• Antony Jenkins, Founder, Chair & CEO at 10x Banking


• 18.10.2024 02:00 pm
#CoreBanking #Transformation

When I began my journey in banking over four decades ago, the industry was in the midst of a quiet revolution. The emergence of online banking, still in its infancy, hinted at the vast potential digital technology held for transforming the banking and financial sector. 

Joining the banking industry, I can recall being inspired by what could be achieved through digital transformation and went on to lead institutions such as Barclays through periods of profound change. On that journey, I realized that the future of banking wouldn’t just be shaped by what banks did. It would also be shaped by how they did it. Technology is the how. 

Banks today are data businesses with banking licenses, operating in an era of unprecedented change. Navigating change well requires not only access to data – it requires access to real-time data to power user experiences, operating efficiency, decision making and, increasingly, AI. Banks that fail to keep pace with real-time data, accelerated advances in tech and fast-evolving customer expectations risk becoming irrelevant. 

Choice of core defines a bank’s future 

That’s why every modern bank and financial services company has on its roadmap a holy trinity of transformation goals: the adoption of cloud-native technology, greater automation at every level of the business, and hyper-personalization of products and customer experiences. The three are deeply intertwined.  And central to achieving these three goals is core banking technology. The choices banks make now on their core banking technology will determine competitive advantage for the next decade.

In June this year, 10x Banking surveyed IT decision makers in banking and financial services. That research reveals that almost all (93%) senior IT decision makers in banks and financial institutions believe their company’s future success depends on making the right choice of core banking solution. And yet, despite nearly all our respondents recognizing the critical importance of core technology, more than half (55%) of the IT leaders we surveyed say the limitations of their current core solutions are one of the main roadblocks to achieving their institution’s goals. Traditional approaches to core technology are still holding banks back when the cores should be powering them forward.  

The challenges with legacy mainframe cores are well-established and I won’t take time to enumerate here all the problems that arise from their inflexibility and lack or real time data. Let’s just say that when the first “neo cores” – cloud-native banking platforms – emerged a decade ago, the hope was they would provide an easy escape route from the binds of legacy infrastructure. 

For many banks, that hasn’t been the case. Adoption of neo cores is often limited to piecemeal “side car” migrations for specific products. Indeed, our research found that 53% of respondents using an in-house legacy core and third-party core platforms cite data migration as a top challenge for their institution.

Constant core compromises

The reason why so few banks deploying neo core have fully transformed is, in part, down to the trade-offs and compromises that neo cores inherently demand. 

Neo core platforms essentially come in two distinct flavors: configuration neo cores and framework neo cores. This binary choice has created a fork in the transformation roadmap where banks and financial institutions have had to choose between either:

• the quick go-to-market and low development effort demanded by configuration neo cores, but a compromise by the bank on scale OR 

• the flexibility and customization of framework neo cores, but with an acceptance of high maintenance costs, outsized risks in upgrades and heavy reliance on scarce development talent. 

There must be a better way than forcing banks to choose their compromises. Banking today needs a next-generation solution that blends the best of configuration neo cores – speed to market, lower cost, derisked migration – and combines it with the benefits of framework neo cores – full customization of products and even the core, with massive scale built in as standard. 

If banks and financial services aren’t forced to compromise because of their choice of cloud-native core solution, they can accelerate their innovation. Our research reveals that, while AI remains front of mind for many IT decision makers in banking and financial services, only one in three (32%) have so far integrated AI into their core solution. This is concerning. According to (McKinsey), banking is one of the top four sectors set to capitalize on that market opportunity – but that forecast will remain a pipe dream if banks can’t integrate AI efficiently, securely and at massive scale. 

It’s time for the next generation of core

One thing is certain, whether configuration or framework, neo cores are not the final destination for banking. They have been a helpful stepping stone over the last decade to cloud-native technology, but banks and financial services now need a next-generation core technology that doesn’t demand so many compromises. We call that approach meta core – the first cloud-native core banking solution that enables easy development, complete customization and a real-time view at massive scale, giving banks a clear, derisked path to full cloud-native transformation for the first time. 

While there is greater choice of core technology than a decade ago, limitations, trade-offs and compromises remain, and they are frustrating the ambitions of banks and financial institutions. Banking will always be a balancing act between innovation and risk management. But as AI skyrockets and customer expectations rise, banks and financial institutions that don’t find a way out of this maze of core compromises may soon find their core frustrations transform into business-critical risks.