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Core Banking Platform

Emerging Business Models in Banking

A modern institution that seeks to continue to acquire new customers, generate new streams of revenue, and grow margins will need to explore new business models beyond the traditional vertically-integrated approach. Profitability pressures are driving institutions to seek new sources of differentiation and growth. Commoditization of retail banking products and services such as savings rates and mobile remote desktop connection (RDC)) makes it exceedingly hard to differentiate. New business models present opportunity.

The Role of the Core Platform

IT transformation efforts underpin emerging business models in banking, but so far there has been a disconnect between effort and result. According to the World Economic Forum (WEF), as shown below in figure 7, only 1 percent of digital transformation initiatives have met their goals. In Celent’s view, this has to do with a primarily front-end focus on transformation rather than the back-end core.

Role of the Core Platform

Source: World Economic Forum 2018 Digital Transformation Report; Celent IT Spending in Banking, 2019

Banks looking to simplify legacy operating models, automate processes, provide new and innovative account features, and enable cloud deployment and many other advantages need to consider the back-end core platform as the linchpin for transformation.

Figure 8 shows the results of a survey conducted by Celent in Q418 and core platform deal data from 2019. It shows the disparity between core transformation and front-end migration, with less than 10 percent of institutions changing cores and more than 75 percent switching digital platforms.

Role of the Core Platform Stats

Source: Celent FI Survey, 2018; Celent Core Deal Trends Data, 2019

How Cores Enable Emerging Business Models

Emerging business models require a core system which can accommodate a range of new requirements: Time to market, flexibility to make changes, and innovative transactional characteristics/functionality. The core is a critical piece of the puzzle.

How Cores Enable Emerging Business Models

Source: Oracle and Celent

New Characteristics

Celent sees four characteristics that are paramount to support a transformation journey and new business models.

  • Componentized architecture: Components allow banks to more easily transform and take advantages of rapidly emerging ways of working.
  • Integrated APIs and ecosystem APIs: Fine-grained APIs allow third parties to more easily plug into core capabilities, giving banks freedom to innovate and partner.
  • Cloud-based microservices deployment: Applications in the cloud are smarter, more scalable, and able to dramatically improve application development.
  • Data-first and open approach: Cores need to be able to facilitate the open flow of data streaming from engagement systems to systems of record.

The Benefits of a Modern Core

Financial institutions need to be thinking about how to find new sources of growth. While the core may seem ancillary to emerging business models, it’s a critical piece of the puzzle. There are numerous benefits to a modern core. We outline four here.

Faster integration into new third-party products/services
More modern cores built for new business models in banking provide seamless integration into a broader ecosystem. Strong API management capabilities make it easier to govern and de-risk integration efforts. Large libraries of business services exposed as APIs makes integration into another application much easier. Standards make sure that any future changes won’t require unnecessary bespoke efforts.

Better time to market for innovation
Being able to innovate quickly will be the hallmark of successful institutions in the future, and new cores optimize a bank’s ability to bring new products and services to market. Large monolithic cores may require months of work on back-end legacy systems to even implement minor code changes. Component-based configurability and flexibility of more modern cores will be a key enabler as institutions explore more of the possibilities of emerging business models.

Streamlined technology infrastructure and improved time to value
Applications built over decades of complexity are difficult and expensive to maintain. New changes in customer expectations, regulatory requirements, and much more can require IT resources to be locked away trying to work in outdated and inefficient legacy. New, modern cores written in modern programming languages can streamline an IT environment. New deployment models can drastically reduce total cost of ownership (TCO). Bank resources previously tasked with onerous maintenance efforts can instead focus on faster innovation at lower cost.

Future-proofed business agility
Cores with granular building blocks allow an institution to better adapt and change over time. Architecturally, modular, microservices-based platforms let developers work on pieces of functionality and processes in isolation, allowing capabilities to be modernized as needed. Highly customizable, parameterized features around product creation or pricing let banks similarly innovate and meet the needs of customers as they change.

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Business brief

Evolving Business Models and the Modern Core Platform

Business brief

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