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The Future Core Banking

The Future Core Banking

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Published by Infosys
The though paper discuss about the core banking solutions and core banking product strategy
The though paper discuss about the core banking solutions and core banking product strategy

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Categories:Types, Business/Law
Published by: Infosys on Aug 12, 2013
Copyright:Attribution Non-commercial

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08/12/2013

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The future core banking solution
 –
how
 
process centricity will rule the market
 
Thought Paper 
 
www.infosys.com/finacle
 
Universal Banking Solution | Systems Integration | Consulting | Business Process Outsourcing
 
 
The future core banking solution
 –
how process
 
centricity will rule the market
 
The biggest challenge that core banking vendors
 
face today is to keep the core banking solution
(solution) synchronized with the current global
 
industry requirements. This is a daunting task.
 
The primary reason being the business of 
 
banking is not the same across all geographies.
 
In addition, the solution functionalities have
 
evolved over several years with vendors gaining
 
experience and responding to client demands
 
riding on the waves of technology transformation
 
that has moved across geographical regions.
 
This resulted in solution maturity. The flip side
 
to this being localization of functionalities by
 
region. A solution that is a perfect fit for South
 
East Asia is not an ideal solution for North
 
 America. The variation is not in the banking
 
products. It is the underlying processes. This
 
thought paper presents a view point on how a
 
core banking solution that is process centric
 
will have flexibility to be a truly global solution.
 
It is interesting to map the waves that
 
influenced the product strategy of the new
 
entrants in the core banking arena.
 
Core banking solution transformation waves
 
The first wave notably started in Africa and South
 
 Asia. The simple manual operations moved into
 
a core banking environment. The value was
 
immediate, real and visible. New functionalities
 
were added to the solution. In the product
 
process trade off, the products were primary.
 
The second wave in South East Asia was a little
 
more complex, nevertheless a success; the result,
 
more functionalities. This wave is significant
 
as the business processes asserted themselves
 
in addition to products. The new players with
 
latest in technology smart, lean and fast
 
conquered all. The Rajas of legacy systems with
 
a monopoly in the market had no immediate
 
answer to compete. The third wave that has just
 
started, is embracing the America and Europe
 
and not a technology wave in full measure.
 
This frontier is more process oriented. That is
 
the challenge the vendors are currently
 
confronted with.
 
The business of banking we all know is not the
 
same in Africa as compared with Asia or for 
 
that matter Europe. Economy, regulations and
 
customers, profile the business of banking. This
 
troika varies with geography. In India the major 
 
local banks have similar business models, the
 
differentiator if any, is not very distinct. The
 
regulators are cautious and regulations strict;
 
the reason, why the recent financial meltdown
 
had little or no impact in India. The customer 
 
expectations from a bank in North America
 
are different from Europe or Asia. In this
 
background, the core banking solutions that
 
blossomed in the first and second waves, find
 
themselves very rigid to take on the third
 
wave. This adds a new competition dimension
 
to the core banking vendors, remain rigid play
 
local or be flexible go global. The business
 
imperatives and banking trends require the
 
vendors to tow the second option. This translates
 
to being functionally flexible with strong
 
process orientation.
 
02
 
Thought Paper 
 
 
Core banking product strategy
 
The product strategy of a vendor is shaped by
 
the industry trends and the banking research
 
consultants forward looking vision. The three
 
top imperatives driving the industry today are
 
1. Customer centricity
 
2. Regulatory compliance
 
3. Risk management.
 
While these are generic terms as we read,
 
the definition and degree vary by geography
 
(North America, Asia and so on) and channel
 
service (branch, online, mobility banking); this
 
is more pronounced in North America as a
 
direct consequence of the most recent crisis in
 
the banking industry.
 
The focus for vendors is on
„how‟
the solution
 
will enable a bank move towards customer 
 
centricity, comply with regulations and manage
 
risk in a not too flat a world. To address the
„how‟
 
part the core banking product must be flexible.
 
The classic core banking
 
 A classic core banking solution is product centric.
 
 Attributes such as customer type, account
 
type, currency, interest, fee, minimum balance
 
are attached to a product. This makes it rigid
 
from process perspective. Figure 1 and Table 1
 
represent the Classic Core banking model.
 
Figure 1: Classic Core Banking Model
 
Table 1: Product Demand Deposit
 
 Account Attributes and Values
 
Product
 
 Account Attributes
 
Customer Type
 
 Account Type
 
Demand
 
Deposit
 
 Account
 
Currency
 
Minimum Balance
 
Interest
 
 Account Fee (Annual)
 
Home Loans
 
Certificate
 
of Deposits
 
Value
 
Individual
 
Checking
 
US Dollar 
 
USD 1000
 
0%
 
USD 10
 
Personal Loans
 
Demand
 
Deposit
 
 Accounts
 
This model is simple straight forward but
 
not flexible to address the 2 top imperatives
 
driving the banking industry (Customer Centricity
 
and Regulatory Compliance). The attributes and
 
values are tightly coupled.
 
Thought Paper 
 
03
 

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