19 Jun 2024

Is your core banking ready for the future?

Find out how to create the perfect strategy
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Cristian Triana
Digital Strategist
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Digital Transformation
Banking
Cloud
NextGen Finance
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In a dynamic industry that is evolving at a rapid pace, it is normal to wonder how to face the challenges of modernisation. The challenge is not deciding whether to modernise, but how to do it effectively to face the future successfully. The need to upgrade core banking systems is widely accepted; how to approach this modernisation is the real challenge.

 

So how do I know which way to go? First, there is no single formula for modernisation.

The strategy must be tailored to the specific needs of your business, combining technologies, accelerators and expertise. This mix will allow you to unlock exponential value and ensure integration and growth in a dynamic market. Using technology that is not suited to the demands of the market can limit your ability to grow and integrate with the rest of the ecosystem.

Types of core technologies and business cases

In today's financial landscape, institutions face the challenge of modernising their core systems to remain competitive. While it is not necessary to change the core banking system every five years or every time a new technology emerges, it is necessary to consider modernisation strategies to stay relevant. There are two main types of core technologies:

  • Established core systems: Traditional systems that have evolved to meet modern needs. They are robust and have a proven track record in dealing with complex financial products with higher regulatory requirements. Traditionally, they have been the option of choice for large banks that handle high-value transactions and products with multiple functionalities. Although not initially cloud-native, they are cloud-compatible and can communicate through RESTful APIs. Examples include: Oracle, Infosys, Temenos and Finastra.

 

  • Next generation core systems: Developed from scratch on top of modern technologies. These systems are highly flexible and designed to operate in real time, being cloud-native and using RESTful APIs. Digital banks and fintechs were early adopters of these systems given their flexibility to rapidly launch digital products at lower cost. However, as these systems have matured, larger banks have also started to integrate them into their core banking stacks. Examples of these include Thought Machine, Mambu, 10x, Engine by Starling, Tuum, Skaleet and Finxact.

 

At GFT, we understand that every financial institution has unique needs. The key to unlocking exponential value lies in finding the right recipe, combining the sum of technologies, accelerators and expertise. It is not a black and white situation where established cores are only for traditional banks and next generation cores only for digital banks. Each business case is different and there can be multiple successful combinations depending on the specific needs and strategic objectives of the institution.

Modernisation of core systems is essential for financial institutions to adopt innovative solutions and maintain the agility demanded by the market.

The right migration strategy is key to upgrade core systems securely and efficiently. To put it in hard numbers, according to industry analysts 40% of core modernisation projects fail; 65% go over budget; and 60% of banks suffer system outages during the process. Our approach is based on our extensive experience.

 

Coexistence (Brownfield): This strategy involves keeping the current system operating, current customers and contracts remain in the existing system, while new contracts and customers are managed in the new system. This reduces migration risk but increases the complexity and cost of maintaining two systems.



Complete Migration (Big Bang): Although this is a complete migration, this strategy can be implemented in parts. For example, the credit products part can be completely migrated to the new system, while the deposit and savings products remain in the current system. This strategy eliminates the need to maintain two systems but involves a higher risk of disruption during the migration process.

 

Both strategies have their pros and cons. Coexistence mitigates risk by allowing a gradual transition but can be costly and complex. On the other hand, full migration eliminates the duplication of systems and the cost of operating them, but carries a higher risk of disruption

At GFT, we help our customers evaluate and choose the best migration strategy for their specific needs, ensuring a smooth and effective transition.

Composable banking: a modular modernisation strategy

The composable Banking strategy allows for modular and flexible modernisation. This implies a clear definition of responsibilities between each component of the banking ecosystem, allowing to update and make changes only to specific components without affecting the whole system, adapting quickly and without renewing the entire banking environment. By having a clear demarcation of responsibilities and components within the banking ecosystem, technological evolution is facilitated. This not only streamlines the modernisation process, but also mitigates risks associated with major transformations. However, it is important to note that this strategy can increase the complexity of API management, as it requires more detailed and specific integration of each component.

Regulatory challenges and technology adaptation

The regulatory landscape is very dynamic and constantly changing, which represents a significant challenge for financial institutions. For example, during the pandemic, the interest rate became a central risk, overtaking other financial risks that were previously considered more important. The ability to adapt quickly to these regulatory changes is crucial. At GFT, we support financial institutions in this adaptation through the use of RegTech technologies, accelerators, centres of excellence and our vast experience in core systems. These tools and expertise enable us to help our customers quickly implement the necessary changes to their systems to comply with new regulations. The emergence of new technologies such as generative artificial intelligence, cloud computing and open finance is transforming the way we conduct financial transactions and interact with customers. In this case, core modernisation becomes an urgent necessity to stay competitive and deliver an exceptional customer experience. Our end-to-end solutions offer not only the stability and security needed to comply with regulations, but also the innovation and agility required to adapt to an ever-changing environment. With extensive experience in implementing banking cores and a strong partner network, we are poised to lead the next phase of transformation and unlock exponential value for your institution.

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“"The emergence of new technologies such as generative artificial intelligence, cloud computing and open finance is transforming the way we conduct financial transactions and interact with customers." ”

Cristian Triana
Digital Strategist, GFT

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