Neo Cores vs. Legacy Cores: What lies ahead?

David Mueller

I’m aware of two trends in particular: the introduction of cloud technology and increasing expectations on the part of customers. These are two sides of the same coin, in my opinion, because the cloud is the only way to meet the requirements customers have today. Legacy IT simply can’t cope with them anymore. The cloud has already become established in other sectors because it offers a superior customer experience. Bank customers realize this and are increasingly expecting the same from their bank. To put it another way, cloud technology and customer requirements are creating a positive innovation loop that is ultimately motivating banks to update their IT systems.

Daniel Bernasconi

One relevant area would be the fundamental shift in models from regulated, centralized banking over to a decentralized finance model. But in terms of the ongoing development of our architecture, we’re working on the assumption that DeFi and the related blockchain technology will continue to be only complementary elements that play a secondary role. While we have to be able to integrate these elements, they won’t replace the current system. What’s driving the development of our architecture are: cloud services from hyperscalers – a future-focused business model; API-first strategies for marketplace integration; and embedded banking in terms of using Finnova sub-modules beyond the traditional banking business as well.

Daniel Ott

For me, it’s the rise of ecosystems, open banking standards like those being advanced by bLink from SIX, and digital assets based on blockchain technology. DeFi and the necessary departure from existing value chains are also key topics.

Roger Furrer

As things currently stand, the so-called modern core banking systems aren’t remotely capable of replacing the existing legacy core banking systems that have already been updated, because the scope of features and services and the connection to the various existing interfaces aren’t even on offer. The digital frontend and the customer experience have to be the priority, and there are good solutions for this, such as the digital banking suite from ti&m, which can be easily connected to existing core banking systems like the OLYMPIC banking system via open APIs – and thus offers the banks a user-centered solution that’s compatible with open banking.

Daniel Bernasconi

I would agree with the first part. When an established provider of a core banking system neglects to make ongoing investments in updating their system, then sooner or later their solution will be replaced with a modern one. But I would have to disagree with the second part, because the backend is absolutely crucial. An open, modern architecture in the backend is the basis that makes innovation in the frontend possible in the first place. And after all, innovation isn’t restricted to the frontend but also takes place in the backend itself – such as the integration withblockchain-based innovations such as crypto assets that was mentioned earlier.

David Mueller

Placing a strong focus on the frontend has led to a spaghetti infrastructure in the backend at many banks. Even during normal operation, this causes a high degree of complexity and high costs, and severely restricts the potential for innovation. Besides this, the frontend can’tcover certain critical functions, such as real-timedata processing or extended analytics. These  are functionsthat can only be carried out with a modern backend. A cloud-native core system that’s integrated in the wider banking system using open APIs lays the groundwork here – for innovation and lower costs, and as a complement to a modern frontend.

Daniel Bernasconi

Finnova started adapting container technologies over seven years ago. We’ve now progressed to a point where we are able to implement core logic in the form of microservices, which we are also currently doing in the case of our instant payment solution. At the same time, from a technological viewpoint we can operate our entire software stack on a hyperscaler cloud such as AWS. We have been using this for our in-house development environments for some time now and are also planning to offer this to our banks in the new AWS Swiss Region next year. In this sense, we aren’t afraid to be compared with new core banking systems and are standing up to the competition.

Roger Furrer

We have a modern, cloud-based open platform which OLYMPIC banking system is already using to run independent microservices that support interoperability via message-based communication in various digital functions and services. We use over 600 of our own APIs to provide various microservices and smart contract functions, information, and transactions, allowing us to work with decentralized or private blockchains. Using standard open APIs, we back up the connection to our core banking system from the blockchain via shared languages such as JSON or SOAP. The results with our existing customers show that it’s possible to implement a simple system based on microservices with smart contracts while maintaining the same features and results.

David Mueller

I can’t really comment on other companies’ plans for the future. But we see the global growth of neo-core banking as a sign that banks have recognized the advantages offered by a cloud-native core system. We’re suddenly seeing wins all along the line, from more capacity for innovation through to huge cost savings. And we’re naturally very pleased that banks are taking more action in this direction as well.

Daniel Bernasconi

In my opinion, it’s a question of business mentality first and foremost. When the established providers feel they are irreplaceable and don’t need to make consistent, ongoing investments in updating and developing their solutions, they will disappear from the market. That’s why Finnova is already making the transition from itsthird to its fourth tech stack since its market launch in the early  1990s.

David Mueller

Right now, Thought Machine has over 30 publicly disclosed customers in more than 15 countries. Our aim is to become the world’s leading supplier of modern core banking and payment software. Switzerland is an exciting market for us because it’s rich in tradition and has a dynamic banking landscape. We’re happy to have local partners like ti&m on board with experience in the banking market, as these partnerships also underscore our interest in the Swiss market. I would also like to mention the article published by our partner Swisscom here, which took a close look at our core banking product in the Core Banking Radar.

Roger Furrer

Stable, modern core banking systems such as the OLYMPIC banking system are still needed in a DLT-networked digital economywith smart contracts and microservices, especially when it comes to our international banking groups that do business around the world. That’s because these core banking systems ensure banking transactions are carried out using a clean, complex, universal, and international approach and are capable of processing this global data for the purpose of consolidations and making it available. DeFi developments definitely represent an opportunity for successful banks in terms of providing their services in a more rapid, customer-focused way and in connection with their existing core banking solution.

Daniel Ott

They are both: They’re a risk if banks avoid the topic and don’t prepare their platforms for it at the right time. Or they’re an opportunity if you recognize the possibilities and act or react quickly – because a lot of potential for generating revenue awaits, as shown by the “buy now pay later” example, where Goldman Sachs is serving as a lender for Apple’s customers.

Roger Furrer

Stable, modern core banking systems such as the OLYMPIC banking system are still needed in a DLT-networked digital economy with smart contracts and microservices, especiallywhen it comes to our international banking groups that do business around the world. That’s becausethese core banking systems ensure banking  transactions  are carried out using a clean, complex, universal, and international approach and are capable of processing this global data for the purpose of consolidations and making it available. DeFi developments definitely represent an opportunityfor successful banks in terms of providing their  services in a more rapid, customer-focused way and in connection with their existing core banking solution.

Daniel Ott

They are both: They’re a risk if banksavoid the topic and don’t prepare their platforms for it at  the right time. Or they’re an opportunity if you recognize the possibilities and act or react quickly – because a lot of potential for generating revenue awaits, as shown by the “buy now pay later” example, where Goldman Sachs is

Daniel Bernasconi

My take is that the banks will make the switch to systems that are optimized for operation on cloud platforms and have modular capability in the next two to five years.

Roger Furrer

I think it will only happen in ten years, after the banking services have been expanded.

David Mueller

The introduction of modern core technologies will happen extremely quickly in Switzerland – much more quickly than many observers are predicting.

Daniel Ott

The first banks will start migrating parts of their services over to these platforms in three to five years.