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INDEX
1. Introduction 2. What is a core banking system? 3. Core banking solutions 4. Key features of the system 5. Components of CBS 6. CBS architecture 7. Concepts regarding core banking solutions 8. What is the need of core banking solutions? 9. Benefits to the branch, customer and the bank 10. Risks involved in CBS 11. Upgrading core banking: its drawbacks and advantages 12. Overview of core banking solutions and their providers 13. Key challenges in core banking replacement i) Survival of the transformed
INTRODUCTION
After years of debate about the need for core system replacement, there is finally evidence of growing momentum both in the market of smaller banks (dominated by package vendors) and in in-house projects of larger banks. For the larger banks, the approach to core system replacement is typically based on an overall service-oriented architecture (SOA) strategy and likely to combine elements of three different approaches: legacy code migration, core banking package implementation, and the introduction of re-usable banking enterprise services alongside traditional in-house development. Core banking is a general term used to describe the services provided by a group of networked bank branches. Bank customers may access their funds and other simple transactions from any of the member branch offices. Core Banking is normally defined as the business conducted by a banking institution with its retail and small business customers. Many banks treat the retail customers as their core banking customers, and have a separate line of business to manage small businesses. Larger businesses are managed via the Corporate Banking division of the institution. Core banking basically is depositing and lending of money. Normal core banking functions will include deposit accounts, loans, mortgages and payments. Banks make these services available across multiple channels like ATMs, Internet banking, and branches. Core Banking solutions are banking applications on a platform enabling a phased, strategic approach that lets people improve operations, reduce costs, and prepare for growth. Implementing a modular, component-based enterprise solution ensures strong integration with your existing technologies. An overall service-oriented-architecture (SOA) helps banks reduce the risk that can result from multiple data entries and out-of-date information, increase management approval, and avoid the potential disruption to business caused by replacing entire systems.
Now a days all banks are upgrading to provide the facility of core banking to their customers to be in the race. It is one step closer to mix technology with baking for providing convenience of banking to the customers.
Levels of computerization vary significantly in the Indian Banking Industry. On the one hand centrally computerized and fully networked new private banks and foreign banks and on the other with little computerization in old private banks and PSBs are in two ends of the spectrum. This situation will very soon change and the entire banking system in the country will be technology driven. This is evident from the fact that almost all the banks have implemented / are implementing the core banking solution and are also offering Internet banking services. With the payment system in the country getting upgraded technologically, the intermediaries namely the Banking system will have to absorb technology in a big way. Further, competition in the industry, cutting edge technology based customer services and products, growing customer needs, RBI guidelines, guidelines issued by CVC and also the VRS offered by Banks are some of the factors that are driving all the players to computerize the operations quickly and effectively to reduce the transaction cost and maximize profits. Major efforts towards computerization in the banking industry started almost two decades ago.
Anywhere Banking
Customers can avail of banking services across the branch and Channel network irrespective of location where their account is maintained.
CBS Architecture
In the CBS set-up, all the servers are hosted at a central place called the data centre. Data centre can also be outsourced. The data centre should have high end infrastructure in the form of robust access control, 100% fire-proof, Non-stop power supply, AC, reliable connectivity and high speed internet facility etc. The generic architecture is a three tiered architecture as shown below: CBS runs on the WAN. The central server is located at the Data centre. Generally there is no application running at the aggregation points. However, the aggregation points will be having the network components. Branches have a branch server which acts as a gateway to the branch. To this branch server various nodes of the branch are connected.
(Please note: The set up as explained in the diagrams above are general in nature and many banks have implemented CBS in this way. However a different architecture may also be implemented by some banks as dictated by the application deployed).
The connectivity architecture could be different for different institutions depending upon the technology adopted and the connectivity service chosen. Generally banks have a generic Wide Area Network Design as depicted below:
Branch Data Centre Leased Line / MPLS VPN* etc Aggregation Point Branch
* MPLS VPN = Multi-protocol label Switching Virtual Private Network As shown above branches could be connected to a common point called the aggregation point (which could be the circle / Zonal / Regional / Divisional Offices of the bank). The aggregation points in turn will be connected to the data centre. The primary medium of connectivity could be Leased lines and ISDN (Integrated Services Digital Network) lines will act as the backup. Transactions after being recorded at the data centre are simultaneously passed on to the backup / DR site. Remote trouble shooting capability is also available in the data centre besides the network monitoring software at the data center to monitor connectivity. System software, RDBMS, Anti-Virus as well as data centre make up the core of the CBS. Data centre will generally have a backup site with full replication of hardware, software, Network components and personnel.
