Ambitious plans, as revealed in surveys over the past several years by banks "to change the core", have often remained just that — plans, with no follow through and no sign of volume and size of deals promised.
So, imagine our interest then, when a higher-than-usual number (40%) of banks polled during the Asian Financial Services Conference 2021 said they would transform their core banking systems in the next 3 years! We investigated this at a digital roundtable sponsored by Thought Machine and found:
- On a scale of 1-5, 1 being not ready and 5 well-primed: The readiness of their core banking system for the "new world of banking" showed a weighted mean average of 2.7, indicating encroaching fear that current core systems are woefully inadequate for the future.
- 55% of respondents stated two major justifications for transitioning out of current core systems: lack of real-time capabilities (e.g. in core banking, postings are only generated as part of an end-of-day process) and difficulty in automating business processes and workflows
- Product manufacturing is a prime motivation for new core systems, as banks seek to resolve longstanding issues in product-to-market. Slightly over 70% of banks acknowledged it takes more than 3 months to introduce relatively simple product features and functionalities (a payment holiday for a consumer loan product was used as an example)
From these and many more data points from IDC Financial Insights core banking surveys, there appears to be widespread acknowledgement of the benefits to change to "better" core banking systems. Notably too, the drivers for change are clearly business-driven, emphatically stated by 75% of respondents who acknowledged that business (rather than IT) will trigger and drive the discussion to change and transform the core system!
What an interesting time to expect a new wave of core banking system investments. With business leading the charge, core banking projects might gain more momentum. Moreover, the arrival of a new breed of core banking systems may appeal to executives because of business capabilities that are magnitudes higher than those seen in previous generations: greater efficiency in product manufacturing, hyper-personalised customer experiences and engagement, and much more flexibility on business rules and processes. IDC has documented these capabilities in our series of reports on digital core and refer to them as the trifecta of ultra-lean, hyper-personalised and extremely agile¹. This new breed of digital core banking systems promises competitive advantage to business, beyond cost efficiency and ease of deployment, which is, of course, in the quintessential wishlist of the IT executive.
The proof point for this "business-first" core transformation might already be in play in the Asia/Pacific region. Executives are seeing incumbent banks and neobanks, who were first on these digital core banking systems, deploying and scaling more quickly and at lower cost now growing rapidly and more profitably – despite unfortunate stories of some challenger banks missing business targets.
For sure, business benefits are compelling by themselves, but the other fortifying trend is how IT can deliver on what was triggered by the business. Recent platform advances have made it easier than ever to migrate to new digital core banking. The supporting technology infrastructure and implementation project approaches have reduced the risks substantially. More modern, digital core banking systems – being cloud-native and having robust orchestration, granular microservices and API capabilities – have made integration and migration much easier, shorter in duration and less risky through componentised and incremental approaches.
Discover the new ways that business and IT can be emboldened to take on core banking projects, ushering in a new wave of core banking system investments in the region. We wrote a white paper, sponsored by Thought Machine which is available for download here.
¹ Source: IDC Perspective: Toward a New Generation of Core Banking Systems: The Capabilities to Change and Change Well in the New World of Financial Services, Doc #AP46528820, October 2020)