Mumbai: The high frequency of digital payment transactions is forcing banks worldwide to go for a ‘lite’ version of core banking solution (CBS) by decoupling other functionalities from the main application. According to Accenture, this trend is expected to pick up in India with the Unified Payments Interface (UPI) and other digital pay channels increasing the frequency of transactions manifold.
Sonali Kulkarni, lead (financial services) at Accenture in India, told TOI that ever since banks went in for a CBS that enabled anywhere, anytime banking, the trend was to add more and more functionality to the core application. However, the neobanks, or the digital banks, have managed to become more agile by opting for a cloud-based ‘de-coupled’ CBS.
In markets like Australia, mainstream banks are going for a cloud-based lighter version of CBS such as ones provided by ThoughtWorks and Mambu, said Kulkarni. “Innovations have largely happened at the front-end. However, a seamless way of talking to the core banking is not in place,” said Kulkarni. As a result, every time there is a balance enquiry from any channel, it pings the bank’s CBS, putting pressure on the system. Incidentally, several large banks have faced downtime on their digital platforms as adoption of electronic payments went through the roof in recent months.
“If you look at modern IT architecture, core banking should be only a system of records. All insights, analytics and business tools need to be taken out of CBS. That is called hollowing out the core,” she said. According to Kulkarni, banks need to build separate pools of data, or ‘data lakes’, for applications to tap into without putting pressure on the CBS.
In the present setup, banks will end up facing a problem as they scale the front end. That’s because the back end was not designed for a high level of digital banking and will come under pressure as it cannot be scaled up. One reason banks are going slow is that replacing legacy systems is going to cost them millions of dollars and the technology they considered an asset will have to be written off as technical debt. However, banks do not have a choice.
“Bigger banks cannot slow down customer adoption. Customers can still join Google Pay and PhonePe. While banking as a service is getting consumed, the end consumer may not even know there is a bank processing the payments. In some spaces, ‘invisible bank’ has already happened,” said Kulkarni.