Core banking software or banking software modules? Advantages and disadvantages

Core banking solutions employ advanced security measures such as encryption, multi-factor authentication, and fraud detection algorithms to safeguard sensitive financial data and protect against cyber threats. By ensuring robust security measures, banks can build trust with customers and comply with regulatory requirements, mitigating risks associated with data breaches and unauthorized access.

What is the core banking system?

The term core banking (Centralized Online Real-time Exchange) refers to the basic banking services and the back office enabling them to provide them. To put it simply, the core banking software ensures synchronization between particular bank branches. They are integrated with the centralized server which enables to processing of data in real-time.

Although the computerization of banking started in the 1950s (ERMA system), the core banking system in the contemporary meaning of this term was a real breakthrough. Previously (in the 1970s and 1980s), every bank branch would send the transaction data to the headquarters or the regional data processing center once a day (at day end) so it was impossible to implement any placed orders instantly. It was usually necessary to wait at least one business day to book the transfer.

core banking system

Although banks keep developing their services, core banking remains the core of their activity. When you look at the core banking software used by the banks, many of them still use systems developed for them before the Internet got so popular and encumbered with technical debt. In the United States 43% of the banking systems are based on COBOL and 95% of transactions in payment terminals depend on the software written in this language.

What are core banking software modules?

The traditional core banking system is not the only one which enables the banks to pursue their objectives. A solution created to respond to the contemporary needs of banks is modular banking software. Analogous to the core banking in the traditional approach, individual modules enable to:

  • open bank accounts for customers,
  • receive and perform cash deposits and disbursements,
  • handle the entire process related to granting loans.

The distinguishing feature of the banking software modules is their open architecture. Thanks to it, the core banking system is better adapted to the changes and it can respond to the dynamic development of the financial sector. The modules enable the banks to select any functionalities they need which help them to pursue their objectives. An example of modular software dedicated to corporate banking is Comarch Corporate Banking.

core banking software modules

Banking software modules offer a modular approach to banking operations, allowing financial institutions to customize their systems according to specific needs and preferences. These modules cover various functionalities, including account opening, transaction processing, loan management, and risk assessment. By adopting modular banking software, banks can streamline their processes, reduce operational costs, and accelerate time-to-market for new products and services. Moreover, the open architecture of modular systems promotes interoperability and integration with third-party applications, fostering innovation and collaboration within the financial ecosystem. Overall, modular banking software empowers banks to stay agile and competitive in an ever-changing industry landscape.

Core banking software — advantages and disadvantages

Although the uniform core banking software is still used by many banks, at least a couple of its disadvantages can be named. The most important include:

Low flexibility

Core banking systems are flexible, but only to a certain degree. This means their functionality can be extended but requires a lot of money. The oldest software used today by the banks is based on the COBOL language and there are fewer and fewer programmers specializing in that technology.

Insufficient scalability

When the first core banking software was developed, the banks operated differently. They had fewer customers, processed less data and online banking belonged to the future. Consequently, older software does not cope with the growing requirements. The maladaptation to the system scalability needs makes the banks look for new solutions.

High maintenance costs

Older core banking systems are expensive to maintain (technical debt). On the one hand, specialists are required (due to the niche technology). On the other, all attempts at extending the system functionality entail high costs and risk. The reason is the need to create customized solutions compatible with the existing ones.

high maintenance costs

Although the core banking system has some disadvantages, it has also some advantages. The most important include:

Simplified customer service, minimized the number of errors

Despite many years, the core banking software keeps fulfilling its function i.e. offering efficient customer services. The number of errors is minimal as most tasks are performed by computers. What is more, the banks can extend the functionality of the software used and compete efficiently in the contemporary market.

Facilitated decision-making process

The centralized banking system enables to collection and analyse of data being the grounds for the decision-making process quickly. This enables not only to examine customers’ applications quickly (e.g. concerning a loan or a credit) but also to make decisions concerning bank development directions, including entering other, foreign markets.

Streamlined banking processes

Core banking solutions streamline various banking processes, enhancing operational efficiency and reducing manual errors. Automation of routine tasks such as account management, transaction processing, and compliance checks improves overall workflow, leading to faster service delivery and increased customer satisfaction.

Integrated core banking platform

Modern core banking platforms offer integration with other banking systems and third-party applications, creating a unified ecosystem for seamless data exchange and collaboration. This integration enhances data visibility and accessibility, enabling banks to leverage insights from multiple sources for better decision-making and personalized customer experiences.

