The financial services business has been gradually disrupting over the last 20 years. Back then, all that mattered was physical presence. If you wished to expand a bank, you had to open new branches.

When it comes to banking, interactions with clients have transformed. Everyone has a smartphone, and digital is the most common route for client as well as customer connection. You could say that banks are evolving into a technology firm that provides financial services.

This progress has been influenced by several factors.

Customer demographics – Many customers today are digitally savvy. Customers expect banks and other service providers to be always available.

Less restricting regulation – Regulation is less restrictive than it was before. The regulation permits banks to place stuff on the cloud and operate with little or no physical presence and allows previously excluded players to enter the banking business.

Data monetization – The capacity to monetize data and use it to drive revenue and profits has altered the banking landscape. These directly resulted in the entry of non-traditional competitors into the markets. We have Fin-techs and large tech-giants attempting to do a little more than banking.

Open Technology – The emergence of open technology has substantially altered the financial sector.  We can connect the bank not only internally, but also externally, thanks to open technology.

Cloud Banking – We are now seeing cloud at the forefront of banking, with banks going cloud-native or 100 percent cloud.

Traditional banks are increasingly concerned about the limitations of their core infrastructures, as well as the comparatively slow pace. So, whereas we could only perform banking with banks 20 years ago, today banking with banks is merely one element of modern banking.

Legacy systems or platforms impede performance in the following major areas:

Cost – Given the industry’s low return on equity, this is a crucial element to consider. Legacy systems take a substantial amount of the bank’s IT budget. Most of these systems are so heavily customized that they rarely resemble the original product, adding to the complexity of maintenance. All these variables contribute to higher-than-necessary prices.

Personalization – Customers expect more individualized interactions.  Personal needs are challenging to meet since banks keep data in many product-aligned core systems. It takes a significant amount of time and effort to bring even a minor level of customization to legacy systems.

Time to market – In a congested business, launching products rapidly is unquestionably crucial. Due to various interdependencies and bottlenecks, monolithic architecture prevents speedier product delivery. Legacy code, that is inadequately documented, along with a manual delivery procedure, might exacerbate the problem.

Ecosystems — Third-party collaboration is essential in developing future products and services. Legacy system architecture will not foster innovation because it is not integrated to third-party apps.

Fortunately, tremendous developments in core banking technology have enabled a multitude of options, selecting to upgrade a bank’s core is no more a binary choice (do nothing or total replacement).

Emerging vendors are now offering next-generation, cloud-based banking and configuration-driven solutions that can provide banks with an alternative and less disruptive path.

These next-generation platforms enable banks to innovate and meet their most pressing needs while retaining the most basic banking operations on their old platform. Legacy vendors are also innovating, providing banks with more options for supplementing existing platforms with select next-generation features.

Differentiators facilitated by next-generation core banking service providers:

  • Product ranges that have been hyper-parameterized, allowing for a speedier time to market and extreme customization.
  • A single source of truth for consumer and transaction data. It allows real-time data analytics.
  • Cloud-native architecture leads to cheaper operating costs, automation, and resiliency.
  • Microservices and APIs provide speedier integration and greater capability re-use.
  • Third-party ecosystems to exploit best-of-breed solutions with future switch-ability

Regardless of the desired modernization strategy, banks must understand their underlying situation as well as the plan for how they would like their data assets to flow within their organization.

Effective data management is critical not only for operational efficiency and accuracy. It also provides banks with the opportunity to create richer customer experiences, increased cross-selling opportunities, and new external monetization revenue streams.

It is difficult to decide whether to replace, supplement, refactor, or re-platform the core. Because each bank is unique, a one-size-fits-all approach is unwise. Instead, a thorough examination of present infrastructure, market dynamics, consumer wants, and organizational capabilities is crucial.

Recommended Read: How to Build Tomorrow’s Bank: The Way Forward with Next-Gen Digital Banking 

Banks have three alternatives for replacing the core infrastructure:

Complete replacement of the core with a new technology stack

Banks frequently choose this approach when they urgently need to upgrade their core platforms due to inefficiencies or regulatory requirements. It can, however, be risky. It necessitates considerable data migration, and the benefits are often realized only after the final customer has been moved and the legacy systems have been terminated.

Banks typically select a traditional platform as a replacement due to worries that next-generation platforms are not yet sufficiently proven or are limited to a subset of products and services.

Modernization in stages

This strategy has been adopted by most banks. It entails preserving the legacy platform while gradually minimizing it, as a modern architecture is built upon it. If the current architecture is stable over the next five to ten years, it is often regarded as a safe bet.

Most modern banks begin with the most crucial customer journeys, which involves hollowing down frequently used features and recreating them as microservices. While this method is less risky than the first, changeover timelines are typically long, and banks may not reach the desired levels of efficiency and time-to-market.

A new banking proposition built on a new technology stack

It is widely perceived as less expensive and safer than the other alternatives because the existing client base is not exposed until the proposal and technology are verified. With many banks investigating next-generation core platforms, this option may provide the best method to extract the greatest value.

Use digital transformation to reinvent banking and financial services

From fresh expectations to open banking digital models, banks have prioritized the customer-centric strategy. Modernizing core banking systems is required to provide a true customer experience emphasis while making operations seamless across front, middle, and back-office systems.

Banks now have a new revenue stream thanks to clever automation and the cloud: core banking as a service. By putting customers first and releasing captive value in operations, you need a strategic technology partner to power the talents, technology, and capabilities for a fundamental banking system overhaul.

The partner will assist banks in their core banking system selection process and provide techno-functional advice based on the needs of the bank; help implement core banking at record speed and with minimal implementation expenses.  They will also assist retail banks, commercial banks, and other financial institutions in migrating to a higher performing core and supporting and maintaining their financial ecosystems.

As a final note,

Core banking systems are one of the most important components of the overall financial architecture due to their centralized spot. Any changes made to these critical systems will have an impact on all channels and operations.

Banks must establish their modernization profile based on the sustainability of their existing platform, their appetite for risk, the intensity to transform, the need to innovate their product and service offering, and the complexity of their data strategy to determine, which option is best for them.

With a broad range of digital solutions at their disposal, small banks and lending institutions now have a wider range of options for reimagining and transforming their core capabilities – Bank in a Digital Box can make this happen.

The Bank in a Digital Box (BiDB) solution enables organizations to embrace digitization while minimizing disruptions. It enables smaller banks segments to concentrate on their vision and strategy, viewing digital transformation as an opportunity rather than a necessity and eliminating the need to source different providers for development and integration.

To accelerate business efficiency, satisfy compliance requirements, and recruit new clients, BiDB employs a Minimum Viable Product (MVP) and add-on methodology. It provides rapidly configurable, ready-to-deploy solutions at lower entry/operational costs while increasing operational speed, scalability, and robustness.