Core Banking —a fourth-generation based on platformisation 👨‍💻

New technologies, new products, and new distribution channels. As financial innovation makes unbridled advances, we are continually pressed into a forward-thinking mentality and asked to look ahead and anticipate tomorrow’s uses and trends.

But if keeping up with the pace imposed by the market is imperative, then stepping back for a moment to study the past and understand the great waves of innovation and their dynamics is essential to truly grasp the direction history has taken.

So, let’s take a moment to revisit the 4 major generations of core banking systems that have influenced banking history.

First-generation: The first computerized Core Banking Systems 👨‍🔧

Introduced at the end of the 1970s and continuing until 1990, the first computerized Core Banking Systems were initially wholly developed within financial institutions. 

Used essentially for simple tasks performed via a central computer, this first generation of core banking systems only offered a few basic features, such as customer data management, execution of transactions, and record-keeping, etc.

Accessible to users only during counter hours, these monolithic applications were based on complex code—with its many lines of duplicate code—and sequential data stored in silos which processed transactions in batches at the end of the day (batch processing). 

These initial proprietary solutions also engendered exceptionally high IT costs, ran significant data loss risks, and were difficult to replace without causing a prolonged service disruption.

Second-generation: Product-Centric Core Banking Systems and the digital interface 💳

Developed throughout the 1990s and until 2005, Core Banking Systems became more product-oriented, hence the terminology product-centric Core Banking Systems. Banks gradually began to outsource the development of these systems specifically to address particular products or groups of products. 

As a result, the interface became more colorful, and 24/7 access to services finally became possible, although prolonged service disruptions were still required for maintenance.

Although still organized in silos, these Core Banking Systems began using certain subroutines and software modules to make their code more flexible. However, despite these initial attempts at optimization, the code was still quite complex, and issues were encountered when processing large volumes of transactions.

The mainframe was still the norm, but the first client programs were beginning to appear. Up until this point, the software was only accessible through the bank branch network, but now it had become available to customers at payment terminals and ATMs.

Third-generation: The Digital Core Banking System 📱

From 2005 to 2020, Core Banking Systems became more and more customer-centric. Banks sought to abandon the silo approach by building a digital layer to allow themselves more flexibility.

Software architecture was already becoming less monolithic, and now it began moving towards new structures, such as Service-Oriented Architecture (SOA) and Application Service Providers (ASPs). The first programming interfaces also appeared around this time.

On the user experience side, new key milestones were reached. The software became continuously accessible on the Internet and finally offered truly graphic interfaces in Windows and HTML pages.

Updates took place on an annual or semi-annual basis, and version changes could be performed in just a few days, sometimes over a weekend.

Fourth-generation: Process-Centric Core Banking Platforms (CBP) 👨‍💻

The latest generation of Core Banking Systems is the Core Banking Platform, a process-centric system developed over the past few years. The Core Banking Platform allows financial institutions to fully leverage the digital revolution by meeting customers’ and employees’ mobility requirements.

This next-generation core banking system is based on an open, flexible, and scalable architecture. These new core banking solutions enable financial services and tech players to create efficient ecosystems that smoothly orchestrate interactions to offer an increasingly personalized customer experience.

Their lightweight code allows them to directly manage complex products and automated functions in the cloud using machine learning technology.

Continuously deployable (without service disruptions), with meager maintenance costs, and perfect scalability, these core banking systems are now accessible from anywhere— including mobile, third-party applications, bank account aggregators, and so on —and are particularly well suited to the challenges of Open Banking and “best-of-breed” approaches.

From legacy Core Banking Systems to Core Banking Platforms

Sometimes decades-old, legacy core banking systems, still in use at some banks, do not allow those banks to offer new experiences, products, or services responsively.

Not very scalable, incompatible with most new technologies, and often out of step with the latest regulatory requirements, the legacy core banking systems still in use today have survived mainly because banks are complex, sluggish, and therefore difficult to manage and modernize.

However, in today’s hyper-competitive atmosphere, adopting a core banking platform has become essential. 

With reduced costs, improved responsiveness, a customized user experience, and simplified integration with all third-party applications, there’s no shortage of arguments in favor of the core banking platform, which explains its success.

Much more than a superficial innovation, these new core banking platforms signal a real break from their predecessors and place digital technology at the heart of their DNA, allowing users to take full advantage of today’s high-tech world.