What is your definition of a Core Banking System?
For those who have dealt with core system vendors, you may have noticed that each vendor has a different definition of what constitutes a core system. These definitions often don’t match with your organization’s understanding. Whether it’s just a transaction processor or a comprehensive suite of banking features, there is little consensus.
Recently, we posed this question to our readers: How do you define “Core Banking Systems”?
We received much more offline commentary than online because readers didn’t want to engage in online disagreements over the definition. Understandably so. Let’s attempt to clarify by using an analogy to explore the true essence of core banking systems and separate the core from the rest.
Core Banking Systems: The Heartbeat of Banking
The Transaction Processor: Picture the core banking system as the heart of banking operations, tirelessly pumping financial and non-financial transactions like blood through the system. It’s the vital organ that keeps everything running smoothly.
The Product Factory: Now, imagine the core banking system as a heart that not only pumps blood but also creates life-sustaining nutrients. It helps financial institutions generate various banking products, from deposits and savings to money market accounts and loans.
The Keeper of Customer Information: Our core banking system-heart is also a guardian of crucial customer information, such as account ownership and account history. It maintains the flow of information to ensure a seamless banking experience.
Myths and Misconceptions: Dissecting the Cardiovascular System
Some vendors might claim that everything from the general ledger to online banking is part of the core, like different chambers of the heart. But experts say otherwise:
“These features are like the veins and arteries of the cardiovascular system—vital for the system but not part of the heart itself. They are not core.” – Ben Gurdus
Reporting is essential for tracking exceptions, transaction logs, and maintaining a tidy trial balance. For more comprehensive reporting, separate services or data warehouse solutions are used. These are like the capillaries branching out from the main blood vessels.
Customer information is core only when it pertains to account ownership and history. Demographics? Not part of the core. Think of demographics as the nutrients carried by the blood—not part of the heart itself.
As for regulatory functions, they are essential but reside in a layer above the core banking system. Picture them as the oxygen that our banking-heart needs to keep pumping.
A core banking system is the heart of banking operations—pumping transactions, creating products, and safeguarding customer information. While many other features contribute to the cardiovascular system of successful banking, they should not be mistaken for the heart. With a clear understanding of the heart-core of a banking system, financial institutions can make better decisions when it’s time to choose or upgrade their banking technology.
Found this article interesting? Check out these three related reads for more.
- Key business functions of robust core banking systems
- Data analytics for competitive advantage in banking – From legacy to leadership
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