Summary
The Core Banking Solution (CBS), presently being rolled out at branches, is bringing about a sea change in the way we conduct business, with new concepts and process. Moving over from a Branch based computerization system to a centralized system in itself calls for a great degree of appreciation of the underlying processes. In the process of roll-out, we have seen that the learning curve for CBS has been rather steep and proper learning has ensured quick stabilization. With coverage under CBS now gaining momentum. Under CBS – there is a felt need to equip all users of CBS with an ‘easy to understand and practice’ User Manual’. Realizing this need, our Core Banking Project had earlier come up with job cards for ‘Step by Step’ learning
Introduction To Core Banking Solutions
In recent years, the banking industry has been undergoing drastic changes, reflecting a number of underlying developments. Significant advancements in communication and information technology accelerated and broadened the dissemination of financial information and financial services and also increased the complexity. Another key impetus for change has been the increasing competition among a broad range of domestic and foreign institutions in providing banking and related financial services. All these factors throwing more challenges to banking sector.
Core Banking Solution (CBS) is networking of branches, which enables Customers to operate their accounts, and avail banking services from any branch of the Bank on CBS network, regardless of where he maintains his account. The customer is no more the customer of a Branch. He becomes the Bank’s Customer. Thus CBS is a step towards enhancing customer convenience through anywhere and anytime Banking.
Core Banking Solutions (CBS) or Centralised Banking Solutions is the process which is completed in a centralized environment i.e. under which the information relating to the customer’s account (i.e. financial dealings, profession, income, family members etc.) is stored in the Central Server of the bank (that is available to all the networked branches) instead of the branch server. Depending upon the size and needs of a bank, it could be for the all the operations or for limited operations. This task is carried through advance software by making use of the services provided by specialized agencies. Due to its benefits, a no. of banks in India in recent years have taken steps to implement the CBS with a view to build relationship with the customer based on the information captured and offering to the customer, the customized financial products according to their need.
Core Banking Solutions is new jargon frequently used in banking circles of India. The advancement in technology especially Internet and information technology has led to new way of doing business in banking. The technologies have cut down time, working simultaneously on different issues and increased efficiency. The platform where communication technology and information technology are merged to suit core needs of banking is known as Core Banking Solutions. Here computer software is developed to perform core operations of banking like recording of transactions, passbook maintenance, and interest calculations on loans and deposits, customer records, balance of payments and withdrawal are done. This software is installed at different branches of bank and then interconnected by means of communication lines like telephones, satellite, Internet etc. It allows the user (customers) to operate accounts from any branch if it has installed core-banking solutions. This new platform has changed the way banks are working.
CBS is the banking solution with the art-of-technology driven approach. This is high tech IT supportive to the banking activities that covers all the functionalities of the bank and provides the concept of ‘Anywhere banking’ to the customers. Customers are treated as ‘Bank customer’ against ‘Branch customer’. The module of the centralized solution is user-friendly in nature and has different approaches for different categories of users of the bank.
Definition“Core Banking” refers to the activities a bank generally undertakes. “Core Banking Process for a bank” is thus a generic term for the complete administration of transactions for the bank through a central database.
In an ideal core banking scenario, all products, processes, channels and customer relationship management tools are integrated and administered via a central database of the bank with branches and channels as delivery points.
This enables cross-selling, data integration for various purposes such as cross selling, CRM, Regulatory Reporting and internal MIS all at considerably lower cost.
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 etc.
Functions Of Core Banking
Core banking is another way of saying the core functions of a bank. These functions represent the essential (core) business of banking. The definition of core banking may have been muddied by the emergence of packaged computer solutions which combine core banking functions with other elements of a bank’s operations but at the most basic level core banking manages financial transactions and their impact on the accounts of its customers.
Often, a core banking system will maintain linkages between accounts and customers. A banking system that holds a single instance of a customer’s record and then relates all of that customer’s accounts to that record is said to be ‘customer centric’. Enables the bank to manage across the entire customer relationship (CRM or customer relationship management).
The core banking components include:
· Interest calculations
· Processing of cash deposits and withdrawals
· Processing of incoming and outgoing remittances, cheques, etc
· Customer management
· Customer account management
· Interest rate definition
· Customer’s standing instructions
· Maintaining records of all financial transactions
A packaged retail core banking system might include functions such as:
· Branch management, often including facilities for maintaining teller cash drawers, etc.
