CORE banking, a black box explained

Core Banking, a black box explained
Fintech Ruminations, 25-03-2021

Agenda
● What is a CORE Banking system?
● History of the CORE
● CORE system main elements
● Make VS Buy VS BAAS
● Want to know more?
CORE Banking - Fintech Ruminations, 2021

What is a CORE Banking System?

1. the tough central part of various
fruits, containing the seeds.
"a pineapple core"
2. the part of something that is
central to its existence or
character.
"the plan has the interests of
children at its core"

CORE is the acronym for Centralized Online Real-time Engine
A CORE banking system is a system that tracks, in a centralized way,
transactions coming from multiple channels, real time.

History of the CORE system
Pre Internet banks were
very different...

There were essentially 3 channels to move money: Branches, Transfers and Checks. Transactions were
recorded on the local ledger (server) of the branch and data was sent in batch at the end of each day to
the HQ.

With the introduction of CORE systems, transactions were processed real time into a single
centralized server.

CORE system main elements
Today, financial complexity exploded:
value can be stored in many different
ways, it can be moved through many
more channels and there are a wider
arrays of financial products.
In order to enable all these use cases, a
more complex CORE Banking system is
needed.

CORE system main elements

CORE system main elements - Channels
Channels are ways to move money in and
out of the user accounts. Existing
channels evolves and new channels
constantly arise.
A modern CORE system should cheaply
support existing channels and quickly
enable the ingestion of the new ones.

CORE main elements - Fincrime
The Fincrime module is in charge of
flagging transactions and blocking the
suspected criminal ones.
The CORE system should contain its own
fincrime engine or allow the simple
integration of external tools (like Feedzai).

CORE main elements - Product Engine
It is the piece of the system that allows the
creation a wide range financial products
at scale: credit cards, credit lines,
overdrafts, checking accounts, saving
accounts.
It should be as flexible as possible to enable
a composable banking experience.

CORE main elements - Ledger
The core of the CORE. The
“book” where all the transactions
happening in the bank are booked
and stored.
It constitutes the underlying data
substrate for all the accounting
and reporting activities.

Future evolutions: Make VS Buy VS BaaS

Make VS Buy VS BaaS
Make Buy BaaS

Make
Build everything in house: integrations to payments scheme, ledger, product
engine, reconciliation tools. And obviously get your own banking license.
● Extreme flexibility
● Low marginal costs at very high
volumes
● Significant resource necessary
for the active development and
support
● High cost at low volumes
● Banking license downside
PRO CONS

Buy
Buy the CORE from external providers. You don’t have to build everything from
scratch and you just need few teams to support the CORE. Still in charge of
obtaining the banking license.
● Minimal resources invested in
the support of the CORE
● Low marginal costs for low
volumes
● Limited flexibility
● Higher cost for high volumes
● Banking license downside
PRO CONS

BaaS
Buy everything from the outside (CORE, Banking license) and only focus on the
interaction with the User. Perfect to bootstrap the business, but very hard to
differentiate beyond marketing.
● No resources invested in the support
of the CORE
● Low marginal costs for low volumes
● Very limited resources invested in
Compliance topics
● Extremely limited flexibility
● Very high cost to scale up
PRO CONS

What to know more?
● https://www.mckinsey.com/industries/financial-services/our-insights/banking-
matters/next-generation-core-banking-platforms-a-golden-ticket
● https://fintechruminations.com/2020/09/08/a-neobank-stack/
● https://docs.google.com/spreadsheets/d/14ATilCQpL2WT2YiijHwzCIfRL8lRa
PiUKQ44a5aItaE/edit#gid=0
● https://www.quora.com/How-do-we-understand-the-CBS-of-the-bank-its-functi
ons-technicalities

What to know more? PODCASTS
● Core banking in the cloud MAMBU (03/2017) - HERE
● Core Banking as a competitive advantage by Thought Machine
(07/2019) - HERE
● Changing face of core banking technology BBVA (04/2020) -
HERE
● Rotten to core banking - HERE
● Marqeta core banking system - HERE
● Building the AWS of banking - HERE
● Rethinking the core for an elegant banking experience - HERE
● The changing face of core banking technologies - HERE

CORE banking, a black box explained

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