Core banking

Core banking is a banking service provided by a group of networked bank branches where customers may access their bank account and perform basic transactions from any of the member branch offices.

Core banking is often associated with retail banking and many banks treat the retail customers as their core banking customers. Businesses are usually managed via the corporate banking division of the institution. Core banking covers basic depositing and lending of money.

Core banking functions will include transaction accounts, loans, mortgages and payments. Banks make these services available across multiple channels like automated teller machines, Internet banking, mobile banking and branches.

Banking software and network technology allows a bank to centralise its record keeping and allow access from any location.

History

Core banking became possible with the advent of computer and telecommunication technology that allowed information to be shared between bank branches quickly and efficiently.

Before the 1970s it used to take at least a day for a transaction to reflect in the real account because each branch had their local servers, and the data from the server in each branch was sent in a batch to the servers in the data center only at the end of the day (EOD).

Over the following 30 years most banks moved to core banking applications to support their operations creating a Centralized Online Real-time Exchange (or Environment) (CORE). This meant that all the bank's branches could access applications from centralized data centers. Deposits made were reflected immediately on the bank's servers, and the customer could withdraw the deposited money from any of the bank's branches.

Software

Advancements in Internet and information technology reduced manual work in banks and increasing efficiency. Computer software is developed to perform core operations of banking like recording of transactions, passbook maintenance, interest calculations on loans and deposits, customer records, balance of payments and withdrawal. This software is installed at different branches of bank and then interconnected by means of computer networks based on telephones, satellite and the Internet.

Gartner defines a core banking system as a back-end system which processes daily banking transactions, and posts updates to accounts and other financial records. Core banking systems typically include deposit, loan and credit-processing capabilities, with interfaces to general ledger systems and reporting tools. Core banking applications are often one of the largest single expense for banks and legacy software are a major issue in terms of allocating resources. Spending on these systems is based on a combination of service-oriented architecture and supporting technologies.

Many banks implement custom applications for core banking. Others implement or customize commercial independent software vendor packages. Systems integrators implement these core banking packages at banks.

Open source Technology in core banking solution or software can help banks to maintain their productivity and profitability at the same time.

Providers

While larger financial institutions may implement their own custom core, community banks and credit unions tend to outsource their core systems to system providers. While there is no consensus or a public register on the actual Core Banking Providers, various market research companies like Gartner or Forrester Research release annual deal surveys mentioning platform deals.

Today, the core banking software solutions are even more relevant, especially given the need for an urgent transformation of the existing legacy core systems itself. Large banks and financial institutions are increasingly realizing that they need to be hyper-agile in focusing on customer delight strategies but unfortunately, remain slow to respond or adapt to emerging technologies due to their existing legacy core systems that are not trained do the heavy lifting. One of the key approaches in such a scenario is the need for a decoupling that supports this constant change or innovation and can also reduce the risk of failure that could be fatal and very costly.

There are few providers that help leverage the existing legacy systems itself, by hollowing out customer engagement functions from the core system and managing it as a horizontal cross-enterprise layer. This layer provides banks with enhanced product innovation capabilities, sophisticated customer data management, partner ecosystem, and revenue management and pricing. With this approach, banks can quickly adopt new technologies, add more functionality and capabilities, offer customized products and enhance the customer experience. The goal is to transition from a product-based to an agile, customer-first organization.