Core banking software vs. banking software modules: pros and cons
Modern banking develops in accordance with innovation advancement. Banking solutions are not limited just to obtaining down payments as well as approving lendings. Clients may utilize a selection of tools, including analytical instruments, services sustaining business monitoring, or advising services that have gotten in touch with money administration. What software is used by the banks to process the transactions purchased by clients as well as provide assistance to the business owners?
What is the core financial system as well as what are banking software program modules?
The term of core banking (Central Online Real-time Exchange) refers to the basic financial services and also the back-office enabling them. To put it merely, the core financial software program ensures synchronization between specific financial institution branches. They are incorporated with the centralized server which makes it possible to process data in real-time.
Though the computerization of banking started in the 1950s (ERMA system), the core banking system in the contemporary definition of this term was a real breakthrough. Formerly (in the 1970s as well as 1980s), every bank branch would certainly send the deal information to the headquarters or to the local data processing center daily (at day end) so it was difficult to apply any placed deals quickly. It was typically needed to wait at least one day for booking the transfer.
Though banks maintain developing their functionality, core financial stays the core of their task. When you consider the core financial software program used by the financial institutions, a number of them still use systems created for them prior to the Net getting so preferred and encumbered with the technological financial obligation. In the United States, 43% of the banking systems are based upon COBOL as well as 95% of purchases in repayment terminals rely on the software application written in this language.
The standard core financial system is not the just one that makes it possible for the banks to seek their objectives. A service produced to react to the contemporary demands of banks is the modular financial software application. Comparable to the core banking in the traditional method, specific modules enable to:
- open checking account for customers,
- receive and also execute money deposits and also disbursements,
- manage the whole process associated with giving car loans.
The distinguishing function of the financial software components is their flexibility. Thanks to it, the core banking system is better adapted to the modifications and it can react to the vibrant advancement of the monetary sector. The components enable the financial institutions to choose any kind of capabilities they need and which help them to pursue their goals. An example of modular software committed to business finance is Comarch Corporate Banking.
Core financial software application – advantages as well as negative aspects
Though the consistent core financial software is still utilized by many financial institutions, at least a few of its downsides can be called. One of the most vital consists of:
Core banking systems are adaptable, however just to a certain level. This suggests their list of functions can be extended yet needs much cash. The earliest software application made use of today by the financial institutions is based on the COBOL language and also there are fewer as well as fewer developers being experts in that technology.
When the very first core financial software application was created, the banks operated differently. They had fewer clients, processed much less information, as well as online banking, belonged to the future. Subsequently, older software programs do not cope with the growing demands. The maladaptation to the system scalability needs makes the financial institutions seek new decisions.
High upkeep prices
Older core banking systems are costly to preserve (technical financial obligation). On the one hand, experts are needed (due to the niche modern technology). On the other, all attempts at prolonging the system capability entail high expenses and danger. The reason is the requirement to produce customized remedies compatible with the existing ones.
Although the core banking system has some downsides, it has some benefits. The most important include:
Simplified customer care, minimized variety of errors
In spite of many years of its existence, the core banking software maintains fulfilling its feature i.e. offering reliable customer care. The number of errors is very little as the majority of jobs are executed by computer systems. What is even more, the financial institutions can add more features of the software application utilized and contend successfully on the contemporary market.
Facilitated decision-making process
The centralized banking system enables to accumulation and analysis of the information being the premises for the decision-making procedure swiftly. This enables not only to analyze customers’ applications quickly (e.g. worrying about lending or a credit report) but likewise to make decisions concerning banking institution improvement instructions, including going into other, foreign markets.
Benefits and drawbacks of the financial software application modules
Today’s monolithic banking systems are regularly changed by cutting-edge, modular options. Nonetheless, they are not ideal as well as their significant downsides include:
Linking with modules is not always perfectly
Although the modular software program is based upon components as the name suggests, joining them is not constantly flawless. Much relies on the software program company and exactly how they planned and did the integration. An additional issue might be the lack of modules needed for the financial institution in connection with the services provided.
Universal however not tailor-made services
Development companies offering modular software programs create universal solutions which will be used by the biggest team of customers (e.g. financial institutions). This implies customers are not involved in module development.
High number of modules may impact effectiveness
Challenging systems created for some longer time made up of many different components, maybe much less reliable than the monolithic remedies designed with all capabilities in mind from the beginning. The ideal structure may prevent those issues.
The modular software application is a reaction to the quickly changing requirements. The most important benefits include:
Lowered expenses for IT maintenance
The cost of the IT facilities can be lowered when making use of the banking software program components. Banks might additionally provide cloud solutions making them much more affordable. With respect to SME banking, clients might access e.g. the invoicing program.
Software application adaptation to the needs
Financial software modules are created with different financial institution requirements in mind. As a result, the financial institution might utilize options dedicated to the head office, back office as well as the front office. Thanks to numerous components, the bank may choose the functionalities it needs currently.
Using cutting-edge protections
Today, a specific value is connected to safety and security, just bear in mind the EU PSD2 Regulation. Banking software program modules can be used with innovative security systems. They consist of e.g. microprocessor cards as well as tokens. Financial institutions may also introduce biometric verification.
Both the core banking software program and the banking software modules allow the banks to perform their task and also offer not only banking products, but also solutions to their consumers. The module-based software is particularly advantageous for the brand-new banks (the so-called challengers) which, contrary to the oldest organizations on the market, frequently run as neobanks (electronic banks).