Coreless Banking: The New Evolution of Core Banking

The financial services industry is undergoing a significant transformation driven by rapid technological advancements, changing customer expectations, and increasing regulatory pressures. At the heart of this transformation is the evolution of core banking systems, the backbone that supports the operations of banks and financial institutions.

Historically, core banking systems have powered everything from account management to transaction processing to regulatory reporting. However, as the industry evolves, so too must these systems.

Today, the concept of coreless banking is emerging as the next frontier in this evolution, offering a compelling alternative to traditional (legacy) and modern legacy systems.

The Evolution of Core Banking Systems

To fully appreciate the significance of coreless banking, it is essential to understand the journey of core banking systems and the segmentation of offerings available in the market today:

1. Legacy Core Banking Systems

Legacy systems represent the earliest generation of core banking software. These systems are architected as monolithic entities, characterised by their rigidity and lack of flexibility. While they have served banks well for decades by supporting basic banking operations with a broad range of features and reliable scalability, they are increasingly viewed as impediments to innovation.

The monolithic architecture of these systems makes it challenging to integrate new technologies, adapt to evolving customer needs, and achieve a faster time to market. Additionally, the cost of maintaining and upgrading these systems is often prohibitively high, further highlighting their limitations.

2. Modern Legacy Core Banking Systems

In response to the limitations of traditional legacy systems, the market has introduced modern legacy core banking solutions. These systems, typically cloud-native or cloud-based, offer a more flexible and adaptable alternative to their predecessors. By leveraging cloud technology, they enhance operational efficiency and foster innovation. However, these solutions are primarily designed for greenfield projects and smaller-scale operations.

Despite their benefits, modern legacy systems present several challenges, particularly for large-scale banking operations that manage a diverse range of products. These challenges include:

Scalability Issues / Distributed monolithic architectures can hinder the system's ability to scale effectively.

Functionality Limitations / The range of functionality may be constrained compared to more advanced solutions.

High Total Cost of Ownership (TCO) / Overall costs can be significantly higher when considering infrastructure, operations, and maintenance.

Restrictive Configurability / Configuration often requires specialised programming expertise, such as in Python, and product parameters are tightly coupled to specific products.

While modern legacy systems represent a step forward, their architecture and approach have not sufficiently mitigated risks or enabled widespread core modernisation on a global scale. Consequently, many banks are exploring alternatives that minimise disruption to core operations while achieving their modernisation objectives.

3. Coreless Banking: The Future of Core Banking

Enter coreless banking—a revolutionary approach to core banking that transcends the limitations of legacy and modern legacy systems. Coreless banking is built on the concept of a truly componentised architecture, where standalone components can be deployed independently. This modularity is the key to its flexibility and power. Unlike monolithic systems, where any change or upgrade impacts the entire system, coreless banking allows for phased modernisation with zero downtime. Financial institutions can address legacy issues incrementally, modernising one component at a time significantly reducing risk and disruption.

The Unparalleled Advantages of Coreless Banking

Coreless banking offers a range of benefits that make it the most compelling option for banks and financial institutions looking to future-proof their operations:

Fastest Time to Value / Time to market matters in today’s competitive landscape. Coreless banking enables financial institutions to market new products and services faster. But more importantly, it offers the fastest time to value, ensuring that banks quickly see a return on their investment. This agility is crucial for staying ahead in an industry where customer expectations constantly evolve.

Lower Total Cost of Ownership (TCO) / By moving away from monolithic systems and embracing a componentised approach, coreless banking significantly reduces the total cost of ownership while ensuring zero downtime. Financial institutions can avoid the high costs of maintaining and upgrading traditional systems. The ability to scale components independently means that banks can better manage their IT budgets, investing only in areas that deliver the most value. Moreover, coreless banking dramatically reduces the need for extensive cloud infrastructure. With independently deployable components, financial institutions only pay for the cloud resources they use. This "pay-for-what-you-use" model prevents unnecessary cloud expenses, making coreless banking a highly cost-effective solution. This targeted cloud usage reduces costs by up to 90% compared to modern legacy platforms and optimises resource allocation, enhancing operational efficiency while maintaining uninterrupted service.

Phased Modernisation to Minimise Risk / One of the most significant advantages of coreless banking is its ability to support phased modernisation. Banks no longer need to undertake risky, large-scale transformations that could disrupt operations. Instead, they can modernise their core systems evolutionarily, focusing on one component at a time. This approach minimises risk, eliminates downtime, and allows for continuous innovation.

Enhanced Performance, Scalability, Latency, and Zero Downtime / The modular nature of coreless banking enhances performance, scalability, and latency and ensures zero downtime. By deploying only the necessary components, the system can be fine-tuned for optimal performance, ensuring that resources are dedicated where they are most needed. This approach allows for better scalability, as banks can easily add or upgrade components without affecting the entire system, maintaining continuous service availability. Moreover, reducing the complexity of interactions between components minimises latency, resulting in faster processing times and a more responsive platform overall. For instance, XYB’s coreless platform can handle loads of up to 8,000 requests per second with a latency of about 50 milliseconds, essential for a tier-one bank with millions of accounts. For reference, in a comparison speed test, a modern legacy system was seen to operate at a maximum of 500 requests per second with a latency of around 500 milliseconds.

The Breadth of Functionality / Finally, coreless banking offers the broad functionalities today’s diverse financial institutions need. Whether it’s retail banking, SME banking, or non-banks, coreless systems can be tailored to meet the specific needs of each institution. This flexibility ensures that banks can deliver personalised experiences to their customers while maintaining the robustness and reliability required for critical operations.

Conclusion

As the financial services industry evolves, the need for flexible, scalable, and cost-effective core banking solutions has never been greater. Legacy systems, while reliable, are increasingly seen as obstacles to innovation. Though an improvement, modern legacy systems still fall short of addressing the challenges faced by today’s banks. Coreless banking, with its componentised architecture, offers a new paradigm that addresses the limitations of its predecessors and sets the stage for the future of banking.

By adopting a coreless approach, financial institutions can embark on a path of continuous modernisation, driving innovation, reducing costs, and ultimately delivering better value to their customers. Coreless banking is not just the next step in the evolution of core banking; it is the new evolution itself—ushering in a future where banks can thrive in an ever-changing landscape.