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Strategizing core banking products

Thought Paper

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Strategizing core banking products

Core banking products

Core banking product creation

Various parameters determine the success of a software product. Some key attributes include easy and quick implementation; rich product functionality; strong technical infrastructure; scalability, usability and performance; and ability to evolve based on future needs. Leading product-based companies such as Microsoft, Google, SAP, Oracle etc. exemplify the fact that technology, constant innovation and strategic branding are all vital to stay ahead of the curve.

In the realm of banking software, core banking applications form the crux of any banking

Those working on core banking products need to follow a well-defined process that enables them to “think beyond banking” and deliver stable, agile products to the clients (banks). These products will in turn aid banks in providing quality services to the end customers.

The greatest challenge for the vendor is to develop a generic framework that incorporates

Banking is all about enhancing relationships with existing customers while establishing new ones. The core banking product should provide functionalities enabling cross selling capabilities/opportunities to cater to end customer requirements worldwide. It should identify commonalities of the process, the redundancies and interdependencies of existing processes and services. The Product which is to be introduced to the marked should improve on the re-usability factor, remove inefficiencies or redundant process and pace way for

solution. On the wish list of most banks is a simple, affordable and adaptable core banking product that can meet both global and local market requirements.

This paper provides an insightful analysis of the formidable task of designing core banking products and the strategies adopted by the software providers to address it.

all global market needs and yet can be customized as per regional market requirements. This can be achieved through various models, each of which has its pros and cons. One of the model being one single product to cater to different regions and another one is region wise Core banking system with minimal effort to be spent on the customization.

improving the product agility and make the product cost efficient.

An ideal core banking product should enable banks to innovate, customize and efficiently serve the end customers with dynamic pricing, free transactions, minimal or no charges for channel transactions, risk analysis, credit rating information and so on. It should also provide a loosely coupled core banking system architecture that is easy to maintain and aids progressive transformation of technology and data structures during upgrades. “Multi Channel Integration”

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Single product vs. region-wise productSingle Product

Building a single core banking product that transcends geographies is no mean task. Regional regulations and Central Bank guidelines which in turn are based on the prevailing socioeconomic conditions, foreign exchange reserves, etc. have to be factored in while creating the product. Furthermore, disparate processes and unique product offerings across markets, constant changes in technology and customer needs all add to the complexity of the exercise. A single core banking product with inbuilt “core banking modules” is an optimum, cost effective solution, as banks can upgrade their existing application to newer versions with little or no customization.

Region Wise Product

Affordability is an important attribute of a core banking product. One that is built on reusable

components can be cost effective, viable and profitable to the bank. Various layers atop a base product, each designated to cater to a particular region, can be designed without touching the base code.

A section of technology experts, bankers and SMEs opines that the product should provide only basic infrastructure for accounting and local teams should customize any additional features. Another school of thought emphasizes that the product should be built in such a way that “a single product can cater to a particular region/s as it will be cost effective for the bank both in the long and short run.”

The vendor has to ponder all aspects before deciding to build a product catering to global requirements.

which is fast becoming one of the most strategic approaches for an “Optimized Core Banking Product” must also be supported.

One can leverage the market and/or product knowledge to create four different strategies.

Originally presented by Igor Ansoff in 1957, these concepts are still prevalent in practical business today.

Existing New

Exi

stin

gN

ew

Market Penetration

Focusing on your

market and product

by niching.

Market Development

Leveraging your product

knowledge to reach new

markets.

Diversification

Diversifying by offering

new products in new

markets.

Product Development

Leveraging your market

knowledge to develop new

products.

PR

OD

UC

TS

MARKET

Software vendors should focus on leveraging their brand name in the market, introduce agile

products and institutionalize the concept of “Building a Strong Core Banking Product.”

Usability

Banking process

Conclusion

Market dynamics

Samsung’s success story in the mobile phone space, attributed to its simple and eye-catching user interface and navigation, reinforces the fact that one can never go wrong with a clean and simple User Interface (UI). This is true of banking

A single product catering to the global market needs to be governed by a global body, akin to Basel or SWIFT, and must adhere to some set standards. This should form the basis for core banking vendors to build their products on.

It may be pertinent to note that the leading core banking solutions developed in India have been successful in Asian/South Asian markets, whereas those from Europe have thrived in Western Europe. This establishes the fact that these products have primarily succeeded on home turf.

There are differences in market practices and regulations across countries and regions. For instance, the Middle East follows Islamic banking practices; South Asia has large microfinance requirements; and certain other countries need Cooperatives/Credit Unions. The core banking vendor has to design the product according to these variables and must also consider factors such as the banking practices and processes across geographies, usability of the product, and mindset of customers.

Basic banking practices also differ; for instance, the functions and features of Savings Accounts

software too, which needs an interface that customers can effortlessly navigate to access various features and operations. Banks today are investing substantially in an attempt to nail the all important UI features in their products.

E.g.: One stop for Customer and A/c Opening process to the entire life cycle of the account.

Products should cater to both current and future needs, which in turn have to be predicted based on emerging trends and market dynamics. This being a costly proposition, IT vendors should make informed guesses about future requirements, with a plan B to fall back on in case of poor market response.

in the US may differ vastly from those in the UK. This can provide both challenge and opportunity to the core banking vendor to position products as per the market dynamics in a particular region. Additionally, these practices are an opportunity to introduce region-specific products, which can become a differentiating factor for the vendor. It is therefore important for vendors to have a finger on the customers’ pulse in any given region.

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Reghunathan Sukumara PillaiIndustry Principal, Finacle, Infosys

Jayanthi K.J.Principal Consultant, Finacle, Infosys

References 1. www.dummies.com

2. www.microsoft.com

3. www.corfja.com

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Given the dynamic nature of the banking sector, barring a few basic products and processes, most other requirements are driven by customer demand. The high rate of obsolescence of these software products can result in huge losses to both the bank and the vendor. A portfolio of flexible and agile products which can adapt quickly to future needs would be a good workaround. Appropriate resources and methodologies utilized in developing these products will also ensure speedy delivery. Recruitment of skilled people with banking industry experience will provide gainful insights into regional and global economic trends such

as inflationary pressures, currency fluctuation, foreign exchange positions, stock market stability etc. and consequently help in the decision- making process during product development. The vendor needs to envision and create a product that is robust enough for current use and flexible enough to meet future requirements without compromising on the bank’s profits.

In short, a certain amount of forward thinking is required to conceive and bring to fruition a product that caters to all requirements, present and future, while minimizing costs and maximizing returns.

Finacle from Infosys partners with banks to transform process, product and customer experience, arming them with ‘accelerated innovation’ that is key to building tomorrow’s bank.

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© 2012 Infosys Limited, Bangalore, India, Infosys believes the information in this publication is accurate as of its publication date; such information is subject to change without notice. Infosys acknowledges the proprietary rights of the trademarks and product names of other companies mentioned in this document.

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