Perspective: Future core banking


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Perspective: Future core banking

  1. 1. The future core banking solution – howprocess centricity will rule the marketThought Banking Solution | Systems Integration | Consulting | Business Process Outsourcing
  2. 2. The future core banking solution – how process centricity will rule the market The biggest challenge that core banking vendors to this being localization of functionalities by face today is to keep the core banking solution region. A solution that is a perfect fit for South (solution) synchronized with the current global East Asia is not an ideal solution for North industry requirements. This is a daunting task. America. The variation is not in the banking The primary reason being the business of products. It is the underlying processes. This banking is not the same across all geographies. thought paper presents a view point on how a In addition, the solution functionalities have core banking solution that is process centric evolved over several years with vendors gaining will have flexibility to be a truly global solution. experience and responding to client demands It is interesting to map the waves that riding on the waves of technology transformation influenced the product strategy of the new that has moved across geographical regions. entrants in the core banking arena. This resulted in solution maturity. The flip side Core banking solution transformation waves The first wave notably started in Africa and South that matter Europe. Economy, regulations and Asia. The simple manual operations moved into customers, profile the business of banking. This a core banking environment. The value was troika varies with geography. In India the major immediate, real and visible. New functionalities local banks have similar business models, the were added to the solution. In the product differentiator if any, is not very distinct. The process trade off, the products were primary. regulators are cautious and regulations strict; The second wave in South East Asia was a little the reason, why the recent financial meltdown more complex, nevertheless a success; the result, had little or no impact in India. The customer more functionalities. This wave is significant expectations from a bank in North America as the business processes asserted themselves are different from Europe or Asia. In this in addition to products. The new players with background, the core banking solutions that latest in technology smart, lean and fast blossomed in the first and second waves, find conquered all. The Rajas of legacy systems with themselves very rigid to take on the third a monopoly in the market had no immediate wave. This adds a new competition dimension answer to compete. The third wave that has just to the core banking vendors, remain rigid play started, is embracing the America and Europe local or be flexible go global. The business and not a technology wave in full measure. imperatives and banking trends require the This frontier is more process oriented. That is vendors to tow the second option. This translates the challenge the vendors are currently to being functionally flexible with strong confronted with. process orientation. The business of banking we all know is not the same in Africa as compared with Asia or for02 Thought Paper
  3. 3. Core banking product strategyThe product strategy of a vendor is shaped by (North America, Asia and so on) and channelthe industry trends and the banking research service (branch, online, mobility banking); thisconsultants forward looking vision. The three is more pronounced in North America as atop imperatives driving the industry today are direct consequence of the most recent crisis in the banking industry.1. Customer centricity2. Regulatory compliance The focus for vendors is on ‘how’ the solution will enable a bank move towards customer3. Risk management. centricity, comply with regulations and manageWhile these are generic terms as we read, risk in a not too flat a world. To address the ‘how’the definition and degree vary by geography part the core banking product must be flexible.The classic core bankingA classic core banking solution is product centric. Table 1: Product Demand DepositAttributes such as customer type, account Account Attributes and Valuestype, currency, interest, fee, minimum balance Product Account Attributes Valueare attached to a product. This makes it rigid Customer Type Individualfrom process perspective. Figure 1 and Table 1 Account Type Checkingrepresent the Classic Core banking model. Demand Currency US DollarFigure 1: Classic Core Banking Model Deposit Account Minimum Balance USD 1000 Interest 0% Personal Loans Account Fee (Annual) USD 10 Home Loans Certificate of Deposits This model is simple straight forward but not flexible to address the 2 top imperatives Demand Deposit driving the banking industry (Customer Centricity Accounts and Regulatory Compliance). The attributes and values are tightly coupled. Thought Paper 03
  4. 4. The future core banking solution A truly global core banking solution is process Table 2: Repository Definitions with Examples centric. The process centricity will be enabled by a set of scalable repositories (Figure 2). A Repository Definition Example Constraint product will be created by a combination (mix Business A banking Create KYC and AML Function transaction Customer cleared and match) of repository components as activity that can (Non- Financial) be classified as illustrated in the table 2. The solidity of a core Financial or banking solution will rest on the strength of Non- Financial the repository factory. Business A group of Open account The customer Processes related must be Business Rules existing and Figure 2: Future Core Banking Model approved Business Set of rules that 1. Open 1. The customer Rules drive a business account must be Process function 2. In US dollar existing Component Orchestration currency 2. Eligible to 3. Minimum open US deposit dollar Business Process amount USD account Repository 1000 Process The synergistic 1. Open Not Business Rules Repository Component association of account Applicable Orches- Business 2. In US dollar tration Processes to currency Business Rules 3. Minimum Business to accomplish deposit Functions a Business amount USD Repository Function 1000 4. Customer who is an individual Advantages Scalability: Each of the repository components a combination of Business Functions, Business has the potential to be expanded. New Rules and Business Processes. A customer in an repositories can be added and redundant ones online banking or direct banking scenarios can deleted. The process component orchestration create their own products limited by constraints will ensure harmonious linkages. as a self-service offering. There is no need to come to a branch or make a call to a call center Adaptability: The repository components for account opening. can be categorized on the basis of geography specific variables. An implementation in United Regulatory Compliance: Regulatory States of America will have that set of variables compliance is a set of Business Rules. The unique to North America. business rules can be added to business function expanding the related Business Process. For Customer Centricity: Customer analytics for example, if a new regulation requires all new an on boarded customer will determine the checking accounts to be in US dollars only. banking products that have the potential to be The business rule will have this constraint built sold to a customer. A product by definition is in to comply with the new regulation.04 Thought Paper
  5. 5. ConclusionTechnology is not a differentiator any more. Over The visible, measurable business transformationthe last decade the story of technology benefit is the key deliverable the business andtransformation in implementation of a core IT leaders need today. To demonstrate thisbanking solution has lost the sheen. The benefit a process centric core banking solutiontechnology transformation is a given benefit. is THE solution.References1. “Global Crisis, Recession & Uneven Recovery” 4. Foundations of Banking Risk: An Overview Y V Reddy Orient BlackSwan of Banking, Banking Risks, and Risk-Based Banking Regulation – by GARP (Authors2. K C Chakrabarty: Beyond Core Banking Richard Apostolik, Christopher Donohue, Solutions (CBS) – fast forward to Banking 2.0! Peter Went)3. Bank 2.0: How Customer Behavior and 5. Modern Banking by Shelagh Heffernan Technology Will Change the Future of Financial Services by Brett King Vishwanath Thanalapatti Lead Product Manager, Infosys Thought Paper 05
  6. 6. About FinacleFinacle from Infosys partners with banks to transform process, productand customer experience, arming them with ‘accelerated innovation’that is key to building tomorrow’s bank.For more information, contact© 2012 Infosys Limited, Bangalore, India, Infosys believes the information in this publication is accurate as of its publication date; such information is subject to change without notice. Infosysacknowledges the proprietary rights of the trademarks and product names of other companies mentioned in this document.