Wednesday, 5 August 2015

How important is a modern core banking system, really?

With an ever-increasing stream of digital-only banks springing up around the world, IBS Intelligence ponders how vital is it for these tech-savvy banks to have genuinely modern core systems?

There is no argument, of course, that a digital bank needs a sophisticated front-end, and there is no shortage of vendors – newcomers, old-timers and everyone in between – offering software and solutions to address this.

However, when it comes to core processing, does it matter?  The opinions here differ, it would seem. Vendors such as Temenos time and time again state that no front-end, no matter how cutting-edge, is any good without a modern back office system with real-time capabilities that can adequately support it.

Understandable, as these vendors are in the business of selling core systems. And yet, if your front-end is real-time but your back office can only cope with batch processing, what good is it?

But some banks seem to be getting by with what they have just fine. A large player in the US, Keybank, is focusing on, and investing heavily in, digital channels – yet the core – Hogan from CSC, whose roots date back to the 1970s – remains in its place, with no plans to replace it. Having said that, the bank has moved as much functionality as it could out of it, so it has been reduced just to transaction processing. It is supplemented by an enterprise service layer on top of it, which delivers all the piping and business logic.

Atom Bank in the UK, a pure-play digital bank, has opted for FIS’ Profile core banking system, another old-timer in the banking tech world. Profile originated in the 1980s. However, Stewart Bromley, COO of Atom Bank, is not deterred. Core banking software is a commodity, it does not add any differentiation to the customer, he says. So as long as it supports the required functionality and the vendor commits to deliver on time and to the agreed specifications, it is all good.

However, its soon-to-be rival in the UK’s digital banking space, Mondo (this bank is in the process of obtaining a licence), is a complete opposite. Tom Blomfield, CEO of Mondo, states: ‘We do not want to be a brand new bank going for a very old system like some others have done.’ The Mondo team has decided to develop its own core system ‘that is genuinely online and is truly fit for the 21st century’. It is a 24×7, real-time solution, based on the open source technologies used by the likes of Amazon, Google and Netflix, he says. The system will support standard current accounts and loans.

Also in this camp is Germany-based Fidor Bank, which has been operational for a few years now. It maintains a community of over 300,000 members – 50,000 of which utilise banking services – all supported and run on its own core banking system, purpose-built to encompass the bank’s nuances. The system is written in Ruby on Rails, with Apache web server and MySQL database. It runs on Linux as the operating system and has web 2.0 interfaces. The system supports fully-fledged customer accounts, including account opening due diligence, loans, deposits and payments.

Fidor has now set up a separate technology subsidiary, Fidor Tecs, to sell the software white-label to other direct banking start-ups, mobile operators and retailers.

What camp are you in? We’d love to hear your views.

By Tanya Andreasyan.


  1. I believe that most people would accept that every bank needs a core system. Even those banks which are described in the article as building their own system are still having to build transaction processing capabilities. However if I was a shareholder of those banks I would be asking why the bank feels it needs to reinvent the wheel, and whether the bank really should be "in the system software business". Not to be forgotten is that most of the in-house system building projects either end in failure, or do not deliver everything that was originally promised or both. And normally for significantly higher costs than initially budgeted. Is that in the best interests of the shareholder?

  2. Differentiation cannot be had with packaged solutions. Facebook Netflix and most others have their own platform. Having said that the entire CBS functionality and the processes that it covers cannot be different from one bank to another. Each bank has to decide which aspect of the processes do they want to differentiate on and have its own implementation and with rapid changes as per dynamic needs of the customer and regulator. These changes do not have to be as per the product releases and same for all banks. So its not one solution for all. It's a mix of package solution for the commodity stuff and custom solutions for the niche solutions for differentiation.

  3. As a matter of fact Profile originated in the 1980s but is NOT a mainframe-based offering. AIX and HP-UX are the most popular OS options.

  4. As core banking heavily relies on information technology and its components. Therefore it is very crucial to have an efficient core system designed that contributes to centralized access to records from any branch anywhere