Today, there are different types of core banking. Among them is the Core Banking System. The term "system" refers to the legacy. In other words, a Core Banking System is a Core Banking technology solution inherited from the 1980s-1990s.

Moreover, most of the monolithic architecture components are developed in COBOL. Created in 1959, this computer language is still widely used in critical infrastructures, such as banks and financial institutions, even though fewer and fewer developers master it.

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Because of its architecture and infrastructure, the Core Banking System hinders financial institutions' service scalability. Monolithic technologies are stable (for the most part) but inflexible and slow to evolve. This makes it difficult for financial institutions to comply with new regulations or develop new products/services and enhance the customer experience. The products designed on Core Banking Systems are mature and generic but difficult to customize to meet new use cases.

Core banking systems also lack performance in data storage and exploitation. In addition, legacy systems have strong business logic and store data in silos. These characteristics make it challenging to create interrelationships between customers and products and result in duplicate data within the system.

Core Banking Platforms are designed to be modular, which means that transaction management functions are independent of banking services such as account creation, loan management, deposit and withdrawal management, and other management activities. This modular architecture enables localized changes that are faster and easier to test and launch. It also improves settings and scalability by providing additional services to financial institutions using API.

The Core Banking Platform's orchestrator approach also enables new modern digital capabilities to grow and avoids the restrictions of Core Banking Systems. This new approach accelerates the transition and reduces risks. The Core Banking Platform's real-time data hub and routing layer are based on an event-driven architecture (EDA). This makes intelligent data transaction routing and choreographing API management easier while preserving data from core banking systems and ensuring its integrity. This provides the development of modern digital experiences and innovative applications in all areas: retail banking, payment cards, loans, and credits...

Over recent years, there has been a modernisation and indeed, a transformation of overall legacy core banking system architecture. Legacy core banking systems are not able to support newer, more efficient methods of integration with innovative, modern solutions to quickly deliver new business models, products and services.

Since the advent of APIs, cloud services and digital banking, digital banks and fintech companies have witnessed a major shift in the way partnerships and products are put together. The aim of new core banking architectures is to provide business agility to financial institutions, so that they may compete in an ever-more complex market, as well as to reduce operating costs using new technologies and cloud infrastructures.

The development of products using modern core banking system architecture or the banking architecture itself is key for the creation of the foundation of an efficient, transparent and inclusive financial system.

Updating legacy systems involves writing many layers of script over the top of old systems. Conversely, cloud core banking systems help to create an environment conducive to agile and resilient product development, testing and launch. It also allows software updates and monthly releases to be made much more quickly.

Cloud-based modern core banking system architecture allows companies to rapidly scale their processes up or down. This allows banks to optimize costs and respond to quick changes in customer demand and transaction numbers without investments in equipment.

Another benefit of cloud-native core banking system architecture is that applications are distributed and made up of microservices: a distinct method of software system development that focuses on the creation of single-function modules with well-defined operations and interfaces. Microservices help to build an application as a suite of small services, with each running its own process and being independently deployable. This allows teams to make changes to a part of the solution without impacting any other part of the system and work on different modules simultaneously without any risk of overlap.

Modern core banking system architecture represents an API-first solution, which essentially means that it already has a number of ready integrations, as well as a flexible infrastructure with which to create new integrations with new payment service providers.

However, modern core banking architecture allows new integrations to be added quickly and easily, meaning that financial institutions can develop and launch new services and products much faster and retain a competitive advantage in the market.

Notable advantages include; new services can be launched fast-to-market and additional revenue streams due to collaboration opportunities with other financial & non-financial institutions. Additionally, open banking-ready core banking system architecture enhances client engagement and retention by providing better, personalized assistance with financial products and services.

API-first architecture has made it possible to unbundle banking products into several layers; card issuing, payments, bank deposits, loans, AML and compliance. They also allow for the provision Banking as a Service (BaaS) solutions to both fintech and non-fintech companies.

This enables any business to embed financial services without needing to build entire stacks on their own. This kind of core banking system architecture allows businesses to connect to banking services from other providers and share services with other fintech market participants.

White-label solutions with embedded BaaS providers can also assist financial institutions in the creation of new revenue streams by connecting other financial/non-financial institutions to their core banking systems.

These elements make frequent launches much easier and this modern architecture is pushing the envelope in terms of customer experience and the creation of opportunities for innovative partnerships to be made.

A digital IT architecture promotes change. This is a layered architecture designed to evolve, featuring internal APIs to permit flexibility and external APIs to operate in an ecosystem. This new architecture adopts a domain-based approach by which it can create functionality (such as customer accounts) while decoupling data management. Ultimately, this architecture allows financial institutions to adopt new capabilities more quickly.

This consists of separating what is traditionally considered Core Banking into two decoupled but interconnected elements: digitized Core Banking and Lean Core. Lean Core focuses on the availability and consistency of data. Digitized Core Banking, on the other hand, offers business competencies, processes, and even operational flows. These two applications can coexist with traditional applications/features at the time of transformation or even operate in banking ecosystems. Core Banking Platforms have evolved towards Lean Core to become increasingly flexible and, most importantly, scalable.

One of the goals of these Core Banking Platforms is to enable collaboration between banking applications that rely on different technologies. In banking ecosystems, applications and features can belong to different companies or partners. Transformational coexistence becomes necessary and often requires networks of ecosystems of applications. This ecosystem strategy allows connections between multiple Core Systems, software (SaaS), or other banking application ecosystems to assemble a hybrid solution that meets the needs of your end customers.

To be precise, when the term core banking modernization is used below, it is in reference to a truly event-driven platform that can respond and scale to meet customer demand in near-real time. This contrasts with monolithic batch or micro batch-based architectures constrained by pre-allocated compute and storage.

For most banks, absorbing their mainframe into a cloud-native platform in a swift big-bang is completely out of the question. Simply put, the risk of disruption to any mission-critical banking operation transcends customer experience or future innovation. Still, we have worked with these banks to meet them where they are and developed an incremental modernization process that allows them to unlock their mainframe data for product innovation while keeping security at the forefront.

Outside of mainframes, there are a number of other systems that require some kind of integration or unlock in order to achieve core banking modernization. Extending our NBO example from above, you might have account creation data emitted by software like Flexcube (financial services application provided by Oracle). If one is to make a truly event driven/modern core banking platform, you need to JOIN this Flexcube data with your ledger data from the mainframe, as the customer journey is unfolding.

These compounding factors are understandably driving business leaders to take a second look at how they might safely and incrementally modernize core banking processes. The following technologies are common tools in the modern core banking stack:

Unlock core banking system of record. MQ on Z(IIP) connector supports mainframe unlock without incurring MSU costs, while the Oracle CDC connector enables Oracle unlock without GoldenGate licensing costs. 589ccfa754

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