Competition in the banking industry is at an all time high, driven in part by the influx of neo and challenger banks, as well as brands embedding financial services into their existing offerings. These new players are using next generation digital core banking systems to define and deliver optimized, targeted and dynamic value-added digital banking services and products to their customers that add value and enable them to differentiate their services.  

Traditional banks that use legacy core banking systems are struggling to keep up. This is because they are faced with a multitude of limitations that come from the silos and rigidity of their current core banking system, the lack of flexibility they face in being able to adapt to changing customer journeys and behavior, closed ecosystems, vendor lock in and excessive maintenance costs, among other issues. 

For traditional banks, it’s no longer enough to think about digital banking transformation from the top down, such as new digital banking channels and finance process automation. Instead, banks need to consider a digital core banking transformation strategy that includes the implementation of a next generation core banking system that will give them the flexibility they need to adapt to changing customer needs and become an integral part of their customers’ lives by providing the right offering, to the right customer, at the right time. 

Most importantly, a next generation core banking system enables financial institutions to realize new revenue streams.

The exponential increase in digitalization and adoption of digital banking in recent years has enabled financial institutions and fintechs to gain deeper insights on existing and prospective customers based on the analysis of hundreds of customer data points.

These data points, which include behavioral and psychographic indicators such as social media footprint, device preferences, etc., are used to identify micro segments within existing broad customer categories and offer a hyper-personalized experience to the individual consumer. 

In addition, a next generation core banking system enables financial services providers to connect with non-banking tech companies and embed financial products into lifestyle services such as travel, hospitality and entertainment. This has opened up a gold mine of new revenue opportunities for financial service providers to explore. 

What is a next generation core banking system? 

Next generation core banking systems aim to break down the barriers that limit financial institutions in their digital banking transformation process by offering financial processing platforms based on modern, scalable, flexible, and open architectures supported by the following pillars: 

• Cloud-Native technologies

• Architectures based on decoupled and scalable service models

• Powerful parameterization 

• Open APIs, based on standards that facilitate integration

How a next generation core banking system can help generate new revenues.

A next generation core banking system is designed with keeping a bank’s customer-oriented strategy in mind. Consequently, a next generation core banking system is built to be able to keep up with the rapidly evolving customer and market dynamics in this digital age. Compared to the legacy monolithic core banking systems of the past, next generation core banking systems are built with three major considerations in mind: cost effectiveness; high-speed transaction capabilities; and future-readiness/resilience. 

Keeping these considerations in mind, the key attributes and features of a modern core banking system that are essential to driving new product/service revenue streams are:

Scalability

A scalable core banking solution requires its components to be modular and decoupled enough to allow a bank to scale each component individually instead of a costly monolithic approach where the entire application needs to be scaled, even for a single component change. A microservices architecture improves the resilience of the core banking solution since any downtime in a microservice does not impact the entire solution, which can continue running while the microservice is getting fixed. This also allows banks to invest in scaling up only the specific service that is related to its business goals, thus making it cost-effective as well. 

Moreover, a modular microservices architecture is best suited for a cloud deployment which adds to the operational scalability of a core banking solution and provides greater flexibility and speed to respond to customer needs. A cloud-ready core banking solution also offers the advantage of easy upgrades and the ability to collaborate and integrate with other third-party fintech platforms through a cloud platform.

Interoperability

In today’s connected open banking ecosystem, banks need a core banking solution that can not only integrate with their existing legacy systems, but also seamlessly integrate with sophisticated third-party systems and platforms using dynamic APIs. This is pivotal to superior user experience for its target customer segment by combining in-house and best of breed third-party fintech capabilities in a seamless manner. Interoperability is one of the critical factors that determine a bank’s time to market with new products or services. A platform-agnostic core banking solution with dynamic API infrastructure also allows banks to quickly adapt to new business models such as Banking-as-a-Service (BaaS).

Flexibility

The US banking market is highly competitive, and speed and agility are critical success factors to gain a competitive edge. Agility for a core banking system translates into a low- or no-code platform that offers a highly parameterized and configurable workflow engine as well as a dynamic product factory that allows even non-technical business function owners to create customized banking products for their target market and customer segment. This eliminates the dependency on technical teams and significantly decreases the time to market.

Compliance

One of the characteristics of the US banking industry is a complex regulatory framework involving multiple federal regulatory agencies. To add to this, stringent regulations resulting from the Dodd-Frank Act and BASEL norms for international markets have made the task of managing regulatory reporting and compliance extremely complex. These reporting requirements and security standards have made it impossible for banks to manage with legacy core banking systems. A next generation core banking system that aligns to local reporting standards greatly improves the bank’s compliance reporting process.

Real-time processing

Core banking systems that do not run in real-time limit the bank’s go to market capabilities and significantly impacts the customer experience. This also puts a lot of constraints in any digital or analytical overlay services offered by the bank to its customers. A real-time transaction processing engine is an essential component of a bank’s core banking system and enables an array of real-time services, such as instant payment transactions and instant loan approvals, as well as personal finance applications that are mapped to the customer’s bank account.

Learn more about why core modernization and cloud migration matters for banks.

The digital core banking platform. 

Cyberbank Core is a next generation digital core banking platform that enables retail and commercial banks to realize new revenues, accelerate their digital banking efforts and future-proof their businesses. With Cyberbank Core, banks and FIs can create new and innovative products and services based on powerful parameterization tools and a library of ready-to-use capabilities.

With Cyberbank Core, Financial Institutions can: 

• Jumpstart their digital banking journey by leveraging our Reference Model Bank that includes more than 1,500 atomic financial operations and 5,000 workflows that provide reusable financial products, services and customer journeys for retail and commercial banking so they can hit the ground running.

• Design their own business by making it easy to add capabilities, define behaviors and change the product structure quickly and easily by using business-oriented tools and our powerful, parameter-based Product Factory to accelerate the time for launching new products.

• Accelerate time to market for digital banking innovations by deploying the core platform using container-based architecture which also optimizes infrastructure costs, increases resilience and makes it easier to integrate with internal DevOps processes.

• Benefit from an API-centric core banking architecture that can automatically expose business services, enabling banks to build a reliable and strong ecosystem with frictionless and rapid integrations.

• Maximize the time to value by deploying the core banking platform incrementally, prioritizing services and modules as needed.

• Scale as they grow with a core banking platform that is optimized and tested for vertical and horizontal scalability.

• Deploy a next generation core banking platform in as little as three months depending on the scope of the digital banking project.

• Operate across multiple currencies, and languages and provide true real-time 24/7 operations.

Learn More.

To find out more about Cyberbank Core, the next generation digital core banking platform, request a demo with one of our digital banking experts.

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Contact us today and find out how we can help you go beyond digital banking and become an integral part of your customers' lives.

Note: This article was originally published on technisys.com, which was acquired by Galileo’s parent company SoFi Technologies in February 2022.