Today’s customers want more from their banks in terms of service and capabilities, and Fintechs are more than eager to provide those expectations. To stay up with the banking sector’s rapid innovation, deliver on these expectations, and retain a competitive position in an increasingly crowded market, financial institutions must first upgrade the core banking systems on which they rely for day-to-day operations and embrace Digital Transformation.

According to Fortune Business Insights, the worldwide core banking software market was valued at USD 12.5 billion in 2022 and is predicted to expand to $40.67 billion by 2029, at a CAGR of 18.3% over the forecast period.

Core banking modernization is the process of upgrading, rewriting, or replacing old systems in a financial institution’s IT infrastructure. Banking modernization enable banks to increase operational efficiency, agility, and scalability, get access to new core technology capabilities, and provide better banking experiences to customers.

Factors Driving the Need for Core Banking Modernization

Growth of products and channels

An ever-increasing number of products catering to diverse customer segments, compounded by a rising number of channels, financial institutions confront dramatically increased complexity with multi-channel banking. Handling this scenario necessitates the use of scalable and sustainable modern core banking systems capable of handling any number of product-channel transactions and payments.

Legacy systems management

Due to their intrinsic incompatibility with modern operating systems and programming languages and heavy reliance on hard-coded business rules, many legacy core banking systems are challenging, if not impossible, to upgrade.

Lowering of costs

Banks are turning to core banking system modernization as a practical means of achieving internal cost reductions as they seek to increase internal IT efficiency in the current macroeconomic climate.

Modern core banking systems can consolidate many stand-alone apps and save expenses for processing hardware and core applications.

Rising level of competition

With traditional institutions, Neobanks, and other recent market entrants, including tech giants, vying for dominance, the banking sector has emerged as one of the most competitive sectors in business. These circumstances make it unsustainable for traditional banks to continue using outdated legacy systems.

Regulatory compliance

In order to comply with a rising number of new regulations aimed at boosting risk management and governance processes as well as increasing the transparency of banking operations in customer interactions, banks require the flexibility and agility to adjust to new inputs and requirements, which legacy core banking systems are unable to provide.

The focus on the customer

Banking has always been product-focused, but today’s products have become commodities.

Today’s banking industry is increasingly customer-focused, with a new emphasis on relationship-based pricing, single view of the customer, and customer service.

The Modernization Plan: Selecting the Best Strategy

Re-platform

Code migration that involves just minor platform improvements (such as version updates) and little alteration to the technology or functionality of the application. This solution doesn’t satisfy market and business demand, but it causes little disruption and offers a route to future adjustments that will have a bigger impact.

Re-factor

Maintain baseline behavior while updating the core banking platform’s codebase to modern technologies. This enhances the core platform’s readability, maintainability, extension, and eventual cloud readiness.

Build a parallel core

Build a parallel core that can handle advanced requirements that the traditional core cannot. The legacy core may be migrated to the new core in order to run for a differentiated set of offers. This choice offers cutting-edge solutions for banks seeking a speedy transformation while preserving current services and products.

Redesign

Redesign the current core platform with fresh, modern approaches. If a bank is prepared to make a larger initial expenditure and is able to justify the risk of replacement, this alternative expedites the launch of new products.

Conclusion

A robust foundation for future innovation and competitive advantage will be built through revitalized core systems that provide flexibility and real-time data processing. Banks have the option to reevaluate their core modernization business case and turn this vision into a reality as tools that assist core revitalization get better and mature.

Modernizing core banking systems is necessary to achieve a true customer experience emphasis. It no longer merely processes daily banking transactions. Banks now have a new source of revenue thanks to cloud technology and intelligent automation: core banking as a service. By putting customers first and releasing the trapped value in operations, Aspire Systems enables the talents, technologies, and skills for a core banking system upgrade. Talk to our experts now!

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