The inevitable transformation of the financial industry has begun. The efforts of fintech companies to revolutionize financial services have forced traditional banks to take a step back and assess the strengths and weaknesses of their own core banking infrastructure. The days of simply upgrading their existing core banking systems with new features and digital banking solutions are long gone. Core banking transformation with robust solutions from the likes of BankPoint are now the norm.
Core banking transformation is one of the most complex projects that an IT department will undertake. It’s a journey fraught with delays, budget overruns, and loss of productive time. Too often, CIOs are setting out to transform the core banking system without proper planning, leading to mistakes. By avoiding these common pitfalls, your team can stay on track and avoid the pitfalls that others have fallen prey to.
Features of Core Banking
1. Centralized dashboard
Core banking makes use of a centralized dashboard to make all functions accessible to the bank’s personnel. The dashboard is commonly referred to as the “single point of access” to the entire bank’s functions. It enables the user to perform their designated tasks with ease.
It brings together the general ledger, statement accounting, accounts payable, and other such functions for easy access. The centralized dashboard makes it easy for the user to record the activities of the bank.
2. Onboarding (with KYC features)
Core banking is equipped with a full set of features related to onboarding, that is, the process of onboarding a new customer. A bank generally requires the following information to onboard a customer:
Since core banking is a centralized platform, all the information related to a customer is available in a single location.
3. Two-factor authentication
Core banking is based on the concept of two-factor authentication for ensuring security. Two-factor authentication means that the bank does not have to depend on single-factor authentication—usernames and passwords—for security. In a two-factor authentication system, the user has to provide two different factors for accessing the system—the second factor being a physical token.
Two-factor authentication may be as simple as entering a passcode generated by a token.
4. Push notifications
Core banking is equipped with push notifications. Push notifications are short messages (generally around 160 characters long) that are sent out to a smartphone based on a number of factors, such as time and location.
These announcements can be related to offers, changes in terms and conditions, or even the transfer of funds.
5. Loan management
Loan management systems deal with taking loans and repaying them. This is an important part of core banking. The system is equipped for efficient loan processing, where loan application forms can be filled out and submitted online.
The system is also equipped for resolving issues that may arise with loans and for ensuring effective follow-up of loans.
6. Interest calculators
Interest calculators are an important part of core banking. These tools and applications are available in a number of different ways, from stand-alone applications to full-blown web applications.
These applications allow users to enter a value and receive additional information, such as how much money the value is worth after certain periods of time.
7. Live chat
Live chat allows users of the system to communicate with a customer representative via a chat window. Communication is a very important part of the core banking system. It allows users to get information that is relevant to them, ask questions, and seek help from a customer representative.
There is also an option for users to add notes to help the customer representative with problems or issues that are not covered in the chat window.
8. Transaction management
Transaction management refers to the monitoring of activities. It is important that a core banking system can provide its users with all the information they need to make informed decisions.
Transaction management tools, such as the Oracle digital banking experience allow users to monitor their overall financial portfolio as well as specific transactions that are relevant to them.
Mistakes to Avoid in Core Banking
1. Putting operations in charge of the implementation
A lot of banks actually put operations in charge of the implementation of core banking solutions. Operations is usually not that tech-savvy, and if they have tech-savvy people, they are usually not that good in operations.
Putting operations in charge of the implementation can create a lot of problems down the road, as technology is a fundamental part of the core banking solution.
2. Defining the CBS transformation as purely a technology transformation
Many banks are implementing core banking solutions without a clear picture of what the solution should actually do for the bank.
It is a common tendency to think of the implementation of the core banking solution as simply a technology implementation. This is a big mistake, as implementation should not be approached as a pure technology implementation but as a business transformation.
Before starting the implementation of the core banking solution, banks should develop a clear picture and understand how it fits into the bank’s business model.
3. Failing to align stakeholders on the function and scope of the new system
Bank executives, IT managers, and business users are often not clear on the scope of the CBS being implemented and the new business processes that will be enabled. This creates two major problems.
Stakeholders may have different expectations of where the new system fits in the bank’s framework and what the new system will do for the bank. This often results in the new system being blamed for mistakes and problems it is not responsible for.
4. Allowing planning and implementation to delay the rollout for years
Most banks are eager to develop their internal CBS, but they are not necessarily eager to implement it. As a result, the planning, development, and implementation of the system can drag on for years. Understanding the need for a system for regulatory or business reasons and the urgency of implementing it are two different things.
5. Failing to be transparent about the costs and implications of the transformation
While many factors create costs and disruption in the bank, the cost of failing to implement a CBS is one of the highest. It is vital that the bank be transparent with its stakeholders about the costs and the implications of not moving ahead with the system.
6. Continuing to use legacy components to the exclusion of a broader system revamp
Even when the bank has completed its technological revamp, it may continue to use older components instead of allowing them to disappear or transferring their functionality to the new system. These parts of the legacy system may carry less functionality than the new system and may cause business disruption.
7. Choosing partners based on price alone and not on the quality of their product
When selecting new software, banks often choose the vendor with the lowest price, not the one that offers the best product. This attitude creates selection bias and can lower productivity, efficiency, and accuracy. Banks should hire external experts to evaluate the product and reduce their risk of making poor choices.
8. Failing to integrate the CBS with the broader platform
When the bank institutes a new CBS, it needs to make sure it is integrated into the bank’s broader platform. The new CBS should link seamlessly with other systems and business processes, such as regulatory compliance, internal control, and risk management.
These are the main considerations that should be taken into account when planning and managing a core banking transformation project. The right approach will help you optimize your organization’s investment in OBDX and the posture of the bank towards the future.