No 1. Unveiling Coreless Banking - The Future of Banking.

Over the next few weeks, I will provide a definitive guide to the next evolution of banking technology – Coreless Banking. 

Amid a period of unprecedented digital and technological transformation, fast-changing consumer, business and market demands, and regulatory challenges, banks face a dilemma. At the heart of any bank sit several core banking solutions that govern the bank's ability to launch new products and serve customers across an increasing range of channels.

These core banking systems were developed decades ago on the technology platforms that were available at the time (between the 1950s and 1980s). Today, a smartphone has more memory and processing power at a fraction of the cost of the original mainframe systems that banks spent millions of dollars buying. 

Today, computers are cheaper, faster and more powerful, and they can run software that allows banks to scale better, be more agile for new products or distribution (channels) and innovate. 

This simply isn’t possible on their legacy technology.

Over time, as bank product lines grew, they introduced new channels, and regulators drove new requirements. Much of this was made possible by using newer technology. However, banks could not migrate or replace their core banking systems as they were central to everything the bank did, so new systems were developed. These newer systems depended on the data held by the cores, so they either took copies of data or directly integrated with them. This created further complexity in being able to change or replace core banking systems as doing so could require re-integrating tens and sometimes hundreds of other systems simultaneously.

These legacy cores could not support real-time banking and hence would have to be stopped overnight to balance ledgers, meaning that customers could not be served during those hours. Banks worked hard to ensure that the window the core could not serve customers was kept to less than 8 hours! 

Driven by the Internet and smartphones, customers not only expect banking to be available 24-7-365, but they expect banks to innovate and provide new products and features regularly as they see their other apps being updated.

Since the launch of Open Banking in 2017, Banks, for the first time, have faced a new dynamic in the battle for customers. FinTechs with access to banking data have leveraged new technology to reimagine customer experiences. In recent years, some banks have realised they can scale customers by distributing their products through 3rd parties to provide embedded finance. 

The pace of technological change is increasing, and banks are now looking to leverage the power of AI. Where business logic was once written into software, banking software vendors and banks are replacing this software with embedded AI. Now leveraging the bank's data, AI can be used to dynamically make decisions or perform calculations rather than using coded logic, for example, to perform better KYC/AML checks, more accurate credit risk assessment, and personalise products and offers.

Hence, we have seen the banking business and technology evolve, and newer banks (NEO Banks) are leveraging these new technologies, showing they can be more agile, cheaper to run and faster to innovate.

A great convergence is happening, where banking channels, technology advances, and customer interactions collide to create the next Big Bang – coreless banking.  From the front end to the back end and touching every process in between, coreless banking is a paradigm shift. Not only is it enabling banks and other business institutions to break free from the shackles of monolith legacy systems, but coreless banking’s API-powered infrastructure promises even more game-changing innovation and heightened levels of product design, delivery, and customer personalisation.

The most exciting thing about this latest iteration is that banks can adopt this more easily than with previous generations of core banking. 

Until recently, the only options available to banks were to live with what they had and try working around limitations or to take the considerable risk and cost of replacing the legacy core banking systems. 

There is now a third option - Coreless Banking, which allows banks to innovate, be more agile and run at a much lower operating cost than before without impacting their cores. This is the banking equivalent of changing the engines whilst flying the plane. By adopting MACH (microservices, API-first, cloud-native SaaS, headless) principles and the BIAN (Banking Industry Architecture Network) framework, they can choose from the best tools on the market today and provide a structure that makes it easy to add, replace, or remove technologies in the future. With AI to drive dynamic decisioning or business flows, core banking can now be agile, flexible and future-proof, increasing its ability to innovate and reduce cost. This is technology nirvana. The banking promised land is now one step closer.

So, what is coreless banking, and how can banks benefit from it? Over the next few weeks, my blog will profile the opportunities and challenges of being unshackled from decades-old infrastructure and how banks can navigate a safe course through a maze of complex requirements to deliver seamless digital-first services that their retail and business customers crave. I’m also going to take you through three journeys banks have been through: 

1) Their technology journey 

2) Their journey with how they serve their customers 

3) How the evolution of banking has led to the complexity of a bank's structure.