The Future of Core Banking: A New Era for Financial Services
Alexander Arabey, Director of Business Development
How does a centralized banking system function, and what constitutes it?
In today's fast-paced world, banks are more than just deposits and loans. They have evolved into customer-focused, services-oriented powerhouses, offering an array of products and services through a seamless payment ecosystem. The market cap of the global banking sector reached an impressive $8.5 trillion in Q3 2021, underscoring the industry's growth and importance.
A Technological Revolution: Core Banking Systems
At the heart of this digital evolution lies the core banking system, a network of bank branch connectivity that provides account management and easy access to banking facilities without the need for a specific branch. This modern solution has become essential as banks strive to provide low-cost or even free banking products to a wider audience while maintaining advanced interfaces.
Embracing the Past, Shaping the Future
Before core banking emerged in the 1970s, banking transactions were slow and processing was bureaucratic. Data was stored on local servers, with updates sent to data centers at the end of the day. The inefficiencies posed by this system led to the development of Centralized Online Real-time Exchanges (CORE banking systems). Today, core banking systems have significantly streamlined the processing speed of most banking transactions, improved data protection, and enabled financial institutions to offer a variety of products and services.
The Calculated Power of Core Banking
So, what exactly is a core banking system? In essence, it processes daily banking transactions and updates accounts and other financial records. Implemented using specialized software, it oversees deposit withdrawals, loan and credit processing, and other operations by interlinking these software applications through computer networks.
Core banking applications are a significant expense for financial institutions, due to the high cost of their service-oriented architecture and supporting technologies. In response, many financial businesses have turned to commercial packages from independent software vendors or providers, tailoring their solutions to meet their specific needs.
The Leading Players: Core Banking Solutions
Key players in the core banking solutions market are leveraging advanced cloud solutions, artificial intelligence (AI), and machine learning (ML) technologies to empower the industry to respond effectively to the challenges of the New Normal. Leading core banking software solutions providers include:
- Finacle - A cloud-based, comprehensive, and secure solution developed by the multinational tech company Infosys, serving over 1 billion customers worldwide.
- Finastra - Offers a real-time core banking processing engine, partnered with the largest financial institutions in the world. Their platform is highly flexible, allowing clients to benefit from a variety of transparent, innovative, and adaptable solutions.
- Oracle FLEXCUBE - Universal banking products from the US tech giant, used by around 10% of the global population. Their modular software is interoperable and comprehensive, offering advanced machine learning automation tools for improved straight-through processing.
The Impact of COVID-19 on Core Banking Systems
The global core banking software market experienced some challenges at the onset of the COVID-19 pandemic, with a temporary market contraction in 2020. However, the demand for smart technologies increased significantly in 2021, and the market size reached $10.84 billion. With projected growth to $34.48 billion by 2028 at a CAGR of 18%, the core banking software market is set to continue its upward trajectory.
The increased demand for secure, flexible, and scalable core banking solutions, spurred by the pandemic and subsequent market shifts, presents an exciting opportunity for financial institutions.
In conclusion, the digital transformation of the financial industry will not slow down. The development of core banking systems will remain an integral part of this innovation, ensuring the industry's continued competitiveness, security, and adaptability.
Thinking about embracing a core banking solution for your business? Our experts have extensive banking software development experience. Contact our support team to get advice tailored to your specific needs, and stay up-to-date by checking back with our blog for more thought-provoking insights.
[1] Fortune Business Insights, Core Banking Software Market Size, 2020[2] IHS Markit, COVID-19 Set to Boost Demand for Core Banking Systems[3] Gartner, Core Banking[4] Statista, Market Cap of the Global Banking Sector, 2021[5] Fintech News, Core Banking in 2021 and Beyond
- In the future, banking services will continue evolving, driven by advancements in core banking systems which provide a secure and efficient network for account management and access to banking facilities.
- As financial institutions look to offer low-cost or free banking products to a wider audience, the functionality of their core banking systems will become increasingly important, with many turning to specialized software and cloud solutions.
- In response to the challenges posed by the New Normal, key players in the core banking solutions market are implementing artificial intelligence (AI) and machine learning (ML) technologies to ensure their offerings are adaptable and effective.
- Major providers of core banking software solutions, such as Finacle, Finastra, and Oracle FLEXCUBE, offer comprehensive, flexible, and secure solutions designed to meet the needs of banks and other financial institutions in today's digital world.
