Functionality versus Process versus UI versus Regulation
core banking solution was designed initially to centralize accounting in banks and enable their customers to transact from any of the branches or channels connected to the central database. Functionality and processes were built into the core banking solution, based on the software's country of origin. The primary design was based on the knowledge of local banking/domain experts in the product company. Though the solution catered to most banking needs of a particular country or region, in certain markets, it faced fitment challenges both on functionality and process compliance. Variations in the account opening, customer creation or loan approval process in different markets often required subtle or even major changes in the software solution. Customization was required to achieve process automation to meet market requirements.
Some vendors hired local consultants for their knowledge of functionality and processes specific to their market, to better understand and meet requirements; others gathered local requirements as part of the implementation. Multiple versions/releases of the base software helped address the local requirements in different markets.
Banking processes evolved over time as new regulations were implemented by the regulatory authorities. The software was expected to include risk mitigation and anti-money laundering processes to protect the interest of the clients and banks. As clients acquired additional peripheral systems, the need arose for automation and straight through processing through integration and workflow. This posed architectural and technological challenges to vendors.
In parallel, core banking evolved new functionality and products in the area of deposits, lending, trade finance, cash management etc. This required the software to be constantly developed, resulting in new product versions or releases from each vendor. Core banking vendors had to develop new modules and product functionality catering to specific market requirements in order to fight the intense competition and expand into new markets.
Core banking vendors adopted a varied methodology to comply with market specific functionality and processes:
a) Additional layer of market specific functionality over the base product
Some of the solution providers designed a thin layer outside the core database, which could be easily integrated into it to meet country specific regulations and processes. This ensured that the core database remained light and the data elements and functionality remained generic, suited to the global market.
b) Multiple releases catering to different markets
A few solution providers developed the functionality on the base version itself and released market specific versions.
c) Ready to plug in customization infrastructure
Customization infrastructure was utilized to develop the country specific functionality, products and processes. The infrastructure could be used for accommodating new functionality and processes with integration capability.
Each of these methods provided different benefits and challenges. The thin market specific functionality layer option required architectural and structural changes to be effected.
The user interface or front end of the solutions proved inadequate to cater to the next stage of core banking requirements of clients. Most banks/clients preferred a simplified user interface (UI). Easy usability and navigation that required no prior training was the order of the day. Functionality with inbuilt processes and a proper User Interface was considered a unique differentiator of a core banking solution. This required further engineering and customization of the base product screens in line with market needs.
Across the globe, the core banking architecture, which was designed for functionality and accounting required reinvention to meet the increasing complexity of user interface, regulation and process, as well as keep pace with the ever changing business dynamics of functionality in different markets.
Today, core banking vendors should design their products such that the main layer of functionality and accounting remains intact and stable. They need to follow the right strategies to address changes in regulation, process, UI and functionality. Vendors must build a market specific layer of UI, workflow, processes and regulation, which can be easily integrated with the core banking solution and updated regularly through a plug in component. Here, they must take care to employ core architecture, which integrates with external industry standard software for these components, else will find it a challenge to manage customer expectations of functionality, process, user interface and regulation without impacting the solution's performance, scalability or architecture .