Core banking is a

bank A bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital markets. Because ...

ing service provided by a group of networked bank branches where customers may access their

bank account A bank account is a financial account maintained by a bank or other financial institution in which the financial transactions between the bank and a customer are recorded. Each financial institution sets the terms and conditions for each type o ...

and perform basic transactions from any of the member branch offices. Core banking is often associated with

retail banking Retail banking, also known as consumer banking or personal banking, is the provision of services by a bank to the general public, rather than to companies, corporations or other banks, which are often described as wholesale banking. Banking servi ...

and many banks treat the retail customers as their core banking customers. Businesses are usually managed via the

corporate banking Wholesale banking is the provision of services by banks to larger customers or organizations such as mortgage brokers, large corporate clients, mid-sized companies, real estate developers and investors, international trade finance businesses, ins ...

division of the institution. Core banking covers basic depositing and lending of money. Core banking functions will include

transaction account A transaction account, also called a checking account, chequing account, current account, demand deposit account, or share draft account at credit unions, is a deposit account held at a bank or other financial institution. It is available to the ...

loan In finance, a loan is the lending of money by one or more individuals, organizations, or other entities to other individuals, organizations, etc. The recipient (i.e., the borrower) incurs a debt and is usually liable to pay interest on that d ...

mortgage A mortgage loan or simply mortgage (), in civil law jurisdicions known also as a hypothec loan, is a loan used either by purchasers of real property to raise funds to buy real estate, or by existing property owners to raise funds for any pu ...

s and

payments A payment is the voluntary tender of money or its equivalent or of things of value by one party (such as a person or company) to another in exchange for goods, or services provided by them, or to fulfill a legal obligation. The party making the p ...

. Banks make these services available across multiple channels like

automated teller machine An automated teller machine (ATM) or cash machine (in British English) is an electronic telecommunications device that enables customers of financial institutions to perform financial transactions, such as cash withdrawals, deposits, fun ...

Internet banking Online banking, also known as internet banking, web banking or home banking, is an electronic payment system that enables customers of a bank or other financial institution to conduct a range of financial transactions through the financial inst ...

mobile banking Mobile banking is a service provided by a bank or other financial institution that allows its customers to conduct financial transactions remotely using a mobile device such as a smartphone or tablet. Unlike the related internet banking it uses ...

and branches. Banking software and network technology allows a bank to centralise its record keeping and allow access from any location.

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 real 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 creating a Centralized Online Real-time Exchange (or Environment) (CORE). This meant that all the bank's branches could access applications from centralized

data center A data center (American English) or data centre (British English)See spelling differences. is a building, a dedicated space within a building, or a group of buildings used to house computer systems and associated components, such as telecommunic ...

s. 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

Advancements in

Internet The Internet (or internet) is the global system of interconnected computer networks that uses the Internet protocol suite (TCP/IP) to communicate between networks and devices. It is a '' network of networks'' that consists of private, pub ...

and information technology reduced manual work in banks and increased efficiency. Computer software is developed to perform core operations of banking like recording of transactions,

passbook A passbook or bankbook is a paper book used to record bank or building society transactions on a deposit account. Traditionally, a passbook was used for accounts with a low transaction volume, such as savings accounts. A bank teller or postma ...

maintenance, interest calculations on

s and

deposits A deposit account is a bank account maintained by a financial institution in which a customer can deposit and withdraw money. Deposit accounts can be savings accounts, Transaction account#Current accounts, current accounts or any of several othe ...

, customer records, the balance of payments, and withdrawal. This software is installed at different branches of the bank and then interconnected by means of

computer network A computer network is a set of computers sharing resources located on or provided by network nodes. The computers use common communication protocols over digital interconnections to communicate with each other. These interconnections are ...

s based on

telephone A telephone is a telecommunications device that permits two or more users to conduct a conversation when they are too far apart to be easily heard directly. A telephone converts sound, typically and most efficiently the human voice, into e ...

satellite A satellite or artificial satellite is an object intentionally placed into orbit in outer space. Except for passive satellites, most satellites have an electricity generation system for equipment on board, such as solar panels or radioisotope ...

and the Internet. 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 expenses for banks and legacy software is a major issue in terms of allocating resources. Spending on these systems is based on a combination of service-oriented architecture and supporting technologies. Many banks implement custom applications for core banking. Others implement or customize commercial

independent software vendor An independent software vendor (ISV), also known as a software publisher, is an organization specializing in making and selling software, as opposed to computer hardware, designed for mass or niche markets. This is in contrast to in-house software, ...

packages.

Systems integrator A systems integrator (or system integrator) is a person or company that specializes in bringing together component subsystems into a whole and ensuring that those subsystems function together, a practice known as system integration. They also sol ...

s implement these core banking packages at banks. Open-source Technology in core banking solutions or software can help banks to maintain their productivity and profitability at the same time.

Providers

While larger financial institutions may implement their own custom core,

community bank A community bank is a depository institution that is typically locally owned and operated. Community banks tend to focus on the needs of the businesses and families where the bank holds branches and offices. Lending decisions are made by people w ...

s and

credit union A credit union, a type of financial institution similar to a commercial bank, is a member-owned nonprofit organization, nonprofit financial cooperative. Credit unions generally provide services to members similar to retail banks, including depo ...

s tend to outsource their core systems to system providers. While there is no consensus or a public register on the actual Core Banking Providers, various

market research companies Market is a term used to describe concepts such as: * Market (economics), system in which parties engage in transactions according to supply and demand * Market economy *Marketplace, a physical marketplace or public market Geography *Märket, a ...

Gartner Gartner, Inc is a technological research and consulting firm based in Stamford, Connecticut that conducts research on technology and shares this research both through private consulting as well as executive programs and conferences. Its clients ...

Forrester Research Forrester is a research and advisory company that offers a variety of services including research, consulting, and events. Forrester has nine North America locations: Cambridge, Massachusetts; New York, New York; San Francisco, California; McL ...

release annual deal surveys mentioning platform deals. There are few providers that help leverage the existing legacy systems itself, by hollowing out customer engagement functions from the core system and managing it as a horizontal cross-enterprise layer. This layer provides banks with enhanced product innovation capabilities, sophisticated customer data management, partner ecosystem, and revenue management and pricing. With this approach, banks can quickly adopt new technologies, add more functionality and capabilities, offer customized products and enhance the customer experience. The goal is to transition from a product-based to an agile, customer-first organization.

References

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