What’s next for core banking?

This is a question most professionals in banking can answer quickly. Those in business areas tend to respond at a higher conceptual level than their counterparts in technology, but most will reference key concepts like composability, agility, efficiency and resilience. These terms likely come to mind because they stem from past experiences, often marked by the frustration of dealing with the opposite. However, as is often the case (especially in core banking), the devil is in the details. Each specific requirement tied to these concepts increases the resources needed to bring them to life, pushing back the long-awaited moment when the new core banking system becomes operational.

Thus, the real challenge in answering “What’s next for core banking?” isn’t just defining a conceptual or generic target; it’s selecting the right path to reach it. The focus must be on the journey: the strategy in which a bank invests significant resources and places its hopes, betting that this direction will lead to competitive advantage.

It’s rare to find a bank today that isn’t defining, executing or refining its journey toward the next-generation core banking application. Some build their own, taking advantage of exceptional development capabilities and deep banking expertise. Others opt for market solutions designed with the same level of expertise, while some take a hybrid approach, combining both strategies. The same applies to application and infrastructure platforms.

Regardless of the path a bank chooses, we strongly recommend adopting openness as a guiding principle. This will allow banks to adapt in a rapidly evolving technology landscape.

• Build open cloud-native capabilities. Decouple applications and infrastructure by design, and take advantage of cloud’s agility regardless of the infrastructure underneath (AWS, GCP, Azure, IBM Mainframe, etc). At Red Hat, we call this the “hybrid cloud”
• Use open standards. While proprietary solutions may offer short-term innovation and differentiation, they often hinder interoperability, which is an essential factor for composability. No single provider excels at everything, which is why modern banking technology is no longer monolithic. Instead, it is composable, allowing banks to integrate best-of-breed components and replace them as needed to remain agile and competitive
• Keep your options open. Embrace strategic optionality as the future of banking and technology is uncertain, and no single bank, vendor or partner excels at everything. Flexibility is key, so be prepared to adapt your journey as needed and avoid lock-in. In fact, some regulations, such as the EU’s Digital Operational Resilience Act (DORA), even require banks to maintain optionality for critical vendors
• Take advantage of enterprise open source software and open source AI. When many eyes review the code, training data or model weights, more contributors can enhance it, introduce new capabilities, identify issues and resolve them. Open source fosters innovation, security and continuous improvement

Composability, agility, efficiency and resilience

These 4 attributes apply to the core banking application, which provides essential functionality for managing checking accounts, customer information, contracts, pricing and more. However, the choice of platform (where the core banking application runs) can either enable or hinder composability, agility, efficiency and resilience. 

This relationship between application and infrastructure reminds me of a quote from a former colleague in a bank’s legal department: “A giant with feet of clay is useless!”

Red Hat has partnered with IBM Consulting and Thought Machine to create a paper that delves deeper into the WHY, WHAT and HOW of these concepts. 

Read about how we use a collaborative approach to core banking modernization, working alongside banks to bring these principles to life.