When it comes to core banking software packages, one size doesn’t fit all..

Banks come in different shapes and sizes and with different strategies for growth.  While analysts and software vendors often focus on selling to a homogeneous market of banks looking for new core banking platforms, there are actually many different heterogeneous needs here:

  • Large multinational banks looking for specific domain capabilities:  These banks normally take a divide and conquer approach to their business where these domains are segmented by customer type or function.  For example, channels are normally considered to be quite distinct from back end processing, and origination platforms are often considered distinct from channels — now from a technology perspective all of these domains are converging and the more seamless the connection between these loosely coupled layers the more agile the bank — but from an operational and strategy perspective these are normally different concerns.  This makes it very difficult for an ‘all in one’ package vendor to woo the bank.  Even logistically, all of the people concerned couldn’t fit into the same room!  For these banks, multi component solutions that work well together but can be implemented in stages over time are a great fit.
  • Smaller community banks and credit unions that are looking for a front to back and end to end solution.  For this size of financial institution it simply doesn’t make much sense to separate customer servicing from front office activities (it’s often the same people) and solutions in this space need to exude simplicity:  from a business operations perspective as well as from a technology footprint perspective.  A small community bank doesn’t want to see an 18 wheeler pull up with 80 servers to implement their new core banking platform!
  • Mid sized banks have a challenge.  They need to select between these approaches and will need to factor in growth and expansion strategies to ensure they don’t pick a ‘dead end platform’

Core banking package vendors need to be careful about how they position themselves.  Some vendors are saying to the market “I’m a bank in a box..” which is great for the smaller banks but will not resonate with the larger banks.  Other vendors present a different picture to the market, indicating that they are only for the large banks — these firms risk alienating the mid tier growth segment.

Technologically the platforms previously thought of as very flexible but only able to handle the capacity of the smaller institutions are now scaling up and reaching the tens of millions of customers — so there will likely be some blurring of these lines, but vendors will need to realize that each type of bank is looking for something different and make the necessary steps to adjust their architecture and marketing message accordingly.  If a core banking software vendor can do this successfully by creating a modular and complete architecture and focusing the message on the specific segments of the market they will be able to have a one size fits all solution.

6 Responses to When it comes to core banking software packages, one size doesn’t fit all..

  1. It is interesting that you mention scalability as a technology consideration. I recently saw a vendor announcing they had benchmarked scaling up to 10’s if millions of accounts on wintel servers, inferring of course they could run banks of any size. Yet I really wonder how many of the largest banks would even consider running their core on a multiplicity of MS Windows servers? It reminds me of the line “it isn’t that the dog dances well, it’s that it dances at all.” Scalability should be considered as more than just a technology feat, but more part of the business operating model of the bank. How many small to mid-size banks will find their business inhibited by the inability to scale the cl0sed-loop functionality of their “bank in a box” solution when they need to flex to meet the business challenges of the larger competitive landscape they seek to enter, much less the changing dynamics of the banking uindustry and markets?

  2. That’s a really good point, Toby. I am usually suspect of benchmarks in general as it’s difficult to create a realistic mix of business transactions in a sterile lab environment.

  3. I liked specially your last words about vendors have a modular and integrated architecture can provide their product to any size banks.

    In fact the discussion about the mainframes yes or no that is present on your text, despite not explicitly.

    I have been working designing and maintaining banking architectures for 9 years (I designed from scratch Bradesco backend architecture), and designed a backend SOA for a bank with more than 20 Million customers (in 2003). Of course no one thought to abandon mainframe to windows with these requirements, but if you look at the performance of small banks applying “obsolete?” mainframe technologies, you could be surprised by the less CPU, memory, disk and energy needed by a mainframe solution compared to a windows or unix/linux solution for the same number of customers.
    And thanks to the cloud you can use external site services as mainframe “LPAR” for every need.
    And if a bank doesn’t like big blue, it can use the unix version of the main cobol packages, running old CICS transactions on microfocus.
    Currently Bradesco runs more than 15000 transactions per second, I don’t know how to do it with linux or windows.

  4. Thanks for your comment. I think large scale transactions are possible in both mainframe and non mainframe environments — but they need to be designed differently. Cost is always a factor, so is ‘server sprawl’, but I think good designs are possible in each scenario.

    Also I don’t believe that legacy is synonymous with mainframe. There are many great mainframes out there that are serving the business needs efficiently and with flexibility, but there are also many that are not. Much depends on how the mid tier has evolved and how well designed the core applications are.

    I hope that you can share more about your experiences with banking transformation, thanks for contributing!

    Kris

  5. since banking is the forefront in using technology we can share banking experience and its move to more and more technology of our respective country.

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