In the realm of retail banking, a great deal of focus is placed on aspects such as channels, user journeys, and customer experiences. However, often overlooked is the integral role played by the core system that powers the entire operation. This core system is responsible for running the ledger, settling card transactions, posting interest calculations, and reconciling end-of-day balances. It is the silent yet critical machinery that supports all banking operations, from mobile apps to instant payments.
When the core system functions seamlessly, it goes unnoticed. However, any malfunction can bring all banking operations to a halt, shaking customer confidence and raising regulatory concerns. Thus, the performance of the core system is not just a technical issue; it is a matter of survival for the bank.
The Role of Core Systems in Modern Banking
Every retail bank, irrespective of its brand or location, relies on specific fundamental disciplines. The core banking system enforces these disciplines, ensuring that money is accurately recorded, transactions are correctly balanced, interest and fees are correctly calculated, and transactions either complete or fail without being left in an ambiguous state.
Traditionally, the machinery of this system was designed for the era of branch hours and overnight processing. However, in today’s digital age, customers expect to conduct banking transactions anytime, anywhere. Despite this shift in customer expectations, many banks’ internal systems continue to operate on a daily cycle.
To cater to the escalating demands of modern banking, most institutions have layered additional systems on top of their core system. However, while these layers offer flexibility at the edges, they introduce complexity in the middle, making the bank a cluster of systems rather than a single, cohesive platform.
Understanding Legacy Cores and Their Impact
Most large retail banks still depend on systems built during the era of mainframes. These platforms were designed for stability rather than change, and could not anticipate the demands of modern technologies such as mobile banking, real-time payments, and cloud computing.
As a result, banks have been inclined to add on specialist modules to support new products rather than re-architecting the core. This ad-hoc approach has resulted in the core becoming a federation of systems, making changes difficult and risky.
Meeting Real-Time Expectations with Legacy Architecture
Legacy cores were not designed to handle the real-time demands of modern banking. They excel at batch processing but struggle with continuous transactions, leading to performance issues and operational risks. To address these challenges, banks must focus on modernising the underlying architecture.
The Human Element in Core Systems
Core systems are not just about technology; they are also about people. In every bank, there exists a group of specialists who understand the intricacies of the ledger and handle its operation. Their knowledge and experience are crucial to the smooth running of the bank, and any modernisation agenda must respect and leverage this expertise.
Revisiting Risk and Resilience
In discussions about core transformation, the focus is often on project risks such as budget overruns and delivery delays. However, a deeper risk lies in the loss of control as more functions are outsourced or delegated to external platforms, which could result in the bank becoming dependent on technologies it does not fully understand.
Resilience in the banking sector requires more than just backup systems; it demands a clear understanding of the bank’s own systems. Therefore, modernisation should be viewed as a disciplined reduction of fragility.
Changing Without Disrupting
One of the most challenging aspects of modernisation is the need to upgrade the core without disrupting daily operations. Strategies such as building a new core alongside the old one and migrating products in phases, or progressively decoupling functions from the core, can help manage this transition.
Leadership and Governance in Core Transformation
Core transformation is not just a technical project; it is a governance challenge. It requires leaders to focus on the complex and often unglamorous task of rewriting the systems that run the bank. This involves asking fundamental questions about the bank’s systems and continuously monitoring system health and complexity.
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