Market Fundamentals: Cloud-based Core Banking

Summary

Catalyst

Cloud infrastructure has enabled a new wave of modern cores that are flexible, customizable, and drive product innovation (accommodating the digital 24/7 nature of today’s society). Despite that, many banks still rely on legacy, monolithic core banking systems that are ever more expensive to maintain. Moving away from legacy systems to cloud-based models that use open API-based composable/microservices architecture enables real-time data processing and allows for agile and rapid development. As such, the industry is now shifting to software as a service (SaaS) and cloud-native (CN) models, which can facilitate innovation while simultaneously removing obstacles to integration with the wider fintech (financial technology) ecosystem. This report looks at the key trends, market activities, and solutions in the cloud-based core banking sector, gravitating toward the customer’s perspective and likely requirements while considering the varying states of digital transformation occurring in financial services. The report addresses the key considerations for financial institutions when selecting a core banking platform, including core and wider functionality, platform architecture, and vendor capabilities.

Omdia view

With most banks having already heavily invested in their digital capabilities and front-office modernization, they are now focusing on their backend and payments to improve their existing capabilities. At the same time, the industry is witnessing an uprise in innovations and competitors from newer entrants, such as fintechs, big techs, and companies tapping into the banking as a service (BaaS) models. Banks have been reluctant in the past to move away from legacy systems. Still, they realize the limitations of legacy impede their ability to remain competitive, agile, and being able to launch new products quickly. They are, therefore, accelerating their modernization efforts with back-office functions, even though it can be costly, time-consuming, and complex. There are many risks involved with data protection and fraud, which means banks must have a strategy in place to address security, confidentiality, and cloud infrastructure. This has prompted an array of vendors to offer solutions that address all those fronts while seeking to cater to the wide-ranging needs of financial institutions in their digital transformation journey. Banks looking to remain competitive must urgently assess their existing capabilities, customer needs, and operational risks and, concerning market trends, select a platform best placed to meet their current and rapidly evolving business requirements.