Finding the best way to tackle legacy core systems has re-emerged as a key topic of debate among banks, from top tier global players to smaller, domestic institutions. With their vast, fragmented architectures, banks’ legacy systems are typically cumbersome and lack the agility required to adapt to today’s business and market needs. Factors such as evolving customer expectations, new regulations and the need to enter new geographies or launch new products require banks to have flexible systems that can continually adapt to support their evolving business needs

With legacy systems so far having failed to address these changing requirements, I’ll discuss why banks should consider four crucial aspects to make their core banking systems more efficient this year: componentisation, going back to the core, compliance and customer centricity.

So let’s start with the first of the 4 C's of core banking: componentisation.

Forrester's research entitled ‘The Future Shape Of Banking Architecture In 2023’ , identifies a series of requirements as well as the architectural layers of the future banking platform. The key layers focus on personalised customer services and real-time information analysis; a separation of product design and customisation; and a clear distinction between core competencies and non-differentiation functions supported by selective sourcing.

In practice, this means that the big banks are focusing on what they are good at and outsource the rest, whereas new entrants are typically focusing on specific areas within the financial services value chain, such as loans, selling the products of other big players. This approach is already enabling, MoneYou in The Netherlands, for example, to sell loans managed by Fortis. Meanwhile Tesco in the UK, Carrefour in France and Volkswagen in Germany have all entered the financial services market offering payment services from traditional financial institutions in addition to their core offering.

With the traditional banking value chain breaking up, increasing competition in the space and the need to drive down costs, traditional banks, as well as new entrants, will require the flexibility to operate agile banking models that can adapt easily to changes in regulation and market and customer demands. As such, banks and corporates wishing to operate in this market need to ensure their infrastructure is based on a flexible and scalable Service Oriented Architecture (SOA) that enables them to easily and quickly roll out additional products, services and channels to respond to evolving market demands.

The 2nd C will follow next week, so watch this space ...