# Insights

Mar 11, 2020

Coreless banking: Legacy of the future

Reading time: five minutes

We all know that in the digital era banks need to be quick and agile, that they need to transform to survive. In response, we’re seeing banks act on several fronts. They’re entering into partnerships with nonbank providers, adopting new technologies and updating legacy systems. Major institutions are abandoning their old core infrastructures in favor of new componentized strategies, known as coreless banking.

Until now, banks’ core legacy systems have made innovation and progress in the financial industry a labor-intensive and slow process. This is because within these legacy systems all software is integrated, meaning that any change effectively requires a complete system overhaul.

Coreless banking, however, envisions a new world where there is no dependence between different parts of the bank’s system, i.e. there is no core, meaning each part can be worked on or updated, independent of the others.

There are plenty of advantages to the coreless strategy:

• Much faster implementation of new software
• The possibility to upgrade one application component without impacting others, at a much lower risk to existing IT systems
• Drastically cutting down on upgrade costs
• Future proof – coreless banks will not need a complete revamp in the medium or long term, allowing for progressive and regular transformation of IT systems
• Banks with a coreless strategy won’t need to conform rigidly to convoluted “roadmaps,” but will instead be able to adapt around them.

With these many advantages, it’s unsurprising that coreless is all but accepted as the future of banking. Sopra Banking Software has already taken strides into this world with our Sopra Banking Platform, an API-first, component-based banking solution that works with clients in 80 countries and with over 50 coreless components on offer.

And it’s not only Sopra Banking Software. In September 2019, the independent not-for-profit standards association BIAN (Banking Industry Architecture Network) rolled the system out among 11 of its members at a pilot stage, including the likes of Wells Fargo, JPMorgan Chase and IBM.

A challenge of transformation

Of course, as with all major changes, converting core banking systems is no easy task. Legacy systems are monolithic, and transforming them into a set of independent components isn’t easy. A major difficulty is identifying internal boundaries within the core system so that the shift can be made piecemeal, shutting down only parts of its service at a time to change them to coreless. The alternative would be a faster “big bang” approach; though this is mostly considered too risky, as it would mean freezing businesses and taking heavy operational risks. Furthermore, such a move can cost hundreds of millions of euros for medium-sized banks, and billions for large banks.

Systems to meet consumer-centric needs

Despite these challenges, coreless is making the future of banking look bright indeed, especially for the consumer. There is a world of innovation opening up for banks that will change the industry drastically over the coming years.

Not only will the increase in agility to banking technology lead to a world where this innovation is possible, it will also drive greater competition between institutions, and make for an environment where client-facing innovation is the only way to survive.

Coreless banking will lead to a far more dynamic market in retail banking than ever before, with innovation and applications not yet dreamt of arriving suddenly and shaking up the way we all manage and spend our money.

There will be inevitable causalities along the way, with some banks that struggle to keep up with the pace of change likely to find themselves swallowed by more dynamic institutions. That being said, going coreless will also allow the monolithic institutions of big banks to stay competitive with the more typically agile tech firms attempting to move in on their territory.

With so many changes heralded by the coreless revolution, however, it’s impossible to account for them all. What can be said for certain is that coreless is inevitable, and that the banking landscape will never be the same.

Philippe Caron, Head of Sopra Banking Platform Strategy