Core banking solution guide for managers

A core banking solution, from the customers’ perspective, simplifies their banking experience by allowing them...

to conduct common financial transactions without visiting their bank’s home branch. They can thus save time and banks can improve upon operational efficiency and transparency with core banking.

In this guide:

* Core banking solution components

* Market trends

* Implementation precautions

* Compliance and security

* Top vendors

* Related resources

Solution components
In terms of ‘retail banking’, core banking solution is an application that enables the bank customers to conduct common transactions from any branch and a large subset through net banking, ATM, kiosk-based, or phone-banking, instead of visiting their home branches. A few examples of common transactions are:

1. Deposits and withdrawals
2. Issuance of account statements
3. Issuance of checkbooks
4. ATM usage
5. Bill payments such as credit card or utility bills
6. Electronic shopping (Online payments or card purchases)

The software accomplishes this by pushing all transaction data from various sources to a centralized database in near real time and securely. It makes the bank's operations simpler and cost effective by covering the following functions:

1. New business: Covers processes such as opening of new accounts, initiation, and servicing of loan applications, etc.
2. Customer relationship management activities such as standing instructions, pre-qualifying customers for offers, etc.
3. Internal accounts maintenance (general ledger showing income and expense, assets and liabilities)
4. ATM usage
5. Specialized banking operations: The solution helps in carrying out all core banking activities under wholesale banking (targeting other banks as prime customers), and commercial banking (targeting business entities).

Market trends

Most large and mid-sized banks in India use core banking. The increased customer demand for integrated banking and Web-based secure access will force small banks to adopt core banking in the near future.

Consolidations
The core banking software business can be said to be in a consolidation phase. Recently a solution vendor, Temenos, acquired Primisyn and introduced an integrated offering, Insight. Another core banking player, S1, was recently acquired by ACI worldwide. Fundtech was taken over by GTCR. Oracle Financial Services Software (formerly i-flex) is said to be up for sale. Oracle has reportedly recruited Credit Suisse to advise on the sale.

SOA and cloud
New products are being designed and existing ones are re-designed to adhere to service-oriented (SOA) frameworks. SOA is expected to bring flexibility as banks can pick-and-choose from a bouquet of services instead of buying large, tightly integrated packages that leave little scope for enhancements. Vendors are expected to offer their solution through SaaS model.
 

Implementation precautions

As with most enterprise solutions, core banking can be fraught with issues related to compatibility, integration, and change management. The following tips can be useful specially for small banks that are implementing core banking for the first time or mid-sized banks that are migrating to a new package.

* Even before buying any solution, assess and ensure that your bank’s business and operational requirements are future-driven. Once that’s in place, make sure that the chosen solution meets these needs. Measure progress regularly to make  the solution effective.

* If you are migrating from legacy core banking solution, evaluate the costs and benefits of moving to an integrated branded solution first:
(i) Will the migration surely result in reduction in compliance and IT costs?
(ii) Will it help the bank to adapt to changing customer needs and competitive requirements?
(ii) Will it offer you a single view-driven customer service and assure consistency and facilitate cross-selling?

* In case of first-time implementation, ask yourself:
(i) Will it result in any change in the bank’s organizational structure?
(ii) Have you assessed the type of implementation you want? A standard implementation will be cost effective and speedy but will offer limited customizations and may lead to change management challenges. A functional implementation will offer high level of customizations to minutely match it to your existing processes and thus keep change management issues under control, but will also be expensive and time consuming.
(iii) Do you want to maintain the application in-house or outsourced it?
 

Compliance and security

For banks that are running in-house developed core banking systems, a small regulatory directive can prove expensive and time-consuming to comply with. In case of packaged solution, the vendors would be compelled to quickly accommodate the changes required.
With applications or their parts being offered through cloud, data security and privacy will gain importance.
As the entire banking sector relies on integrated core banking systems, even very small banks—regardless of their sizes—will be required to invest in information security policies and solutions to safeguard their customers, their own reputations, and for compliance.

Top vendors

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