Merry Core-istmas, it’s been a core-azy year
This is my final column piece before the holidays, so I’d first like to thank you all for reading and reposting my articles over the course of the last year.
A new phase of core banking has started, and there is more work to be done
It is the comments and feedback I get on these that keeps me wanting to write more, so I have you all to thank for that. For next year, I’d love for more readers to reach out to me with topic suggestions or if you have any interesting stories to tell, so please do keep in touch.
Though I have covered a broad range of topics throughout the year, my articles on core banking have been the most popular by far. The level of interest in this space is really quite astounding, and I have had feedback from around the world.
I’ve previously covered what I believe core banking is, it’s challenges today and what banks and incumbent software vendors are doing with core banking. Both in my articles and podcast episodes (you can listen to Dave and Dharm Demystify here) I’ve covered what a modern core looks like and how banks can migrate towards a newer platform.
At the start of the year, I highlighted that modern core banking vendors face a shake-out as VCs start to look for profitability or faster growth. Inevitably, this leads to consolidation or failure, and we have subsequently seen both in the sector.
Given the huge interest in generative AI, I also wrote some pieces on how AI will change core banking. And perhaps because AI has been such a hot topic, my most recent article – Why AI won’t solve legacy problems – was my second most popular article of the year.
For me, what’s interesting is that I am now seeing a deeper focus on core banking architecture, and what is pleasing is that it’s driven by business requirements for greater scalability, agility, flexibility and cost efficiency.
We have already moved beyond core banking solutions simply needing to be written in modern languages, designed for the cloud (cloud-native) and componentised into microservices. The focus now is on how quickly can I address business needs like launching a new product or how can I dramatically reduce my operating costs (for example, WeBank runs accounts at less than 10% of the cost of traditional banks).
Nowadays, it’s not the case that core banking solutions are differentiated by the breadth of capabilities, but more so in the flexibility to swap in/out best-of-breed components quickly, as we saw with Thought Machine and Monese recently.
The core banking space is following other manufacturing industries, like cars and appliances, where a single supplier cannot simply offer the best of everything that is needed for a complete product. Each banking component is becoming so specialised it is impossible for one vendor to be the best at everything. Instead, companies need to start focusing on packaging their offerings as a mix of their own components combined with selected best-of-breed partner solutions.
At the same time, banks should also have the ability to mix and match their own components. This is where standards for banking components like BIAN come into play, and increasingly we are going to see more modern players adopting such standards.
As such, “composability” has become a key feature for many vendors, as this is the all-important glue that binds solutions and allows them to swap components in/out.
This is quite a big shift and has happened relatively quickly. However, looking forward to next year, we are going to see more evolution as the pace of change is not slowing down any time soon.
Already we can be confident that AI will be embedded through core banking, replacing hard-coded business rules and configuration parameters with data-driven decisioning in real time. Already visionary road maps are allowing for the ledger to account for more than just money as we prepare for a world run by governments on digital money (CBDCs).
With all of this change, a new phase of core banking has started, so if you thought that being cloud-native and running on microservices was the endgame, think again. There is more work to be done.
This week, I’m just saying that 2023 has for me been core-azy. And I can’t wait for 2024, because there is so much more excitement to come and for me to write about.
In the meantime, I wish you all a merry Core-istmas, and a prosperous and exciting new year! Please do stay in touch and keep sending me your feedback, comments and suggestions. I promise I read and value everything, good or bad.
About the author
Dharmesh Mistry has been in banking for more than 30 years both in senior positions at Tier 1 banks and as a serial entrepreneur. He has been at the forefront of banking technology and innovation, from the very first internet and mobile banking apps to artificial intelligence (AI) and virtual reality (VR).
He has been on both sides of the fence and he’s not afraid to share his opinions.
He founded proptech start-up AskHomey (sold to a private investor in spring 2023) and is an investor and mentor in proptech and fintech. He also co-hosts the Demystify Podcast.
Follow Dharmesh on Twitter @dharmeshmistry and LinkedIn.
Read all his “I’m just saying” musings here.
