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Digital core - Beyond core banking?

-by Souna Uthappa and Naveen PV

Banks are facing a lot of pressure to increase efficiencies and cut costs. But this is being hindered by the core systems that they have adopted over the years, which are amongst the oldest in the banking technology landscape and lacks agility. In today's digital environment, where digital drives customer experience, it is imperative for banks to have a digital framework at their core. A strong digital core enables customer centricity, better customer experience, a single consolidated view of the customer, real-time insights leading to quick decision-making, cost-savings, an omnichannel banking experience, improved compliance and much more. According to Forrester, one of the main differentiators of the digital core is the separation of customer interactions and data, thereby significantly reducing the amount of risk to the customer.

Many banks across the globe have already embarked upon their digital journey on the core banking front and are slowly moving away from products to platforms. Some recent examples of digital core adoption include:

• First Hawaiian Bank selected a suite of digital banking, payments and personal financial management capabilities
• Hong Kong's Fubon Bank selected  a core banking solution to enable a 24/7 multichannel operation with a 360 degree view of customer relationships
• Nordea replaced its  core banking systems in order to facilitate the digitalization of business operations
• Sweden's Länsförsäkringar Bank selected a new platform to power its transformation and to enhance next-generation digital banking services and offer a highly-personalized customer experience
• Bank of Bhutan adopted a new core  to power its next-generation banking services and to create a strong foundation for the bank's digital banking strategies
• Norway's Sparebanken Sogn og Fjordane opted for a digital banking platform (DBP) to enable its new omnichannel banking experience

Core digitalization adoption has been largely limited to new-age banks and smaller / mid-sized banks. Larger banks have stayed away from this trend, primarily due to the sheer scale of implementation, potential disruption of operations during the project, and the cost associated with core replacement and transformation.

Considering that the core transformation and replacement have a major impact on the bank's operational and financial front, banks are becoming increasingly cautious in making decisions regarding the new core as well in the core selection process. But to remain competitive, digitization has become a must; therefore banks need to innovate and extract maximum value out of their core banking and digital banking capabilities and make the necessary changes in their architecture to support this. If not, they face stiff competition from digital banks, niche vendors, mobile or online banking solution vendors, startups, and fintechs, which will eventually result in a diminished market share.

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