Choosing the right core banking system architecture requires careful consideration of your institution’s size, business goals and digital transformation strategy. It should also support real-time processing and accurate financial accounting.
In addition, a flexible architecture should allow for integration of different service providers through APIs. This allows for greater flexibility and scalability and supports innovation.
Transaction processing
The transaction processing component is an essential part of core banking architecture. It processes daily transactions and updates financial accounts and records. A high-performing transaction processing system must offer the flexibility to adapt to business changes in real time. It must also be easy to upgrade and implement new products and services. It must also be scalable and cost-effective.
Many DIs use legacy systems that are up to 40 years old and rely on COBOL and Fortran. They are often inefficient and expensive to maintain. In addition, they may not support new technologies such as instant payments and 24/7 banking services.
A modern core banking architecture uses microservices to decompose the banking application into independent services. This allows institutions to make localized changes without risking the integrity of the overall system. It also improves agility and fault isolation. This type of architecture supports a more flexible integration with other applications and services and is better suited for the open banking environment.
Financial accounting
The financial accounting component of the core banking architecture handles a variety of payments, including card and mobile transactions, internal transfers, remittances, withdrawals, and utility bill payments. It also supports the management of a bank’s cash accounts and balance sheets. In addition, it facilitates the use of different payment methods and the exchange of currencies.
A modern core banking system is based on cloud technology and is designed for cost-efficiency, scalability, and high availability. It also offers automatic updates that reduce the burden on internal IT staff and ensure continuous access for customers.
Unlike legacy infrastructure, which has bespoke point-to-point connectors or is incompatible with new systems and vendors, modern core banking systems are API-first solutions that make it easy to add integrations. As a result, they can provide more products and services to customers faster and reduce their total cost of ownership. These systems are also more agile and can shorten the time it takes to launch new products.
Monolithic core banking systems
Monolithic core banking systems have a long legacy in the industry, but they do not meet current needs. They lack flexibility, and it can be difficult to modify and integrate with other systems. They also struggle to cope with rapid growth in transaction volumes and business requirements.
New entrants to the market are reshaping the core banking infrastructure with more flexible and modular solutions. Composable core banking platforms are a new approach that combines individual components to build customised solutions for specific business needs such as payment processing, or loan management. These scalable solutions can be modified and upgraded more easily, supporting agility and innovation. Moreover, they can help businesses to optimise costs through a cloud-based model.
Customer relationship management (CRM)
A reliable IT infrastructure is the backbone of a core banking system. It should have high scalability and flexibility, as well as provide failover mechanisms to prevent downtimes. It should also allow for the integration of new technologies and vendors. The best option is a modular, cloud-native solution.
The core bank tech stack includes an intuitive platform to manage customer accounts and a configurable LOS that supports different products and processes. This modern core banking technology enables institutions to reduce technical debt, unleash the full potential of data, and rapidly launch innovative financial services that meet new customer expectations.
A modern core banking architecture allows for the easy deployment of embedded finance services through APIs. This new approach enables banks to collaborate with fintechs and non-fintechs and deliver banking as a service. This technology also enables them to avoid the expensive and risky process of bundling various products into several layers and integrating them manually.
Risk management
A modern core banking system architecture must include an integrated risk management infrastructure. This infrastructure should provide protection against cyberattacks and data breaches, as well as ensure business continuity. It should also provide secure access to the system, which is critical for customer service and regulatory compliance.
Financial institutions require a reliable IT infrastructure to handle high transaction volumes and ensure seamless customer experience. This requires cutting-edge hardware and efficient software solutions. It also requires a secure network architecture with redundancy and backup mechanisms to prevent downtimes.
A scalable system can handle increased workloads during peak times without disruptions. It should also support new services and integrations seamlessly. For example, a neobank with a configurable lending engine can easily integrate with LOSs, currency exchange providers, AML/KYC vendors, and card issuers. This architecture also facilitates platform banking, opening up new revenue streams for banks.
