1. The future core banking solution – how
process centricity will rule the market
Thought Paper
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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 for
02 Thought Paper
3. Core banking product strategy
The product strategy of a vendor is shaped by (North America, Asia and so on) and channel
the industry trends and the banking research service (branch, online, mobility banking); this
consultants forward looking vision. The three is more pronounced in North America as a
top imperatives driving the industry today are direct consequence of the most recent crisis in
the banking industry.
1. Customer centricity
2. Regulatory compliance The focus for vendors is on ‘how’ the solution
will enable a bank move towards customer
3. Risk management.
centricity, comply with regulations and manage
While 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 banking
A classic core banking solution is product centric.
Table 1: Product Demand Deposit
Attributes such as customer type, account Account Attributes and Values
type, currency, interest, fee, minimum balance
Product Account Attributes Value
are attached to a product. This makes it rigid
Customer Type Individual
from process perspective. Figure 1 and Table 1
Account Type Checking
represent the Classic Core banking model.
Demand Currency US Dollar
Figure 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. 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. Conclusion
Technology is not a differentiator any more. Over The visible, measurable business transformation
the last decade the story of technology benefit is the key deliverable the business and
transformation in implementation of a core IT leaders need today. To demonstrate this
banking solution has lost the sheen. The benefit a process centric core banking solution
technology transformation is a given benefit. is THE solution.
References
1. “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 (Authors
2. 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