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Prevention of bypass surgery or heart attack for Corebanking

Core banking systems were originally envisaged with the singular aim of maintaining customer account data in a centralized system accessible across the bank’s network of branches. Account aggregation into assets and liabilities for general ledger consolidation was inherent in the core. To ably assist front office operations, the system comprised simple processes. Higher value transactions were often routed through multiple approval levels within the core, with a defined workflow.

The evolution of core banking necessitated workflows for customer creation and account opening, and therefore process flows were defined for KYC, de-duplication, and blacklist/negative list checks. However, some providers moved this activity into a different software/module since workflows and interfaces were associated.

As customer demand grew, multiple processes and layers were piled on to the core banking systems. Lifecycle activities for clearing operations, involving lodging of physical cheques, schedule printing, and reconciliation of instruments were incorporated. As were complex trade finance and payment functions including issuance of documentary credit with attachment of bills, payments/settlements with SWIFT message generation and so on. While these proved beneficial in the short run, the core system reeled under the weight. The problem was further compounded as banking moved from people to process oriented, with complex processes and multilevel workflows added at every given opportunity.

These aging systems, which deftly handled simple accounting functions, are now gasping for breath. By way of remedial action, complex processing can be handled outside core banking with the use of an accounting platform solely for transactions. Alternatively, complex processing functions can be bundled up into modules and plugged in as needed. A strong interfacing mechanism which can integrate to industry standard middleware may be developed.

Transaction processing and accounting form the “heart” of core banking. Segregating all other functions in a modular fashion will result in minimal impact on the “heart” thus preventing a complete collapse.

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Comments: (1)

Melvin Haskins
Melvin Haskins - Haston International Limited - 25 April, 2013, 08:05Be the first to give this comment the thumbs up 0 likes

A very good description of core banking systems developed in the 1960s and 1970s, a considerable number of which are still being used by major banks.

The key, as you say, is that they are account and transaction based. They are not customer based. As a result, when a customer has four acounts - a current account, a savings account, a credit card and a loan / mortgage - linkage has to be established to tie them together, making the system over complex for what should be simple linkage.

The sooner major banks still using 40+ year old systems bite the bullet and decide to replace their aging systems, the more chance they have of surviving in the second decade of the 21st century.