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Drivers for Upgrading Core Systems in Banking

  • Core Banking systems are becoming vital
  • Centralization of information is key
  • Straight-Through Processing ranks high in importance for successful core banking

At Fintech Futures, Principal Fintech Analyst at Omdia Philip Benton takes a look at the state of core banking systems. He appropriates his fellow FinTech Futures columnist Dharmesh Mistry's definition:

To define core banking, Dharmesh uses Acronym Finder’s definition of “centralised online real-time exchange” and explains core banking technology as “Software that manages accounts – be that your current account, deposit or loans. Each time money is taken out, core banking debits your account, and when money is put in, a credit is applied.”

Mr. Benton expands upon that by adding that "core banking is a backend system that financial institutions use to fully manage customers’ operations by centralizing all required components and is the fundamental system of record for customer information."

Drivers for Upgrading Core Systems

Legacy systems at many banks are no longer adequate to meet modern needs. Upgrades to cloud-native platforms are needed to improve agility, integration, and the customer experience.

But, what are the main drivers? As noted by Omdia’s Retail Banking Survey, of the top three drivers, two involve customer experience, while one is something the industry has been working on for decades: Improving straight-through processing.

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This is where AI and machine learning have emerged as key technologies revolutionizing the industry.

Take, for instance, check processing.

Prior to the deployment of AI and machine learning, financial institutions were achieving 80-85% read and accuracy rates -- meaning that 15-20% of checks required manual intervention. Now, banks are achieving over 99% read and accuracy rates on checks.

Furthermore, advancement in these technologies are being deployed in other check fields, such as payee. Previously, banks were lucky to achieve 50% read rates on handwritten checks and 80-85% on machine printed. Now, we are seeing over 80% of handwritten checks -- a remarkable achievement when you consider how poor handwriting can be -- and over 99% on machine printed.

Most importantly, this technology is being deployed across major core processors such as Jack Henry & Associates, FIS, and Fiserv. Banks need only upgrade to the latest version of their core systems to receive the benefits.

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