What Is Core Banking: Definition, Features, Benefits

As customers demand more control and autonomy over their finances, and in view of the pandemic that locked so many of us inside, banks are now introducing more customer-friendly core banking solutions to boost customer satisfaction and win more loyal customers. Companies like Oracle and IBM have also introduced automation and advanced data processing to fine-tune operations and increase their knowledge base.

More and more often, fintechs that strive to keep pace with fast-evolving market are investigating what is core system in banking going to provide them in case it is implemented – and whether it’s worth the effort. 

So, if you are pondering whether to adopt a core banking solution, let us explore the concept and importance of a core banking system in details. Read on to discover core banking advantages and disadvantages.

What is core banking?

Core banking is a back-end system that connects multiple branches of the same bank together to deliver operations like loan management, withdrawals, deposits and payments in real-time.

What does core banking mean?

The term CORE stands for Centralized Online Real-time Environment, which implies that the customer can experience the bank as a single entity, regardless of their location – with the aim to provide more independence for the customers in terms of using their accounts and conducting transactions from any location in the world.

What are IT core banking services?

The key core banking services include new accounts creation and customer relationship management, interest calculations, deposits and withdrawals processing, loans issuing and servicing etc.

How does core banking work?

A core banking system comprises back-end servers that handle standard operations like interest calculation, passbook maintenance, and withdrawal.

When a customer withdraws money from a branch or an ATM, the application sends a request to the centralized data center, which then processes the request and authenticates the operation.

Source: Bangaloreicai.org

The data center contains the database, an application server, a web server, and a firewall to protect the system from malware attacks. Banks can host their data center locally or on the cloud.

Core banking software market size

The global core banking software market was valued at USD 10.89 billion in 2022 and is expected to grow at a compound annual growth rate (CAGR) of 9.3% from 2023 to 2030. The rise of the market is due to the increasing integration of technology for basic banking transactions and services.

As the core banking landscape evolves with these prominent trends, the market is poised for significant growth. The increasing adoption of digital transformation, cloud solutions, open banking practices and cutting-edge technologies such as artificial intelligence and blockchain are collectively contributing to the expansion of the global core banking software market.

Below, we delve into the statistics surrounding the global core banking market share:

Broken down by bank type, the market comprises small banks, mid-sized banks and community banks and credit unions. Large banks are expected to dominate the market share for core banking software during the forecast period.

What are the essential IT core banking features?

After analyzing the top banking software vendors, we’ve figured out the core banking features indispensible in a decent solution.

• Centralized dashboard

Bankers need a single-view dashboard to visualize the system in real time. Also, bankers and clients should have access to the same dashboard view; this will help diagnose and solve issues faster.

• Onboarding (with KYC features)

Before using the dashboard, the client must sign in to their account with a unique username and password. With KYC features, banks can verify identities of prospective customers when they register. The onboarding process should also be simple enough for users to complete without stress.

Watch SDK.finance Platform’s demo video to explore how to manage your users, ensure KYC compliance, and prevent fraud with the robust system back office. This video showcases real-life scenarios demonstrating the power of the Clients section:

• Two-factor authentication

The solution needs to offer two-factor verification to boost security and protect clients’ sensitive data.

• Push notifications

When building a core banking solution for mobile, use push notifications to deliver timely account updates to clients.

• Loan management

The core banking solution must allow customers to monitor their loans and schedule payments according to the specified plan.

• Interest calculators

For loan and mortgage payments, users need access to real-time calculators to help them make informed decisions. 

• Live chat

A live chat feature must be on the platform to help users contact support agents when they need assistance. Automated chatbots can also provide templated answers to frequently asked questions.

• Transaction management

Clients can customize their popular payments and P2P transfers to ensure that their contact lists remain updated. They can also use multi-currency exchanges to trade on their preferred currencies.

View the demo video of the SDK.finance Platform to see how you can streamline transaction management and guarantee financial compliance using our robust FinTech Platform:

What are the types of core banking systems?

Depending on the hosting, IT core banking systems can fall into the following categories:

1. On-premise solution. This system works on a locally-hosted infrastructure, providing the bank administration with several customization options.
2. Cloud-based core banking software – as the name suggests, it is hosted on the cloud. Sometimes, a cloud vendor offers the application as a Cloud as a Service (CaaS) on a pay-per-use basis. Other times, companies can move their local servers to the cloud to enjoy more flexibility.

Read this article to explore the world of open source banking software.

What are the core banking system advantages?

With a better understanding of the working principle and features of the core banking platforms, let’s explore their key benefits:

• Enhanced productivity

Core banking platforms increase operational efficiency by reducing the time it takes to connect with multiple branches. As a result, banks can process transactions faster, regardless of the client’s physical location.

• Improved security

Core banking systems use advanced encryption modules to protect the infrastructure from hackers and malware. On the client’s side, bio-verification and two-factor authentication also provide additional layers of security to the platform. These features help banks maintain KYC standards and comply with other banking regulations.

• 24/7 access to banking services

In this era of contactless payments, access to round-the-clock bank services is vital. Users can conduct financial operations anywhere and anytime since the core banking platform never goes offline. Clients can also contact customer support for assistance at any time. 

• Lower operational costs

Banks can rely on their core platforms to reduce operational costs since these systems require fewer human resources to function. Besides, the AI-powered infrastructure increases the completion rate of operations and reduces the chances of errors in documentation.

• Multiple currencies

Users can trade in multiple currencies instantly without needing to change large amounts at a currency exchange. 

Limitations of IT core banking solutions

Despite the amazing benefits of core banking solutions, these systems still have flaws.

1. Technical downtimes can disrupt regular banking operations, thereby frustrating clients.
2. Using a core banking system can introduce a single point of failure that affects all branches simultaneously in the case of a cyberattack.
3. Modern core banking systems can be expensive to buy and maintain, especially for small and medium-sized banks.
4. Legacy core banking software can leave the entire infrastructure vulnerable to system failure. The modernization effort will also cost a lot of money.

Why choose a core banking solution?

Despite the few limitations mentioned earlier, your bank still needs a core banking platform to streamline operations and maximize ROI.

SDK.finance can help you develop banking software using a ready-made backend FinTech platform to accelerate time to market. We provide a flexible banking core that serves as a foundation for building any PayTech products. 

Choose your development approach:

• Dedicated development team with more than 10 years of experience to bring your digital bank to life faster
• Self-service development with a pre-developed Platform by SDK.finance to support your technical team. The Platform is available as a cloud-based software by subscription and Source Code modes.

Both modes allow you to accelerate the development of your banking software and focus on the customer and product experience.

Final words

Core banking financial services offer several advantages to banks and their customers. With advanced data analytics, bank administrators can improve ROI while maintaining client satisfaction at an optimum level. You can also rely on automation to keep your application’s infrastructure running. And most importantly, modern core banking solutions will protect your company’s and client’s data from hackers.