3 Challenges Banks Face in Modernizing Their Core Banking Systems

3 Challenges Banks Face in Modernizing Their Core Banking Systems

By Joy Dumasia


  • Banking ecosystem
  • Big data processing
  • Centralized real-time online exchange

Core Banking can be defined as a backend system that processes banking transactions at various bank branches. The system performs key banking activities such as transaction processing, account opening, and onboarding, among others. CORE stands for “Centralized Online Real-time Exchange”; thus, bank branches can access applications from centralized data centers. Customers can access their accounts from any member bank branch.

New-era core banking systems are built on cloud and digital technologies, and they use an open, API-based architecture to seamlessly integrate with internal and external systems. Additionally, software application-based platforms make Core Banking systems user-friendly and more efficient. Cloud banking has become an integral part of every bank’s technology transformation strategy and, therefore, part of every vendor’s product roadmap. The cost effectiveness, flexibility, scalability, collaboration capabilities, and benefits of a cloud infrastructure outweigh any business justification for having its technology on premises.

Here are 3 challenges banks face in modernizing their Core Banking systems:

  • Difficulty processing data in real time: Core banking systems, especially legacy systems, often do not work in real time. This places many constraints on the implementation of applications and services that meet customer demand for real-time offerings and features. With older Core Banking systems, it becomes complicated for banks to build a full suite of the real-time environment as these systems operate on a batch-based format. In this format, tasks are performed at specific intervals in batches. Therefore, banks then have to solve by manually controlling all individual processes internally.
  • cyber security: One of the biggest challenges of a connected banking ecosystem is protecting customers’ terabytes of digital data from cyberattacks. In the modern banking structure and environment, mobile and cloud channels increase the potential attack surface exponentially. The data security risk is exceptionally high for small and medium banks with fewer resources to defend against a sophisticated cyberattack and is easier to infiltrate.
  • Upgrading Legacy Systems: Transitioning from a legacy system to a modernized, digitally connected system can be a daunting process. This is especially true for banks in the United States and their legacy COBOL-based systems. Most of these systems have been modified over the years to the point that upgrading them is extremely complicated. Banks will have to bear high costs for the same, as huge investments would be required in application, security, maintenance, and integrations with external systems. Additionally, in today’s contactless communication environment, onsite implementation support can also be challenging.

ALSO READ: Global Report on Major Banking Service Providers and Landscape Q1 2022

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