Core banking system: Important factors affecting its modernization and the leading trends

Whether dealing with changing regulations or effectively implementing digital financial solutions, banking organizations have revamped everything with technology according to the customer’s requirements.

Now, what is this modernization process and how banks have changed to keep pace with the changing customer requirements is an intriguing story. Therefore, this blog will look at different aspects of the bank’s modernization process. Moreover, we will see the critical core banking trends that will be vital in the future.

What is Core Banking System?

Beginning with the basics, core banking is a back-end technology that links many units of the same bank together to deliver functions like loan management, withdrawals, deposits, and payments in real-time.

The CORE, in the term core banking system, stands for Centralized Online Real-Time Environment that focuses on enhancing the customer experience and rendering them more independent in using different banking services.

Indispensable Core Banking Features

Some essential core banking solutions (CBS) features play a vital role in enhancing the overall consumer experience. Let us have a look at them in detail.

Easy Onboarding with KYC Features

With integrated CBS services, banks can confirm prospective customers’ identities when registering, thanks to KYC features. Users need to be able to finish the onboarding procedure without experiencing any stress. In addition, the two-factor authentication process ensures that the sensitive bank and customer data remains safe and in a synchronized manner.

Live Chat Features

Since the main aim of modernizing core banking solutions is to deliver a better customer experience, adding a live chat feature becomes necessary. This feature will help the user contact support executives when they require assistance. Also, having chatbots can be fruitful as they will answer the FAQs quickly in a more personalized way.

Push Notifications and Transaction Management

Customer needs to have timely and real-time updates on their transactions. Therefore, it is necessary to have a push notification feature that ensures all the required information is delivered on time. Moreover, if the core banking solution provides multiple-currency exchanges and transaction management, it would give an added advantage to the customers.

Important Factors Aiding in the Modernization of Core Banking System

After understanding the essential features of the digital core banking system, it is time to see the critical factors that have assisted in its modernizing. These elements have also played a crucial role in accelerating digitization.

Decreasing the Complexity Levels

In most cases, necessary consumer data is stored within the core banking system. Therefore, to reduce the workload and synchronize everything, banks allocated dedicated master databases to reduce the load on CBS.

Also, improved digital financial systems have eased the process of banks analyzing the unused modules from the CBS code base. Rationalizing the modules has brought down the complexity levels, whether it is the screen components or evaluating essential business logic.

With the increase in services, core banking systems have become a center point for different functionalities. Thus, having a dedicated system would provide a better set of functionalities and reduce the complexity of the data.

Microservices for Ease of Integration

To make banking services more accessible for customers, financial institutions have made the core banking services more flexible to adjust. During the initial years, the front-end system of many banks was set up through tight coupling and direct database connections that hampered the overall development process by creating unwanted dependencies.

Thus, with the help of microservices for ease of integration, banks removed single-point connections and replaced them with APIs. This process helped in building faster and more dependable front-end development.

Therefore, with improved front-end development, it became less mandatory to customize the core functions and develop a more profound banking system.

Reducing the Overall Costs

Another important factor that aided in modernizing the core banking system is the process of cost reduction through rationalizing the workloads. Sometimes, some tasks can be transferred to different, less expensive data sources—mainly if transactions are unaffected. Workloads that potentially shift outside the core include those that involve the consumption of certain costs, such as databases or computing in core banking. Banks over the years opted for this alternate data storage and offer channel applications for read-only inquiries.

Trends that are Bringing a Paradigm Shift in the Future of Core Banking

With the inclusion of new-age technologies, banks have continuously adopted strategies to deliver better services. Here is a list of some intriguing trends that will be important to the future of core banking systems:

The emergence of Artificial Intelligence

The amount of structured and unstructured data available to banks has multiplied during the last decade. Artificial Intelligence (AI) is influencing the future of banking and financial services thanks to cloud computing and machine learning technology developments. With the data history around artificial intelligence gathered, core banks can make better decisions on various tasks, such as back-office operations, customer experience, marketing, and product management.

Focus on Expanding Consumer Segments

Customer loyalty is difficult to win today, where enthusiasm for anything is fleeting. In the future, the core banking sector will grow to include banks launching new products using data from various industries. So long as services are produced and offered in a relevant, appealing, and creative manner, client loyalty will grow, and it will be easier to acquire new ones.

Developing an Ecosystem of Core Services

Established core banking system service providers focus on building an ecosystem from which banks can select the best modules. Core Banking System transforms the BFSI business’s banking processes through its cloud-native, regulatory-compliant, and real-time decision-making capabilities. With the use of the platform, banks and FIs may increase customer loyalty by addressing a range of banking functionalities, including retail, corporate, wealth, and payments. Be future-ready by developing an agile banking model that is connected and practical and gives people access to a cloud-enabled economic environment.

The transformation of CBS from a system to a complete platform is a crucial milestone for banks. Core banking systems go beyond conventional models to enable banks the scalability to scale and fully utilize the promise of the digital revolution to satisfy stakeholders like clients, staff, regulators, and partners.

Platforms for next-generation core banking remove any restrictions imposed by legacy systems. Utilizing contemporary, scalable, and open structures along with lightweight programs, they hasten the digital transformation. Core platforms deliver simplicity, cost-effectiveness, speed, interoperability, flexibility, security, and future-readiness by utilizing APIs and other cutting-edge technologies.