The four pillars of a future-fit core banking strategy

Over the last decade, core banking has changed immeasurably. Driven by challenger banks and a new wave of fintechs, the space is changing rapidly. And now incumbent banks are facing competition from outside of finance too, with big tech players, armed with deep pockets and loyal audiences, getting involved.  

At SAP Fioneer we’ve created a four pillar core banking strategy to help financial institutions keep up the pace with the rising challenges. In this blog, we’ll examine those pillars and explain how banks can apply them to unleash innovation and set themselves apart from their competitors.  

What’s driving this change?  

Customers now expect innovative, easy-to-use products, seamless journeys across digital and traditional channels in real-time. They don’t want to just access their account; they want an ecosystem of personalized financial products. This is not just the case for retail banking, but business too, where personalized ecosystems provide a huge competitive advantage to providers who can offer their corporate clients efficient systems that enable efficient self-service capabilities.  

But addressing these needs requires an open and flexible banking core. One with the ability to integrate with a variety of internal and external services via APIs. With this open architecture, banks can quickly spin up and scale new core capabilities without impacting existing functionalities. 

Forward-thinking financial services companies have already done this. Meanwhile, many banks struggle to do so, being held back by rigid legacy systems. These are often complex, costly to maintain, and poorly optimized to adapt to new technologies.  

Modernizing these systems is essential for banks to maintain the competitive edge.  

The four pillars of a modern core banking strategy 

Banks must strike a delicate balance: they must address customers’ new demands, match service levels of challengers and big tech while remaining a trusted partner based on performance and stability.  

Doing this requires a modern but reliable core banking system. One that is both robust and flexible enough to future-proof their offerings.  

To help banks achieve this, we drew on our deep banking and technology expertise to design our four-pillar core banking strategy.   

the four pillars of future-fit core banking

Pillar 1: An open and modular core  

The core banking system of the future needs to support a reusable, standardized set of products and processes. This means being ready for ever-evolving innovation and extensions.  

This means removing customer interfaces and replacing them with APIs and replacing custom code with standard functionality. This gives banks the flexibility and agility needed to deliver new capabilities, fast, and quickly tap into plug-and-play third-party services – enabling the ecosystems modern customers desire.  

Banks that adopt this method are already seeing success. Of the financial services organizations already using APIs, 58% reported increased productivity and 48% reported increased innovation.  

Pillar 2: A two-platform approach 

Reacting to changing business requirements is a key differentiator for banks. To support this, the second pillar of our strategy centers around a two-platform approach for overall core architecture: complementing the core banking platform with a second platform for business solutions.  

The business platform 

Our proposition is connecting a separate, cloud-based platform for business functionalities to the core. This is provider-agnostic and can be configured on any hyperscaler such as GCP, AWS or Azure. This avoids vendor lock-in. 

This also allows banks to rapidly create customer-focused, cloud-native business processes. These can be deployed independently from the core, without impacting its operations. Banks can integrate expert third-party services into the business platform too, helping them to build out their ecosystems.  

The digital core platform 

Tier 1 banks hold millions of accounts and process thousands of transactions every second, all while striving for continuous innovation.  

That’s where the second, ‘digital core’ platform comes in. Its modules connect to business applications via published, RESTful domain APIs. This ensures reliability, performance and security of the core. Moreover, it allows banks to consume innovation, provided by the core vendor, without having to worry about their business. 

Pillar 3: Cloud enablement  

Moving to the cloud cuts infrastructure storage and maintenance costs, as well as the capacity that’s wasted outside of peak times. Instead, banks can flex up and down as needed, with charges based on actual usage rather than capacity. 

Plus, moving away from basement servers enhances the pace of innovation, as updates from core vendors can be made available without disruption to day-to-day operations. 

The numbers bank this up. According to Accenture, the large banks it’s helped move to the cloud have experienced:  

  • 10-20% cut in operational costs 
  • 30-50% shorter time to market 
  • 40-50% quicker provisioning speed. 

Pillar 4: Smart data and analytics 

To build highly personalized products that work across channels, banks need to centralize their data into a single customer view. This not only lowers the data footprint and improves data quality, it also forms the foundation for AI- and ML- based use cases.  

But this requires a core built on a database fit for purpose – one that can capture and store centralized data and make it available in real-time.  

That’s why we built our core banking system on SAP S/4 Hana. Its in-memory database has been designed to hold combined transactional and analytical data in one database, providing banks with a real-time and improved customer view. This opens up the likes of real-time cash flow calculations or ‘next best offer’ use cases based on predictive analytics. 

And with out-of-the box AI and ML, it can automate back-office processes, reducing costs and giving staff time to focus on more complex tasks.  

The SAP Fioneer difference 

For banks building for tomorrow, a core banking system based on these four pillars is a strong foundation. But executing this strategy requires more than just tech. It’s about the internal buy-in, the right roadmap and a shift in the traditional, cautious culture of core banking.  

That’s where we can help.  

SAP Fioneer is as much about relationships and strategy as software and engineering. We understand that core banking modernization can feel daunting. But we’re ready to tackle the challenges and help our customers get the very best out of the opportunities that the right solution presents. 

Keen to know more? Download the Core Banking whitepaper here!