When Core Banking solution (CBS) was designed in the late1990’s, it was engineered to connect to the different branches of the bank using a central database and ensure proper accounting to generate the General Ledger. It removed the huge ledgers in the Bank where manual posting was done by staff and eliminated the branch-based accounting software (Total branch automation software) which assisted the front office/tellers to perform routine/repetitive transactions. The initial vendors of the software worked /co-build the software with large banks who provided the requirements to convert the manual ledger operations into accounting software.
From a concept perspective, it succeeded in eliminating the manual accounting, improved transparency in reporting from a Bank/regulatory perspective and assisted the customer in banking anywhere anytime, since all accounts are linked to a centralized database. Banks whose staff devoted larger time in reconciliation, manual interest posting, and manual General ledger creation heaved a sigh of relief where errors were minimized, data available in a software rather than ledgers, reporting was smoother.
From a customer perspective, passbooks and statements were provided in an automated way, balance information and withdrawal was possible through an ATM anywhere located in the same city where the account was opened/outside, with an interface to Core Banking solution (CBS), thereby increasing trust in the banking ecosystem.
From a Banking perspective, many of the operations could be moved from branch banking to centralized cells enabling front office staff to focus on customer service and cross sell/ business improvements. The concept of front office/back office originated where a separate set of teams focused on back-end activities-, product creation and innovation, clearing, loan operations, trade operations, account opening, audit, reconciliation, reporting and MIS etc. With more information and data at the back office, it paved the way for new product innovations resulting in launching of more products, thereby increasing business/profits for the Banks. The CBS helped the Bank to globalize/localize products which are fit for purpose for the customer bringing customer delight.
From the beginning of the last decade a set of new businesses emerged which included private Banking, cash management, microloans, distribution products and gained popularity with Banks because of the visibility for new avenues of business. This was either forced through regulations or because of market factors and Banks began to depend on new software solutions reducing the dependency further on core banking.
The era also saw the emergence of digital and self- service channels where Millennials/new age customers depended on web browsers/smartphones to perform banking transactions. The older generation of customers though a little reluctant, moved towards these digital channels for limited transactions over a period. A smooth and easy interface with CBS was required which resulted in CBS vendors forced to build those APIs/smart interfaces. This also ensured that the multiple security and compliance protocols must be built in the application to reduce frauds for transactions originating external to CBS. Customer experiences, customer behavior and customer needs for banking changed drastically during this decade.
To conclude, the redesign and modernization of Core banking is a priority in the current decade with evolving changes and considering many factors of banking transactions which moved from branches to mobile to social media to alternate channels. It has to move away from accounting-based CBS to rule/process based with accounting embedded. While the initial design was primarily focused on accounting, the rules/processes/exceptions for the product/account lifecycle at various stages must be factored to meet the needs in the modern era.
