In the dynamic world of financial services, staying ahead of the competition means embracing the latest advancements in core banking technology.

Understanding your business objectives is the first step in your core banking transformation journey.

However, it is important to note that there is no one-size-fits-all approach when upgrading a core banking system. It requires a strategic evaluation of existing infrastructure and a risk assessment of potential alternatives.

According to a survey from Capgemini’s 2024 World Retail Banking Report, 70% of chief experience officers plan to increase investment in digital transformation by up to 10%, focusing on enhancing data management capabilities and modernizing legacy systems. Additionally, they intend to migrate core functions to the cloud to establish an agile, economical foundation.

Cloud computing and advanced data analytics play a crucial role for banks aiming to provide additional services within profitable open banking networks, while artificial intelligence, including generative AI, is at the heart of smart transformation, the Capgemini report states.

Cloud computing and advanced data analytics play a crucial role for banks, while artificial intelligence is at the heart of smart transformation. © Pexels

As a leading provider of cutting-edge core banking solutions, we understand the complexities of transitioning from a legacy system to a modern digital platform. Here are five crucial factors to consider when making this critical change:

  1. Composable core banking

Composable banking is an essential factor for banks to consider when changing their core banking system, as it allows them to stay competitive, manage costs, and mitigate risks. Composable banking can also boost long-term success as it is an agile, flexible, and cost-effective option that enables financial institutions to break down their services into smaller, autonomous components. These components can be seamlessly combined with other business modules to develop personalized banking solutions.

According to a June 2024 report by Gartner, deploying composable core banking systems provides banks with an alternative to highly customized core systems that carry high maintenance costs.

“We use traditional core banking systems as a prime example where vendors are losing the battle to maintain the delicate balance of supporting an ever-increasing cadence of regulatory change while maintaining support for mid- and longer-term business aspirations,” the Gartner report says.

“Bank CIOs just don’t have the luxury of time to wait for wholesale traditional core release upgrades to support near-term regulatory requirements,” Gartner adds.

Gartner recommends that CIOs analyze the current state of composable banking and identify demand opportunities in specific regions before deciding on composable banking.

They should also assess and prioritize the reduction of functional redundancy in banking applications to meet short-term and long-term customer demand and revise go-to-market strategies to emphasize the benefits of composable offerings in conjunction with industry cloud platforms.

“Vendors that adopt composable technology strategies within their applications can drive shorter development cycles and demonstrate higher value to their bank customers,” Gartner says.

2. Comprehensive total cost of ownership (TCO) analysis

Investing in a new core banking system is a significant financial decision, more so as banks are increasingly facing cost pressures.

There is no doubt that replacing or upgrading a core banking system is a complicated and resource-intensive process, with potential operational risks, data inconsistencies, and service downtime requiring careful attention.

To manage these issues effectively, banks require a solution that enables a seamless, phased transition without disrupting day-to-day operations.

Additionally, consider the cost savings and efficiency gains from leveraging modern technologies, such as cloud-native infrastructure and SaaS models, which reduce the need for expensive on-premises hardware and maintenance.

3. Leveraging data and AI capabilities

In today’s data-driven world, having robust data and artificial intelligence capabilities is essential for any financial institution.

Indeed, Sopra Steria’s Digital Banking Experience Report 2023 revealed that traditional banks are under significant customer pressure to digitize, with AI now considered a critical component for meeting these expectations and enhancing bank performance and processes.

“AI stands out as a lynchpin in this strategy, as a key mechanism to analyze the exponentially expanding volume of customer data, and provide the high level of personalization demanded by consumers, and also to drive improved efficiency by boosting internal processes,” according to the Sopra Steria report.

It should also be noted that combining a clean and simplified user interface and user experience with insightful data can boost new client onboarding, generate new, personalized products, ease regulatory reporting, and improve efficiency.

4. Scalability and flexibility for future growth

A modern core banking system provides banks with increased flexibility and scalability to address ever-evolving market demands and future expansion plans.

They also connect seamlessly with third party providers, allowing banks to open up their ecosystem to offer new and innovative services to their customers.

By leveraging cloud-native and SaaS-based modules, banks can also ensure scalability and flexibility for future growth plans. While third-party integrations, such as data sources and AI solutions, allow the incorporation of cutting-edge technologies in a bank’s operations to offer personalized experiences.  

5. Robust compliance and security

Regulatory compliance and data security are paramount in the financial sector. These days, banks must navigate a raft of new and existing regulations and face considerable pressure to file accurate and timely reports.

According to a report by Deloitte, banks that continue to rely on legacy systems are struggling to keep up with regulations and compliance reporting. This can be costly; in the UK alone, the Bank of England estimates that compliance with regulatory reporting costs banks between £2 billion and £4.5 billion per year.

Today’s core banking solutions are designed to meet stringent regulatory standards, ensuring that financial institutions remain compliant and incorporate advanced security measures to safeguard data against cyber threats, with regular updates and audits to maintain robust protection.

Today’s core banking systems are designed to meet regulatory standards & advanced security measures, ensuring that FIs remain compliant. © Pexels

How SBS (ex-Sopra Banking Software) can help

The transition to a new core banking system is a significant decision and a major step toward digital transformation that will allow banks to stay competitive, manage costs, and mitigate risks to thrive in the digital age.

Whether you aim to enhance operational efficiency, offer superior customer experiences, or support innovative business models, our digital core banking solutions are designed to align with your strategic goals.

Our solutions include a detailed TCO analysis encompassing all transition aspects, from initial licensing and implementation to training and ongoing support.

This holistic view ensures that you are fully aware of direct and indirect costs, allowing you to budget effectively and avoid unexpected expenses.

Our composable core banking systems are designed to harness the power of data and artificial intelligence, providing valuable insights and automating routine processes. This enables personalized customer experiences, predictive analytics for risk management, and efficient fraud detection.

This ensures that your investment remains future-proof, enabling you to adapt to market changes and foster innovation without requiring frequent overhauls. The composability of our solutions allows for a step-by-step migration or progressive modernization, minimizing risks and disruptions while gradually phasing out legacy components.

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Anmol Sahib

Product Marketing Manager

SBS