· Cheque book ordering
· Internet banking
Banks can have differences in the type of business that they conduct
Their core banking system will therefore reflect the type of business of the bank and be either:
· Retail banking
· Commercial banking
· Wholesale banking
· Treasury banking
· Private banking
A super breed of core banking systems has emerged which offer functionality in addition to core banking. These systems, called universal banking systems, can accommodate combinations of banking services such as retail, wholesale, private banking and securities trading. An advantage of using a universal system is that data can be transferred easily between the different modules so a bank can identify customer trends or selling opportunities for example if a customer has high levels of cash balances and also performs securities trading then they may be a sales opportunity for private banking services.
Features of Core Banking Solutions
· Optimized self-service applications for:
Improved marketing/fulfillment of distributed products
Account aggregation as a driver to enhance wealth management
advisory
· Improved customer relationship management spanning:
Applications to identify customers with higher lifetime value
potential Identification of cross selling /up selling
opportunities
· Enhanced business solutions for growing businesses:
Better operational efficiency and cash flow management
· Higher operational efficiency to reduce cycle times across:
Mortgages, loans, credit cards, merchants application processing
Check truncation at point of sale, payment processing
solutions
· Better risk management:
Credit scoring; predictive analysis of defaults, fraud prevention
Delinquency analysis and recovery strategies (cards,
· Legacy modernizations/platform refresh:
Keeping in mind your customers' shifting requirements, next
generation agile banking systems helps you to upgrade from
old legacy and custom-built core banking systems.
Advantages
To Customers:
All CBS branches are inter-connected with each other. Therefore, Customers of CBS branches can avail various banking facilities from any other CBS branch located any where in the world. These services* are:
To make enquiries about the balance; debit or credit entries in the account.
To obtain cash payment out of his account by tendering a cheque.
To deposit a cheque for credit into his account.
To deposit cash into the account.
To deposit cheques / cash into account of some other person who has account in a CBS branch.
To get statement of account.
To transfer funds from his account to some other account – his own or of third party, provided both accounts are in CBS branches.
To obtain Demand Drafts or Banker’s Cheques from any branch on CBS – amount shall be online debited to his account.
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All these aim to provide convenient, efficient, and high quality banking experience to the customers, comparable to world class standards.
To Banks:
• Standardisation of process within the bank.
• Better customer service leading to retention of customer and
increased customer traffic.
• Availability of accurate data & Better use of available
infrastructure.
• Better MIS and reporting to external agencies such as Govt., RBI
etc.
• Increased business volume with better asset liability management and risk management.
CORE BANKING MANAGEMENT
The Core Banking Suite manages deposit and loan products and credit and debit cards. The application includes a world-leading cash management component, to be used by large corporates to perform cash pooling, sweeping etc in a cross border, multi-currency environment.
Product management
CBS Product Composer is a strategic tool that allows your key busines people to design, maintain and adapt financial products efficiently and move product development back to the business.
The CBS Product Composer will enable you to assemble market ready deposits, loan, card and hierarchy products. Then you can combine the products with flexible pricing structures and distribute them through any channel to your banking customers.
Customer management
CBS Customer Management holds all customer information in one single database which lowers redundancy and complexity. You will find your information when you need it. A perfect match for growth and mergers and acquisitions
Deposit processing
CBS Deposit manages the processing of a variety of deposit products, such as current accounts, long-term and short-term savings agreements, notice accounts, overdraft agreements for cards and different corporate accounts such as wholesale cash. These are only product examples, blended products can also easily be realized.
Loan processing
CBS Loan manages the processing of a variety of loan based products such as secured and unsecured loans, mortgages, term loans, demand loans, time loans, annuity loans, construction loans and fixed interest loans.
Card Issuing
Card Issuing supports processing of all card types in one solution. While designed to hold all your credit and debit cards, Card Issuing can be used to process specific card types as well.
By utilising the functionality supported in Card Issuing, the card issuer can issue a variety of card types, such as:
· Visa
· MasterCard
· Eurocheque
· Payment cards
· Identity cards
· Private labels
· Co-brands
Transaction processing and clearing
CBS Transaction Gateway includes a generic input and output format module, which allows rapid implementation of new formats. Clearing settlements can be run whenever required, giving banks the opportunity to settle accounts with their cooperating financial institutions several times a day.
