A core banking system streamlines operations and makes it easier for customers and businesses to carry out transactions. It eliminates the room for human error and enables banks to offer better services. Banks look for functionalities that reliably fit together, a consistent platform experience and straightforward data. They also consider the reputation, track record and service of the vendor.
Functionality
Core banking software is a vital component of financial technology that allows banks to develop centralized systems and networks. These systems enable banks to handle and process payments for their customers. They also provide a platform for customer service and support. Core banking solutions can be customized to meet the specific needs of banks. The development of core banking began in 1959 with the creation of the COBOL programming language by computer scientist and U.S. Navy admiral Grace Hopper. This computer language is able to handle large-scale batch and transaction processing, as well as mathematical precision, everything that a core banking system requires.
Traditionally, most core banking systems were implemented on-premises as monolithic infrastructures. This model generates significant maintenance costs and is difficult to update. However, many banks are now experimenting with next-generation cloud core banking systems. This approach offers significant scalability and cost-savings, while ensuring compliance with regulations. In addition, it can help reduce risk and improve security.
Scalability
Core banking systems must be able to handle high volumes of transactions without sacrificing processing speeds. They must also be flexible enough to allow for expansion without compromising security and functionality. This is why banks are increasingly experimenting with new technologies, such as cloud computing and microservices, to create flexible and scalable foundations for their core banking systems. Traditional core banking systems use a monolithic architecture, which means they consist of a single autonomous technological block based on a single code base. As a result, changes to the system’s underlying code are difficult and costly. They also require redeploying the entire system as a new version.
However, modern technology such as APIs and DevOps practices are enabling banks to change their legacy core banking systems into agile platforms that are flexible and responsive to changing business needs. These platforms are able to process large amounts of data quickly and provide better customer service by automating processes and providing real-time information.
Integration
It is crucial to choose the right software that integrates with your core banking system. A real-time integration allows you to accelerate customer on-boarding and improve UX, while easing operational burdens on bank staff. It also avoids costly downtime due to batch processes, which are often exacerbated during peak traffic hours for online account opening.
While this solution is an important component of a cash and liquidity management transformation, it can be difficult to implement. This is because most traditional core banking systems require an on-premises infrastructure that takes care of hardware, maintenance, backup, security and system renewal. This can lead to high maintenance costs and a rigid technology architecture that limits flexibility. An alternative is to choose a solution that uses an enterprise service bus (ESB). This centralized platform enables communication, data transformation and routing between diverse applications, making it easier to implement new integrations as needed. It is also less expensive than point-to-point connections and reduces dependency on a single vendor.
Security
A financial institution’s clients require fast and easy access to the data that lives within its core platform. The security of this information should be a primary focus for bankers, who must protect it from cyber threats and other internal risks. Similar to a castle’s defenses, core banking systems employ layered security measures. Network security, consisting of firewalls and intrusion detection systems, safeguards the perimeter while application security ensures that only authorized entities can access sensitive data. Encryption of information in transit and at rest further bolsters security by rendering it indecipherable to unauthorized users.
A reliable core platform also enables banks to mitigate regulatory risk and avoid sanctions. Core systems that integrate PEP screening and sanction lists directly into the platform streamline compliance processes. This prevents the need for duplicate checking and expedites the production of management accounts, financial statements, ongoing capital adequacy calculations, and safeguarding account reconciliations.
Conclusion
Bankers want a core banking technological solution that reliably fits together and interacts cohesively. They also look for an intuitive UI and accessible tutorials as well as service representatives to assist them when necessary. These systems maintain customer accounts, process chequing and savings transactions, facilitate payments, calculate interest rates, and post updates to general ledgers. They also support document imaging and loan exception tracking.
