When banks across the globe are investing in specialized solutions for Front End Teller, Loans, Deposits, General Ledger, Payments, Cash Management, Trade Finance, Private Banking, Customer Data Management and so on, the role of the Core Banking Solution (CBS) needs to be reassessed. Initially, the core banking solution was0020designed as an integrated solution providing a comprehensive functional offering in all areas of different lines of business, with transaction processing and accounting capability. The legacy software solutions used in banks developed by local vendors presented architectural, technical and functional constraints in scalability and performance, creating a demand for core banking solutions. Also, the maintenance and support of multiple solutions and vendors was a major issue for clients globally, making a core banking solution with integrated offerings the preferred choice.
However, specialized solutions were still available in the market in all areas of banking lines of business, and vendors would enrich the functionality based on market needs/demands. The design of these solutions was unique, enabling enhancement and integration with multiple host and channel solutions. Although initially, smaller banks did not prefer these solutions over CBS, the business requirements and complexities forced the Banks to explore these options. Depending on the extent of their operations on areas like Payments, Cash Management, Trade Finance or Private Banking, some banks began to procure these specialized solutions.
A trend analysis of CBS implementations at Tier I & II banks in developed and developing countries shows that smaller banks prefer CBS, whereas larger banks usually opt for a combination of CBS and specialized solutions. The transformation programs in smaller banks and developing countries are less time consuming. On the other hand, larger banks with peripheral/specialized solutions take longer to modernize their technology solutions given the complexity and multiplicity of solutions.
As business and functional requirements became more complex in different banks across markets, more and more enhancements were required in the CBS solution. Some of the CBS vendors re-architected the solution with advanced functionality and market specific releases. Since the solution was integrated, a line of code added into a deposit layer, for example, impacted multiple modules in the overall core banking solution, and elongated testing, analysis and product release timelines.
In the face of stiff competition, the CBS vendors started developing specialized solutions to keep pace with market demand. However, compared to specialized solutions, the products from CBS providers lacked maturity. The CBS vendors were not able to meet the breadth of functionality offered by specialized solutions in a short span of time.
To conclude, the role of the core banking solution needs to be revisited and strategized, with focus on the needs of different markets and client segments. There are Tier II/ III/ IV banks where core banking solutions can still be positioned according to lines of business, volumes and client segments. These banks may not require specialized solutions for all lines of business and would be able to support most basic banking requirements and transactions with an internationally branded CBS. It will not be prudent to expect a core banking solution to develop functionality similar to that offered by specialized solutions. Larger banks should use the core banking solution for accounting, which means that it would have to interact with specialized solutions in an online/batch manner based on business requirement. Most of the business rules, processes, logic and validation can be undertaken in the specialized solutions. The technology and architecture of the core banking solution should be flexible enough to interact with peripheral specialized solutions with/without middleware for processing of transactions and accounting. Core banking vendors must view this as an opportunity to increase market share by offering multiple solution offerings – core banking and specialized.