CBS Transaction Gateway also includes a payment diary ready for use by all transaction suppliers, securing that all matured payments are stored in one database. The payment diary comprises functionality for repeated payments orders, modification, approval and deletion.
Core banking challenges and solutions
The banking market was one of its key areas for growth, both organically and through acquisition. In particular, worldwide banks are planning to replace their core IT systems within the next five years.
"Banks have grown-up for the most part with in-house developed IT …this has created a mess of legacy systems and most of the banks' IT budgets are wasted just running the show."
"Many banks still view IT as a cost centre but good IT can improve service for customers. Banks must move away from product centric silos and build umbrella architecture …only then can cross-selling workeffectively."
The scale of the challenges; firstly, to move away from legacy systems?
The main legacy systems in banks are the core processing systems, which operate around the payment functionality.
The challenges facing the core banking systems have been documented widely and extensively. In so many cases the internal processes and systems have been in existence for 20 to 30 years, encompassing the developments for adaptations and product development.
Core banking systems were primarily processing systems. Data storage and archiving were expensive. The knowledge to maintain core banking systems comes at an increasing financial premium. Concepts such as data mining – enabling banks to exploit customer information for sales, marketing and management purposes – had not evolved into commercial applications when core-banking systems were implemented. Features such as modular and database-centric are alien to the complexity, time and costs by forging such links with core banking systems.
The risks of replacement are high and the costs of replacement are substantial. Projects to replace core-banking systems are littered with failures. However, the longer they last the more costly they are to develop and maintain.
Second challenge arises from the observation that banks must move away from product centric silos and build umbrella architecture in order for cross-selling to work effectively. Though this observation may well be correct, the move to "an umbrella culture" is unlikely to be driven by systems. It is a fundamental change of business culture. Focusing on helping banks to replace their core IT systems they are taking on a very tough challenge in an area of the banking industry where historically there has been a distinct lack of success.
Banks at the heart of banking technology, lies the Core Banking Solutions (CBS) implemented by most banks. CBS is nothing but automation of banks across multiple delivery channels. In other words, CBS helps banks achieve a centralized processing mechanism and in turn provide an ‘anytime anywhere’ service to their customers. However, core-banking applications come with their set of challenges.
Roadblocks;
Moreover, fresh regulations and compliance requirements, industry consolidation, delivering cost effective products and services, maintaining secure data platforms, meeting ever increasing customer demands and other strategic issues have all made banking far more complex than it used to be in the past. In order to handle increasing transaction volumes and do away with issues hovering around the current systems, banks need the right CBS in place.
Solution:
What banks need is a flexible, customer centric core banking environment that is also equipped with multi-currency and multi-lingual features since the industry is getting increasingly globalize. For instance, Bank enabled CBS, which is one of the largest implementations in the banking industry and includes agricultural loans, loan processing, and foreign exchange and service branch functionality. This has helped the bank move in line with the changing market.
The road ahead:
At present, out of the total IT spending undertaken by banks, around 75 per cent goes toward maintenance of existing systems and ensuring that the business of the bank goes through smoothly. Hence, a major exercise in upgrading core-banking architecture is something many banks may not be able to afford at present. To gain an edge over their competitors and address customer demands effectively, banks need to do a balancing act by replacing old systems with new platforms, without giving up on existing core banking modules, which might still cater to changing needs. There has been considerable progress in CBS implementation by banks; however, there is much more ground left to cover.
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 envisioned technology architecture
3. Bank’s business goals and alignment to leverage the new
technology
Core Banking Systems are those applications responsible for processing and posting transactions in the domains of payments, current and saving accounts, loans and securities (such as performing current and deposit accounting, maintaining loan accounts, holding securities positions, clearing payments).
Today’s solutions are capable of completing these tasks in an integrated, browser-based environment across multiple delivery channels. They constitute a mission-critical element in the financial services industry. Without core banking applications, most banks would instantly come to a grinding halt.
Situation:
Experts consider core-banking replacement to be the most complex, risky and expensive IT project that any bank can undertake. A core banking system forms the backbone of a bank’s IT infrastructure and contains records of all customer transactions and the processing
of those transactions.
Risks:
But more than anything else, two factors stand in the way: the risk and cost involved in carrying out a core banking replacement. The costs as well as the risks are high, but the benefits are far greater. Financial institutions undertake such projects will quickly reap the benefits and set an example for others in the industry.