bank to fully adapt to evolving business needs.
Final thoughts
As the engine room for financial services, cutting-edge core banking software is imperative for any firm that wishes to stay competitive and continually deliver innovative products to customers. Add-ons to consider, which have not yet been mentioned, might
include
personalised banking facilities, predictive AI to understand customer trends, and around-the-clock tech support.
Providing the above 10 areas are measured against all goals, requirements, and budgetary confinements, financial institutions can land on a core system that not only meets its current needs – but enables future growth, scalability, and security.