Imagine if your doctor told you that your heart, the organ responsible for keeping you alive, was outdated, inefficient, and struggling to keep up with the demands of your body. Would you hesitate to consider a transplant if it meant the difference between life and death? Now, imagine treating core systems with the same urgency.
Core banking systems are the heart of financial institutions. They pump transactions, process payments, and keep the entire body functioning. Yet, many institutions continue to rely on legacy systems that are no longer fit for purpose. These systems are inefficient, inflexible, and unable to meet the demands of modern open, digital financial services. Like hearts, replacement is complicated. However, some modern systems present a far lower replacement-risk than in the past.
A life-or-death decision
Market forces are squeezing the life out of participants that are not fit or strong enough to keep up with the pack. Advances in Open Banking and Open Financial Services combine with regulation and compliance to test institutions’ ability to grow profitably, ensuring stability.
There may be a temptation to unbundle challenges into individual digital transformation projects, like heart defects to be fixed. But, without a holistic approach, the total cost of repairs may exceed a complete replacement, ultimately represent greater risk of achieving the desired outcomes, and not be future proof.
A digital transformation without the core is only buying time. Eventually, a full transplant becomes inevitable.
The risks of an aging heart
An aging heart struggles to keep up with an active lifestyle, much like a legacy core system struggles to keep up with the demands of real-time payments, mobile banking, and fintech innovation. Just as an inefficient heart can lead to serious health complications, an outdated core system can lead to cybersecurity threats, regulatory non-compliance, and customer dissatisfaction.
Life-changing benefits of a new heart
Just as the heart is connected to vital organs, the core system delivers the ability to achieve the operational speed, efficiency, and data accuracy required to remain relevant to a new generation of customers, grow profitably and achieve regulatory compliance.
Reducing blood pressure
PSD3 and the proposed FIDA regulations, for example, will challenge whether platforms currently in use are fit for purpose going forward. Delivering access to synchronised, reliable data from, multiple applications (whether old siloed systems or new fintech solutions), continuously and in real time through Open APIs, represents significant challenges that can only be resolved, cost-effectively and for the long term, by switching to a modern, integrated real-time solution.
Regulations, such as DORA in the EU, require that core systems are modern, supported, maintained, and upgraded. This is forcing institutions using legacy, sunset package systems, and potentially even in-house maintained systems, to replace, or risk non-compliance sanctions.
Integrated, well-controlled, efficient, end-to-end business processes, based on consistent real-time data, managed at the core-level, automatically reduce the complexity and cost of achieving compliance and the production of regulatory and financial reports. Thus, lowering the blood pressure.
Looking more attractive|
The great generational transfer of finance (an estimated EUR 80 trillion over the next 10 years) has already begun, and a new generation of customers expect to be serviced on their terms.
If existing financial services providers are to remain relevant and profitable, then the customer experience needs to match the latest e-commerce innovations, while the products and services must speak to the new lifestyle choices.
Information needs to be available in real-time and consistent across all delivery channels and compliance can only be turned into a positive experience, earning the trust of customers, deepen relationships and ultimately gaining wallet-share, through an integrated approach that starts with the heart.
Keeping pace
A combination of market initiatives and regulations are also putting pressure on institutions to keep pace, requiring greater openness and access via APIs, operation speed, efficiency, and data accuracy. Examples include, Instant Payments, and securities settlement times that either have been, or are being, reduced from T+2 to T+1 in most jurisdictions. Likewise, crypto currencies and digital / tokenised assets go a step further in already demanding “atomic” settlement.
Final thoughts: the cost of inaction
Ignoring the need for a heart transplant does not stop the problem – it only delays the inevitable, often with dire consequences. Those who procrastinate or, worse, refuse to upgrade core systems face the same fate: declining performance, regulatory trouble, and an increasing risk of failure.
The future of financial services demands agility, speed, and resilience. Like the human heart, a core banking system must be strong enough to sustain life. The question is: will some institutions act in time to save themselves, or will they find that they left it until it is too late?
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