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Digital transformation is the order of the day everywhere with most businesses talking about going digital. However, a majority of them don’t realize that it encompasses processes far beyond just upgrading to the latest IT system.

Businesses must realize that in order to be a digital business in its truest sense means more than just adopting new technology. It’s all about taking the right advantage of the waves of transformation surrounding us. According to a recent research by McKinsey Global Institute (MGI), after looking at the condition of digitization in sectors across the U.S. economy, it was found that there is a growing breach between sectors, and between companies within those sectors. Companies that have digitally transformed themselves have witnessed an enormous growth in productivity and profit margins.

Banks and other financial institutions are contemplating renewing their core systems with digital technology, realizing that their legacy technology will not be able to support their changing needs and will have to be changed in the next few years. But digital transformation in the banking and financial sector isn’t as easy as it sounds. Banks will have to implement a more flexible banking platform on top of the traditional core banking system in order to achieve complete digitization.

Digital core: How does it lead to digital transformation?

What the other sectors lack is not processes, people or tools. It is a performance infrastructure that wires the people, processes, and tools allowing and sustaining digital transformation. It’s the digital core.

A digital core is an innovative technology design that provides businesses with real-time visibility into all mission-critical business processes and all other processes that encompass customers, workforce, Big Data, suppliers, and the Internet of Things (IoT). This cohesive system empowers companies with the required data to predict, simulate, plan and even antedate future business results with unparalleled accuracy in the digital economy.

A digital core can be utilized to overcome complexity in the IT infrastructure of companies. It can provide real-time perceptibility into all the crucial processes that concerns its customers, workforce, data management, suppliers, and devices.

The in-memory computing helps businesses support the consumers and enables end-user decision making. The digital core then changes the system of record into a system of advice, fast-tracking the speed of the business on the basis of real-time, up-to-date decision support.

Core transformation in the banking and financial sector

Core transformation in the banking sector has always been kind of a taboo. The fear of the unknown, comfort level with existing technologies and the luxury of overlooking operational inefficiencies have ensured that core transformation doesn’t take place in the sector.

After the economic crisis of 2008, financial institutions have been streamlining their business and operating models for both monetary reasons and to lessen organizational complications. While historically, banking institutions were held in high regard, the financial crisis hit all financial institutions right where it hurts. Most banks are yet to recover from the damaged reputation they faced during the catastrophe. In comparison to other industries, banking institutions have experienced the least growth in brand value over the last 10 years. With digitization of other industries, consumers now expect next-generation banking experiences to reproduce those in other industries.

The times have changed and in the current competitive environment, it is essential to align the IT strategy of banks to their business goals. Core banking transformation seems to be the only way out.

Technology plays a strategic role in the banking industry. From its core operation to distribution channels, a bank is dependent on the IT. Hence, replacing the core system is a huge exercise for a bank. The bank must have a clear objective, make a simple plan and stick to it. One of the main challenges is to keep all systems up and running during the replacement procedure. Furthermore, keeping costs low is critical because every bank’s key objective is to increase revenues and reduce expenses.

By embracing the digital core, banks can cut their costs and restructure their processes. This endways integration leads to a more seamless, engaging customer experience for the customers and it provides opportunity for further business alteration with new digital technologies like blockchain and artificial intelligence.

Principally, a bank should strategize an IT architecture that reduces complexity. They should use technology solutions that are based on open standards and can be implemented quickly.

To keep up with the rapidly evolving business and operational requirements along with shifting customer demands, the banking sector needs to constantly upgrade its practices and processes. This is possible only if banks regularly augment their core systems and associated applications. Hence, a large number of banks are considering the transformation of their existing core systems with contemporary vendor solutions.

Some BFSI organizations are already leveraging the blockchain technology to alter their business processes as it provides safe, convenient substitutes to traditional banking processes. Off late, blockchain has been the order of the day because it has reduced fraud in the financial world. Other technologies, such as machine learning, are also being utilized widely to automate manual processes, fraud management, and customer segmentation activities.

However, transforming this complex web of applications with new core banking solution is not an easy process. There is a fundamental need to meet functional requirements, cleansing of data from old systems, transformed and then migrated to the new system, and so on. The processes driven by older applications also have to be altered and users need to be re-trained on the new application and processes.

Due to the highly disparate systems in the banking sector, this process is time-consuming and costly. In the last few years, a few banking institutions have used a Line of Business (LOB)-oriented migration approach. This approach helped them experience the benefits of the new core banking solution rather early in the project. This is where the Service-Oriented Architecture (SOA) features as a helping hand in the migration process.

It works as an integration framework that combines the internal and external services to create a solution. With SOA, instead of focusing on different applications that are a part of multiple disparate systems, the emphasis is on business services that denote several different underlying applications.

With the introduction of high-end technologies and global best practices that offer enhanced dexterity, efficiency, CRM capability and faster deployment cycles, banks need to be aware of the challenges that plague the core banking deployments. Once these challenges are understood and alleviated properly, digital transformation is achievable and perfectly manageable.

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