Traditional banks have already realised they must adopt a modern core banking system to stay competitive. However, replacing such a critical piece of software with a new cloud-based one is no easy feat.
Srinivas Ramadath and Rajat Jain from McKinsey discuss this topic in an article called “Should US banks be moving to next-generation core banking platforms?” The paper has inputs from Vishal Dalal, CEO (North America, EMEA, APAC) at Pismo.
Ramadath and Jain say that many banks still use core banking systems designed in the 1980s and 1990s. These systems are usually stable and can process transactions speedily, but they can be inflexible and slow to change.
The lack of flexibility makes some established banks vulnerable to the competition of neobanks and fintech companies. Using cloud-based platforms, these new entrants can offer their customers a stream of innovative products and services, which would be challenging with a monolithic mainframe-based system.
“Banks today urgently need a new core platform, but the path to building one is time-consuming, expensive, and uncertain,” say Ramadath and Jain. To solve this puzzle, they suggest a gradual migration to the new technology:
“For making the transition, we recommend a two-track process: on one, banks accelerate their current efforts to hollow out the existing core; on the other, they experiment with possible next-gen cores until settling on the best one for the eventual migration. This journey can seem daunting, but inaction can create even greater challenges.”
Read the article on the McKinsey website.