Over recent years, there has been a modernisation and indeed, a transformation of overall legacy core banking system architecture. Legacy core banking systems are not able to support newer, more efficient methods of integration with innovative, modern solutions to quickly deliver new business models, products and services.

Since the advent of APIs, cloud services and digital banking, digital banks and fintech companies have witnessed a major shift in the way partnerships and products are put together. The aim of new core banking architectures is to provide business agility to financial institutions, so that they may compete in an ever-more complex market, as well as to reduce operating costs using new technologies and cloud infrastructures.

Core banking system architecture supports financial institution’s daily critical banking processes which include like payments accounts, payments and cards. An ideal solution is one in which these products, as well as channels, processes and customer management & information tools, are administered through a centralized database.

This allows financial institutions to achieve economies of scale via multi-purpose data integration for processes such as marketing, accountancy reporting, accounting, regulatory reporting and customer relationship management (CRM).

The development of products using modern core banking system architecture or the banking architecture itself is key for the creation of the foundation of an efficient, transparent and inclusive financial system.

So, what does this mean for modern core banking system architecture?

Cloud-native Core Banking System Architecture

Modern core banking system architecture is cloud-native – something that facilitates a superior customer experience and drives cost-efficiency. Unlike legacy infrastructure, cloud-native systems offer lower maintenance and operating costs, due to less reliance on hardware.

Another benefit of cloud-native systems is agility, as the time-to-market for new services and products can be greatly accelerated. The cloud has also majorly reduced launch time for new products, as legacy infrastructure operates in separate blocks, with any new change being represented by an additional layer.

Updating legacy systems involves writing many layers of script over the top of old systems. Conversely, cloud core banking systems help to create an environment conducive to agile and resilient product development, testing and launch. It also allows software updates and monthly releases to be made much more quickly.

Cloud-based modern core banking system architecture allows companies to rapidly scale their processes up or down. This allows banks to optimize costs and respond to quick changes in customer demand and transaction numbers without investments in equipment.

Another benefit of cloud-native core banking system architecture is that applications are distributed and made up of microservices: a distinct method of software system development that focuses on the creation of single-function modules with well-defined operations and interfaces. Microservices help to build an application as a suite of small services, with each running its own process and being independently deployable. This allows teams to make changes to a part of the solution without impacting any other part of the system and work on different modules simultaneously without any risk of overlap.

Integration-Ready Core Banking System Architecture

Modern core banking system architecture represents an API-first solution, which essentially means that it already has a number of ready integrations, as well as a flexible infrastructure with which to create new integrations with new payment service providers.

The problem with legacy stack is that it either has bespoke point-to-point integrations or is incompatible with new vendors or systems. Both of these factors make integration with new systems and vendors difficult, which are required to develop new products and features rapidly. New integrations take longer as a result.

However, modern core banking architecture allows new integrations to be added quickly and easily, meaning that financial institutions can develop and launch new services and products much faster and retain a competitive advantage in the market.

Open Banking-Ready Core Banking System Architecture

PSD2 regulations require banks to surface open APIs to 3rd parties and “open API” facilitates data exchange between financial and non-financial entities.

Notable advantages include; new services can be launched fast-to-market and additional revenue streams due to collaboration opportunities with other financial & non-financial institutions. Additionally, open banking-ready core banking system architecture enhances client engagement and retention by providing better, personalized assistance with financial products and services.

Embedded Finance & Baas-ready Core Banking System Architecture

API-first architecture has made it possible to unbundle banking products into several layers; card issuing, payments, bank deposits, loans, AML and compliance. They also allow for the provision Banking as a Service (BaaS) solutions to both fintech and non-fintech companies.

This enables any business to embed financial services without needing to build entire stacks on their own. This kind of core banking system architecture allows businesses to connect to banking services from other providers and share services with other fintech market participants.

White-label solutions with embedded BaaS providers can also assist financial institutions in the creation of new revenue streams by connecting other financial/non-financial institutions to their core banking systems.

So, what does this mean for modern core banking system architecture?

It must be:

  • Cloud-ready
  • Open-banking compliant
  • API-first

These elements make frequent launches much easier and this modern architecture is pushing the envelope in terms of customer experience and the creation of opportunities for innovative partnerships to be made.

About Advapay

Advapay is a provider of Core Banking platform Macrobank and Banking-as-a-Service solutions for Electronic Money and Payment Institutions, such as digital banks, e-wallets, remittance companies, crypto startups and other fintech companies. Currently, the company serves more than 30 financial services companies across the UK and European Economic Area.  

Besides the technical infrastructure, the company provides licensing and fintech consulting services, including assistance in building payment infrastructure.  

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