A bit overdue, but here’s the second installment of the 4 C’s of core banking.

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, 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 continue with the second C: going back to the core.

If traditional banks want to be in a position to react to increasing competition in the banking market, an agile and modular core banking system will give them the necessary degree of independence, both on the business and on the IT level, to quickly expand their business, deliver more profitable products, enter new markets and ultimately attract additional lines of revenue. At the same time, banks will be able to focus on their key strengths while at the same achieving cost efficiencies.

In fact, a recent report by Ovum, ‘A Change for Good in Core Banking Systems’, suggests that banks’ core systems will assume greater prominence from 2010 as financial institutions continue to adjust to an altered competitive landscape and a revised set of priorities. With the renewed focus on core banking systems, a piece of Callataÿ & Wouters European market research conducted in 2010 backs these findings and shows that banks are keen to refresh their outdated systems. According to the findings, 66 per cent of respondents across the UK, Germany and France agreed that the events of the past two years in the finance industry have increased the importance of core banking systems to the business.

It looks like 2011 will be the year when a significant proportion of banks increase their investment in their core banking systems with 44 per cent of research respondents planning to increase spend on their systems over the next two years in order to enhance competitiveness, meet regulatory initiatives and manage risk.

With cost and competition being prime drivers for an infrastructure refresh, banks need to start ridding themselves of the burden of inflexible solutions which were typically designed and implemented when the financial world was a very different place.

If you missed the first part, you can find it here. And look out for part 3 in a couple of weeks.