Surgically replacing core banking platforms

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An opportunity for core banking transformation

For banks, the core banking system is the underlying system of record for credits and debits that maintains transactions, histories and balances. However, in today’s banking environment, with continuously evolving performance and client expectations, banking operations are no longer limited to recording transactions on an account. Technological advancements, ever-changing regulatory requirements and the entry of nontraditional service providers are further disrupting the market causing banks to evaluate their existing, monolithic-based core banking technology architecture and seek alternative, more surgical approaches to decomposing capabilities.

The challenge of core banking replacement

Although the reward for core banking replacement is high, for some institutions the risk and the cost involved is often perceived to be higher. Decisions to replace core platforms are repeatedly being delayed or deferred due to the high cost of implementation, a lengthy delivery cycle, the risk that potential system disruption poses to client experience or the danger that banking technology will already be outdated by the time the system is replaced.

A full core banking replacement is a multiyear transformation that can cost hundreds of millions of dollars depending on the size and complexity of the financial institution, scope of implementation and the deployment approach. It’s no small endeavor.

A surgical approach to core banking system renewal — progressive enablement

A new approach to core banking replacement breaks the core into components and enables the capabilities one at a time. This surgical approach allows for a more modular process for core enhancement that can reduce cost and complexity. Individual components can be modified and enhanced one at a time, which allows the bank to work towards a more efficient and advanced core without the large-scale investment needed to complete a full core banking replacement.

One example of this surgical approach is microservices-based architecture, which takes the component approach to the next level by further breaking down the coarse-grained components into deployable, atomic services, each with their own data of records. These atomic services are then aggregated into larger services through rules-based orchestration. This aggregation gets recursively applied to define new operating models and address evolving market and client expectations.

EY graphic showing pathways to core banking renewal

How to go about the core renewal journey

Banks can address the problem of core from the outside in and progressively build the services needed to renew their core banking system. This allows for a bite-sized transformation: banks can build the services needed to support specific products or capabilities (e.g., the Client Information File) and gradually incorporate the rules to utilize these services more broadly. This surgical approach mitigates the risk of core transformation by reducing delivery time, restricting the scope of data and process conversions, and minimizing the risk to the legacy bank. It also enables core platform renewal without the need for the bank to make the massive investments required to fund a full core banking replacement.

EY graphic showing questions to answer before beginning core renewal journey

Click here to download our full report about core banking transformation.