Part II: Major Hurdles Core Banking Systems need to Overcome

Core banking systems were built for a slower technological pace, where code changes were rare and stability and security were paramount. Now, legacy core banking systems are an impediment to innovation. In today's faster moving world, banks have to meet the changing risk appetites and product bundling profiles of a wired generation that has grown accustomed to the benefits of a customer-centric universe.

But as the world moves faster so too must global regulatory bodies and standards organizations in order to ensure the safety of transactions and the movement of capital. Following the most recent financial crisis, the banking industry remains in the spotlight. So what does that mean for core banking systems? It means they will have to remain flexible as new regulations are introduced to manage the pace of innovation and the adoption of new channels and new technologies.

The final two challenges core banking systems face are:

New Compliance Initiatives and Regulations.

Regulatory bodies regularly ask banks to provide new information to clients in the name of transparency. For example, in the UK, there is something called the Office of Fair Trading which recently declared that all banks must deliver an end of year statement to every retail customer that clearly shows every fee and why it was charged. This is a very challenging scenario for many banks. Gathering the specific information from each account for each customer is nearly impossible due to the product silos and a lack of built-in communication between systems.

If you abstract the compliance problem, you find that it comes back to the fundamental building blocks or architecture of core banking systems. These systems do not have the granularity when it comes to products, customers and transactions. Banks needs systems that enable them to respond to these kinds of information requests with agility. 

Slow Time-to-market.

You can create the perfect product or banking bundle, but if you can’t get it in front of the right customer, you’re building a bridge to nowhere. Again due to legacy core systems that frequently feature older programming languages such as COBOL, adding a new product to a bank’s lineup is a time-consuming, frustrating experience. Worse, without a user interface or reporting dashboard, product managers cannot even gather information on product acceptance and uptake in order to improve future offers and bundles.

Conclusion

Following on from the previously discussed challenges of revenue leakage, product centricity and non-standard billing and invoicing, banks need to seriously consider core renovation. Core renovation allows modern architecture to deliver new functionality like dynamic pricing and product and pricing simulations which help banks to understand, at an enterprise level, the value of customer relationships and the potential of any given product offer or bundle. These modular projects, which add incremental functionality, allow banks to generate substantial ROI while building momentum for the overall strategic imperative to renew core processing systems.