Enhanced security measures

Core banking solutions employ advanced security measures such as encryption, multi-factor authentication, and fraud detection algorithms to safeguard sensitive financial data and protect against cyber threats. By ensuring robust security measures, banks can build trust with customers and comply with regulatory requirements, mitigating risks associated with data breaches and unauthorized access.

Advantages and disadvantages of the banking software modules

Today’s monolithic banking systems are frequently replaced by cutting-edge, modular solutions. However, they are not perfect, and their major disadvantages include:

Joining modules is not always flawless

Although the modular software is based on modules as the name suggests, joining them is not always flawless. Much depends on the software provider and how they planned and performed the integration. Another problem may be the absence of modules required by the bank in connection with the products offered.

Universal but not customized solutions

Companies providing modular software create universal solutions that will be used by the largest group of customers (e.g., banks). This means customers are not involved in module design.

The high number of modules may affect the efficiency

Extensive, complicated systems developed for some time, composed of many different modules, may be less effective than the monolithic solutions designed with all functionalities in mind from the start. The appropriate architecture may prevent those problems.

core platform

Modular software is a response to rapidly changing needs. The most important advantages include:

Reduced expenses for IT maintenance

The cost of the IT infrastructure can be reduced when using banking software modules. Banks may also offer cloud services making them even more competitive. Concerning SME banking, customers may gain access e.g., to the invoicing program.

Software adaptation to the needs

Banking software modules are designed with different bank needs in mind. Consequently, the bank may use solutions dedicated to the headquarters, back office, and front office. Thanks to many modules, the bank may select the functionalities it needs currently.

Using cutting-edge protections

At present, particular importance is attached to security, just remember the EU PSD2 Directive. Banking software modules can be used with cutting-edge security systems. They include e.g., microprocessor cards and tokens. Banks may also introduce biometric authentication.

Seamless integration with core banking solutions

Modular banking software seamlessly integrates with existing core banking solutions, enhancing overall system functionality and efficiency. This integration ensures smooth data flow between different modules and core systems, enabling banks to provide comprehensive services to their customers while maintaining operational agility.

Both the core banking software and the banking software modules enable the banks to carry out their activity and offer not only products but also services to their customers. The module-based software is particularly beneficial for the new banks (the so-called challengers) which, contrary to the oldest institutions on the market, frequently operate as neobanks (digital banks).

What is core product in banking?

The "core product" in banking refers to the fundamental financial services offered by banks to their customers. These core products form the foundation of banking operations and typically include deposits, loans, payment services, investment products, and risk management products. Deposits encompass various types of accounts where customers can deposit their money, such as savings accounts, checking accounts, and term deposits (certificates of deposit). Banks provide loans to individuals and businesses for various purposes, including personal loans, mortgages, auto loans, and business loans.

Payment services include issuing debit and credit cards, facilitating electronic funds transfers (EFT), providing online banking services, and offering mobile payment solutions. Banks may offer investment products and services to help customers grow their wealth, including brokerage services, mutual funds, retirement accounts, and financial advisory services. Additionally, banks provide risk management products to help customers mitigate financial risks, such as insurance products (e.g., life insurance, property insurance) and hedging products (e.g., interest rate swaps, and foreign exchange contracts). These core products are the primary offerings that banks provide to meet the financial needs of their customers, forming the cornerstone of banking operations and customer relationships.

bestbanking software

What is the best banking software?

A good banking solution should possess several key features to meet the requirements of today's financial market and customer needs.

Ensuring a high level of security for customers' financial data is a top priority. The software should be flexible and equipped with advanced security features, including data encryption, access control, and transaction monitoring to detect suspicious activities.

The banking solution must comply with regulatory requirements in the financial sector, such as GDPR, PSD2, and KYC, and should offer a wide range of solutions that customers can customize to their needs.

Another important feature is integration with banking systems and ease of collecting, analyzing, and reporting financial data, enabling banks and financial institutions to make better decisions.

The best and most reliable banking software is Comarch Banking Software. The company has over 20 years of experience in delivering banking software and IT services. What distinguishes Comarch Banking Software is the variety of solutions, so every bank and financial institution will find a solution tailored to their needs. Among the most popular solutions are Open Platform, Wealth Management, and Factoring. The banking software is functional and user-friendly, meeting all necessary standards of the customer and their company.

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