Core banking

Core Banking is a banking service provided by a group of networked bank branches where customers may access their bank account and perform basic transactions from any of the member branch offices.

Core banking is often associated with retail banking and many banks treat the retail customers as their core banking customers. Businesses are usually managed via the Corporate banking division of the institution. Core banking covers basic depositing and lending of money.

Normal Core Banking functions will include transaction accounts, loans, mortgages and payments. Banks make these services available across multiple channels like ATMs, Internet banking, mobile banking and branches.^[1]

The core banking services rely heavily on computer and network technology to allow a bank to centralise its record keeping and allow access from any location. It has been the development of banking software that has allowed core banking solutions to be developed.

History

Core banking became possible with the advent of computer and telecommunication technology that allowed information to be shared between bank branches quickly and efficiently.

Before the 1970s it used to take at least a day for a transaction to reflect in the account because each branch had their local servers, and the data from the server in each branch was sent in a batch to the servers in the data center only at the end of the day (EoD).

Over the following 30 years most banks moved to core banking applications to support their operations where CORE Banking may stand for "centralized online real-time exchange". This basically meant that all the bank's branches could access applications from centralized data centers. This meant that the deposits made were reflected immediately on the bank's servers and the customer could withdraw the deposited money from any of the bank's branches.

Software solutions

Core banking solutions is jargon used in banking circles. The advancement in technology, especially Internet and information technology has led to new ways of doing business in banking. These technologies have reduced manual work in banks and increasing efficiency. The platform where communication technology and information technology are merged to suit core needs of banking is known as core banking solutions. Here, computer software is developed to perform core operations of banking like recording of transactions, passbook maintenance, interest calculations on loans and deposits, customer records, balance of payments and withdrawal. This software is installed at different branches of bank and then interconnected by means of computer networks based on telephones, satellite and the internet. It allows the banks customers to operate accounts from any branch if it has installed core banking solutions.

Gartner defines a core banking system as a back-end system that processes daily banking transactions, and posts updates to accounts and other financial records. Core banking systems typically include deposit, loan and credit-processing capabilities, with interfaces to general ledger systems and reporting tools. Core banking applications are often one of the largest single expense for banks and legacy software are a major issue in terms of allocating resources. Strategic spending on these systems is based on a combination of service-oriented architecture and supporting technologies that create extensible architectures.

Many banks implement custom applications for core banking. Others implement/customize commercial ISV packages. For example in the US from vendors such as FIS, Fiserv, Jack Henry, and D+H^[2]

While many banks run core banking in-house, there are some which use outsourced service providers as well. There are several Systems integrators like Cognizant, Capgemini, Accenture, IBM and TCS which implement these core banking packages at banks.

References