Benefits to customers
Anywhere / anytime branch banking is available to the customers As multiple delivery channels are facilitated, Internet banking, online access to all ATM network, tele-banking facility, bill payment facility etc are made available to the customers. Customer becomes customer of the bank Improved customer service at the branches No need to visit the branch as the multiple delivery channels enable the customer to transact basic banking even from the comfort of her home / office
Benefits to bank
Instant availability of consistent and accurate data. MIS at a central location enhancing the decision support for the top management. There will be effective control and monitoring by the top management. Data base and processing are centralized leading to better monitoring of the business and reduction in data cost and transaction cost. Faster introduction of customer centric products from the central location ensuring uniformity in implementation. Roll out of new products / Business changes can be implemented immediately New delivery channels can be integrated easily The need for reconciliation among the branches is eliminated thereby improving better housekeeping and better operational risk management Ease of system administration and thereby reduction in support costs. Information system security is ensured as the Information processing facility is centralized.
Substantial reduction of operation costs Easier introduction of new products Faster customer service Integration of all products and services, leading to improved risk
management
Real-time transaction processing Scaling up of operations Availability of e-trade options to bank customers Efficient and easy transactions which can be conducted 24/7.
A number of established vendors supply core banking solutions. They help banks upgrade to new core processing systems. These vendors are continuously developing and improving products to meet the demands of the market. Overview of Core Banking Solutions and their providers
Package
Alnova Financial Solutions
Provider
Accenture / Alnova
Bancs
TCS
Bankway
Metavante
Corebank
Core Banking
SAP AG
Finacle
Infosys
FLEXCUBE
Hogan
CSC
Intellect Core
OMNI Enterprise
InfrasoftTech
Profile
Signature
Fiserv
Systematics
T24
Temenos Group
Laser Panacea
Laser Soft
Core banking replacement has, for long, been considered a strict no-no by banks. Established comfort level with existing technologies and processes, relatively comfortable margins that provided the luxury of overlooking operational inefficiencies, and finally, the fear of the unknown, have all ensured that banks steered clear of this subject. But the current competitive environment with increasingly demanding customers is forcing banks to take a reality check on their technology environment and ensure that their IT strategy is aligned to their business objectives. And core banking replacement is often the only solution to their problems. However, replacement of core banking solutions be it for large or small banks, global or regional is akin to a heart transplant. This can be one of the greatest challenges for any institution, which can either result in the bank leapfrogging to a high degree of differentiation and an enriched customer value proposition, or it can create considerable risks for the bank if the transition is not managed properly. A core banking solution, once implemented, should be robust, scalable and future-proof and serve the business interest for at least 10 years.
II.
Key Challenges
Banks need to focus on key factors, which make the core banking transformation a successful experience. Broadly speaking, the key challenges in core banking transformation are: 1. Vendor capabilities and credentials 2. Dependence on legacy/vendor applications and impact on envisioned technology architecture 3. Banks business goals and alignment to leverage the new technology
Does the vendor have a good understanding of banking business practices across the globe? Is the solution based on open standards to facilitate seamless working with surrounding systems and delivery channels, straight-through processing capability and offers real time information to its stakeholders and customers? Is the technology stable and user-friendly? Typically, minor modifications should be handled with minimal vendor intervention, and without compromising on the solution architecture. Further, the solution should be scalable enough to handle projected business volumes without compromising on response times or consuming substantial resources. Does the vendor have a clear roadmap for ongoing research, development, upgrade and support? Does the vendor have the requisite quality and number of trained, experienced personnel to work on the technology platform to ensure business continuity as well as business transformation? Vendors deployment capabilities
d)
For a vendor, developing and marketing the solution to banks is only part of the job. The critical aspect is ensuring a smooth transition to the new system and empowering the bank to leverage its capabilities. The vendor should provide a robust delivery and support platform to manage ongoing business requirements and crisis, within acceptable response times. The main areas that require focus are: Does the vendor have a proven and properly documented implementation methodology? Is the implementation methodology designed to ensure proper training, documentation and user empowerment to enable the banks personnel to deploy the solution across their businesses with minimal recourse to the vendor? Has the vendor implemented the solution in the banks geography and for banks of a similar profile? Also, what is the implementation track record in terms of success rates, adherence to budgets, timelines and delivery commitments? Does the vendor have a well-thought through, multi-layered support strategy (both person based and interactive i.e. web-based with a rich data
III.
Finally
While the advent of state-of-the-art technologies and global best practices undoubtedly offer improved agility, efficiency, CRM capability and faster implementation cycles, banks need to be mindful of the challenges associated with core banking deployments. These challenges, once understood and
CONCLUSION
As core banking system gather momentum worldwide, the small and large banks are starting to adopt SOA-based strategies to ensure that they put in place an agile banking platform for the future. Most companies are increasingly recognized as having the mission-critical credentials to provide the platform of choice for a new generation of banking enterprise services that will complement their multi-channel collaborative and communications technologies and help ensure that banks realize a better vision.
BIBLIOGRAPHY
The data has been collected from various sources and analysed manually before interpretation. The sources include various websites like: www.microsoft.com/industry/financialservices/banking/about.mspx#EEG http://en.wikipedia.org/wiki/Core_banking www.infosys.com/finacle