The influx of Fintechs, innovative technologies, cloud banking, and sophisticated processes has taken the banking industry by storm. This has led to traditional and incumbent banks to rethink and realign their way of operating. Traditional banks are reinventing themselves to meet rapidly evolving customer expectations, to deal with constantly changing regulations, and to compete more effectively with pure digital challengers. Fueled by the pandemic, there is also a growing need for the modernization of Core Banking Technology to support the ‘new normal’. Traditional banks recognize the importance of a seamless, personalized customer experience, leading them to embrace technologies like artificial intelligence to enhance the value they deliver to their customers. In order to change the bank, modernizing core banking technology has become a key strategic element. 

Today customers are also very demanding, especially, the millennials and Gen Z who expect a lot from their banks. They expect their interactions with their banks to be round the clock, seamless and omnichannel. This kind of approach is more prevalent in Neobanks and Challenger banks as they benefit greatly from a lower cost structure and more modern information technology architectures using cloud, artificial intelligence, and advanced analytics. However, traditional banks still having their legacy core banking systems are rapidly becoming inadequate to deliver this kind of customer experience. 

A modern system backed by core banking technology provides: 

  • Support for Digitization through faster access to core system data 
  • Faster time to market for product and flexibility in pricing 
  • A low-cost way to scale and operate core systems 
  • Agile operating model 
  • Real-time payments capabilities and  
  • Open banking and ease of onboarding 

Even with all these features that are the need of the hour, many banks are hesitant to undertake a multi-year modernization effort that could run costs in the millions. However, their hesitance is understandable and many perceive a modernization effort to be risky, prone to failure with significant cost overruns, complicating things further.  

Still, modernization has to take place, in some shape or the other as eventually, legacy platforms are going to get expensive to maintain and the technical skills required to maintain legacy core platforms are going to get scarce.  

Another aspect of core modernization strategy that banks must realize is that the core platform itself doesn’t differentiate banks. Rather, it’s the ability to deliver personalized experiences, value-adding data and insights, and ancillary services that extend from a modernized core that can make banks stand out. 

Banks with legacy core banking systems have several choices when it comes to its modernization: 

  1. Wrap the Core: Legacy code is difficult to change as there is poor documentation available, and a lack of technical skills specific to the legacy code. Also, mission-critical operations run on the core banking platform, so care must be taken in handling legacy code. User interfaces of legacy core banking systems can be considered for modernization without replacing the back-end. The legacy core can be transformed to modern digital banking core by wrapping it with a service layer and an added innovation layer. Cloud native architectures and latest web technologies can be used to develop the new UI. Batch workloads can be re-engineered which will provide significant savings and APIs can be used for compatible integrations. 
  2. Complete Overhaul: For some banks, a complete transformation program that replaces the legacy core with a modern core banking technology is the best approach. Usually, the legacy system is connected with multiple applications handling different aspects of the business process. Depending on the size of the bank, the planning phase for this kind of modernization could last anywhere between 3 to 12 months, and the execution will require 12 to 24 months. It’s critical to articulate interim deliverables, through Minimum Viable Products or proofs of concept, to ensure that there no surprises at the User Acceptance Testing (UAT) stage. 
  3. Progressive Modernization: A progressive modernization approach is particularly helpful for large banks dealing with a huge network of legacy systems and numerous banking applications catering to various business lines, capabilities, products, and processes. A progressive approach entails the rollout of a new system boosted by core banking technology through selectively modernizing modules over time based on business and IT needs. When the legacy IT stack is complex, progressive transformation helps ensure better allocation of resources and budgets and a safer outcome. 
  4. Greenfield Approach: A Greenfield Digital Bank operates in parallel to the legacy stack of the existing traditional bank. Greenfield combines the advantage of an existing traditional bank with the agility and cost base of a challenger bank. It can take as little as 90 days to set up a Greenfield Digital Bank. Greenfield delivers a technology platform that is scalable, enables fully digital experiences, provides flexibility and can be iterated to meet the needs of both customers and the business users. The Greenfield approach allows for a low cost, agile infrastructure that can enable customer propositions and product innovation in a way that legacy infrastructure cannot. For example, a traditional bank in the Caribbean launched a digital challenger bank by building a modern technology stack on top of their existing core platform including sophisticated middleware, digital channels, and marketing platforms. The new challenger bank including all integrations was launched in roughly 6 months. 

Decisions to address the core banking technology modernization are never going to be easy but, it eventually needs to be done. The implementation of modern core technology and data infrastructure can yield significant value in the form of faster delivery of changes and improvements, increased cost efficiency, higher quality of assets, and stronger customer outcomes. However, banks need to assess their current core banking platform and determine how it needs to change, and how they should approach the transformation that will enable them to meet business and IT needs at a lower cost, and greatly increase their odds of success.  

Learn more about Aspire’s Core banking solutions and services by getting in touch with us.