Building future-proof core banking in 2024

As regulated fintechs and banks navigate the challenges of scaling and adapting in a competitive landscape, selecting the right core banking solution (CBS) is crucial for maintaining competitiveness and future-proofing operations.

This article aims to clarify the CBS selection process for 2024, exploring the range of options available—from in-house development to platform-based solutions and composable ecosystems. It outlines how to choose an approach that meets immediate needs and facilitates future growth.

What is a core banking solution?

A CBS is essential for maintaining records of customer accounts at regulated banks and fintechs. This task, while seemingly straightforward, becomes complex due to the wide array of services associated with depositing and lending money, as well as the security, regulatory and financial obligations of managing customer accounts.

Consequently, the functionalities of a CBS extend to, but are not limited to, digital and traditional channels, know your customer (KYC), anti-money laundering (AML), fraud detection, customer relationship management (CRM), interbank and cross-border payments, card transaction management, debt collection, financial accounting and regulatory reporting, and, as expected in the data age, data analytics.

Third-party is first-party in 2024

In 2024, the CBS landscape has unequivocally moved away from legacy and monolithic systems, embracing a future that is not on the horizon but already here.

The transition of core banking from traditional mainframe systems to the current day is already well-documented and accepted as the norm: Software as a Service (SaaS), API-first, and cloud-native platforms now set the industry standard, indicating a significant shift towards more open and scalable CBS architectures; a McKinsey survey of 120 C-level executives from various financial institutions conducted in 2020 revealed that 54% of respondents expect to shift at least half of their workloads to the public cloud over the next five years.

In this context, the line between third-party and first-party components blurs, as external systems are integrated as seamlessly as if they were developed in-house. This evolution is further driven by the need to navigate the complexities of providing comprehensive scalable CBS functionalities across multiple jurisdictions within a single platform. 

Payments, a vital element of a CBS, highlight the challenges faced in offering comprehensive CBS functionalities to fintech and bank customers. The complexity of handling payments for a CBS that spans multiple jurisdictions stems from:

• The unique aspects of local payment systems and schemes.

• The specificities of working with multiple sponsor banks.

• The constant regulatory evolution, for example, the introduction of SEPA Instant Payments in Europe in 2024.

Payments are just one area where a CBS can struggle to provide scalable, comprehensive and cross-jurisdiction functionalities, leading the industry towards a more flexible architecture that favours integrating third-party specialised components.

In-house or vendor solution?

When selecting a CBS, there are some key considerations of in-house development versus vendor solutions.

In-house development

Built for you

In-house development offers complete control over features and roadmap, enabling the creation of a solution that is perfectly aligned with business needs, alongside a potentially quicker time-to-revenue. As a solution specifically built for one customer, it can enable rip and replace if the internally built solution is no longer fit-for-purpose.

The price of personalisation

Although it may appear to be a lower cost initially, it burdens the organisation with full liability of the solution, necessitating significant IT resources. There could be increased focus on IT management over innovation as time progresses and could result in a higher total cost of ownership (TCO), due to the absence of economies of scale that SaaS companies can achieve managing shared computing and IT resources.

Platform vendor solutions

Broad coverage, off-the-shelf

Typically offers a one-stop-shop with quick time to market, well aligned with a typical customer’s needs and jurisdiction’s regulatory and financial requirements.

One size rarely fits all

The broad functional scope could introduce configuration complexities that would necessitate specialised expertise for effective platform management, in particular for less typical CBS use cases.

As it is difficult to have breadth of coverage in all functionality across multiple jurisdictions, innovation may be lacking and there may be challenges when scaling into new markets with specific regulatory and financial requirements can be encountered.

Composable ecosystem solutions

Best-of-breed that is fit-for-purpose

Allows for the integration of best-of-breed components, perfectly aligned with business needs, and can be regionally composable by leveraging specialised components in other regions.

Importantly, the inherent flexibility of composable systems facilitates the seamless integration of next-generation CBS technologies, such as advanced data analytics platforms or AI-driven language models, without necessitating the overhaul of existing infrastructure.

Keeping the orchestra in tune

A composable approach may introduce complexities due to the management of relationships with multiple vendors and an increased need to orchestrate ecosystem integrations from a technical perspective.

Pick ‘n’ mix

With the market shift towards specialised components and the composable ecosystem approach, a hybrid solution—leveraging in-house for truly tailored aspects of your business while utilising best-in-class market components for others—is a perfectly viable choice today.

Selection checklist: picking the perfect fit

Choosing the right CBS requires a detailed evaluation process. Whether leveraging your internal teams or engaging consulting firms, focus on the following key selection criteria:

• Assess the strength and expertise of your IT team to support in-house development and/or integration with vendor solutions.

• Evaluate how well the CBS covers your product needs and its ability to facilitate the launch of new banking products swiftly.

• Consider the vendor’s track record, including the success and satisfaction of existing customers, financial stability, healthy financial reporting, and the expertise relevant to your business in their teams.

• Ensure the selected solution enables full compliance with regulatory requirements (hosting, GDPR, ISO certification, etc.).

• Understand both the immediate and long-term financial impacts of adopting the CBS, including the Total Cost of Ownership (TCO), Time-to-market and Time-to-revenue.

• Choose a solution that not only meets current needs but also has the capacity to grow and scale into new jurisdictions as your business expands.

Numeral: the perfect fit for your chosen CBS

Selecting the right CBS in 2024 is more than merely choosing software; it's about ensuring that your banking and fintech operations are poised for future innovations and market demands. Numeral, a payment technology provider, provides the infrastructure for fintechs to connect to partner banks, access schemes, and automate payment operations.

Numeral is CBS-agnostic, integrating with in-house solutions, end-to-end platforms, and composable core banking ecosystems. Whether serving as last-mile connectivity to schemes or providing advanced payment orchestration and liquidity features, Numeral is dedicated to streamlining multi-bank and multi-scheme payment operations across multiple jurisdictions. Our strategy enables banks and fintechs to prioritise innovation by managing updates and adapting to regulatory changes on their behalf.