One core to rule them all – part one
I was recently asked the following question by a friend: “Given you have now interviewed many of the new core banking players, who do you think has the best product in the market?”
Well, that is an interesting question, but my answer was indirect. I replied: “They all have their strengths and weaknesses. Some are stronger by design, some by implementation and some commercially. To me, what is more interesting is what would the ultimate core look like? The one core to rule them all.”
To answer my own question, the requirements for this mythical core as always are split into technical and business requirements. Putting this all together would probably result in a large whitepaper, so this week I’m just focusing on the business requirements, and I will follow up with the technical requirements in my next column piece. Even then, the topic is huge, so I’m only taking a very high-level view.
My first take on the business requirements (and I’m sure I’ve missed a few, but to keep this article brief) are:
I’m not aware of a single bank that runs just a single core. I’ve written about why this is the case before, but essentially, banks typically have different cores for accounts, mortgages and credit cards.
Our mythical core would not only need to support all products but be super flexible to define any product. For example, the ledger should not be limited to money. Could a house be tokenised and sold or traded using it? Could I earn interest on my money with gas or electricity credits rather than money?
Essentially, our core should support existing product flexibility and allow for rapid innovation. There are deeper implications of this, like making it easier to address compliance and regulations as you create new products, but as I said above, I’m just focusing on the very top-level requirements here.
Our super-core must be able to support the needs and requirements of any jurisdiction or country. This is harder than it seems at first as each country will have a broad range of regulations, reporting and compliance requirements that need to be addressed, as well as things like localisation and tax.
Deeper requirements would need to include where the platform can be run from and where certain data can reside. It’s for this reason many incumbent core software providers will/have offered a good deal to the first bank(s) they partner with in a new country and why new core players are country specific initially.
EAMAYL (eat as much as you like)
Most people have a different view on exactly what a core banking system encompasses. At a simple level, most large banks have split customer management (distribution) from product management (manufacturing) already.
However, most incumbent core vendors sell this as one solution, while modern core vendors are split: those that provide everything on a new tech stack like Mambu and those that focus purely on product management like Thought Machine.
Then take things like credit risk, KYC, AML and so on. Are they part of the core? For me, the key is that the solution is componentised so that a bank or fintech can pick and mix what they need or want. Some banks may expect everything while others just want the basic product.
For banks going down the route of BaaS (Banking-as-a-Service), this is especially important as their embedded finance partners may want to embed products (accounts, loans and so on) or processes (credit scoring and debt collection, for example).
This might surprise some of you, and some of you may even disagree. I’m not saying the core shouldn’t ship with an interface for branch, call centre and mobile/internet. What I am saying is that they should be optional. What is important is that a bank could build their own user interfaces if they wanted to. The core should be agnostic to how products are distributed, so it is a digital layer outside that manages omni-channel user interfaces and capabilities.
Most of us know that legacy mainframe solutions were not designed to run 24×7. Typically, they were shut down so that ledgers could be balanced by a separate batch program. Our new core must be able to run for 99.999% of the time, which is less than five minutes of downtime in a year! This means that even software upgrades need to minimise downtime.
Wherever possible and sensible, AI should be embedded to drive dynamic decision-making using data rather than parameters or coded business logic. This will help streamline checks like AML, KYC and credit risk. This forces a rethink of banking in general, too. For example, think how product design could be driven by data rather than product owners.
Nobody can be certain what the future holds for banks, but we be can sure that things are going to be very different. Just as with many other industries, this change is not a slow evolution but a fundamental rethink/redesign.
Take a look at transportation, for example. Each shift from steam to petrol to electric is fundamentally different, although the result of transportation is the same.
Legacy banking technology can no longer evolve or be migrated to other new technology, especially when the business requirements are fundamentally different to the past. But as I’ll cover in my next column piece, even the technology requirements are different with new capabilities.
Yes, we could argue that the requirements and implementation are separate, but when things weren’t fundamentally possible with the old technology, there was no point in having requirements that couldn’t be delivered.
This week, I’m just saying that technology and business requirements have fundamentally changed the world of banking. It is time to rethink our banks and their technology. The best way to do this is with a blank sheet of paper as the past will only hold back their thinking.
About the author
Dharmesh Mistry has been in banking for more than 30 years both in senior positions at Tier 1 banks and as a serial entrepreneur. He has been at the forefront of banking technology and innovation, from the very first internet and mobile banking apps to artificial intelligence (AI) and virtual reality (VR).
He has been on both sides of the fence and he’s not afraid to share his opinions.
He founded proptech start-up AskHomey (sold to a private investor in spring 2023) and is an investor and mentor in proptech and fintech. He also co-hosts the Demystify Podcast.
Read all his “I’m just saying” musings here.