3 Challenges You Can Solve by Strengthening Your Core Banking System

In the last few years, the banking industry has been battered by numerous challenges that threaten to propel traditional banks into a state of inevitable decline. Banks the world over have had to contend with geopolitical and economic upheavals, rising margin pressure and rate cuts, trade wars, and ever-changing regulations. These conditions, combined with increasing competition from fintechs and non-traditional financial institutions, have led to drops in deposits, reduced revenues, and branch closures.

Many banks have begun successfully navigating these systemic difficulties by leveraging digital banking solutions and other emerging technologies to upgrade their systems. Adopting a more robust core banking system, for example, has indeed helped many traditional banks navigate the following challenges:

Evolving Customer Needs

A large fraction of banking customers today are younger millennials and members of generation Z, young adults who have been immersed in a technologically driven, highly digitized environment all their lives. The omnipresence of digital technology and internet connectivity in these consumers’ lives have given rise to increased demand for fast, efficient, round-the-clock service. Beyond real-time digital payments and transfers, data shows that many modern consumers would like to be able to perform more complex tasks online, such as applying for loans, putting money into investments, and seeking financial advice.

Beyond this emphasis on convenience, however, a wealth of research suggests that younger customers are much more interested in personalized financial advice than previous generations of banking clients. Individuals currently in their twenties and early thirties will have grown up in the midst of the global financial crisis and periods of intense austerity. They thus want trustworthy financial partners who can provide them with detailed guidance on how to manage their money and reach their savings goals.

Luckily, modern core banking technologies can equip banks with the capabilities necessary to become truly customer-centric. The latest digital software systems help improve banks’ productivity and efficiency by automating key operations like payments, client onboarding, credit and loan approvals, and many more. These programs also contain features for creating more elevated, contextualized customer service experiences, such as smart digital assistants and advanced analytics tools.

Mounting Regulatory and Compliance Requirements

Financial services providers all over the globe are frequently hard-pressed to keep up with rapidly evolving compliance requirements, many of which necessitate working with complex governance frameworks. Because regulatory demands are liable to change drastically and without warning, banks are also under constant pressure to improve their reporting, documentation, and data tracking functions.

Regulators today demand more detailed reports in larger quantities than they ever have in the past. Many legacy banks attempt to address this demand by hiring on new staff—a process that is itself labor-intensive, expensive, and highly vulnerable to human error. In many cases, attempting to meet compliance requirements by increasing manual labor for bank employees may even lead to missed deadlines, penalty fees, and other sanctions for financial institutions.

Digital solutions, on the other hand, have proven themselves able to support banks’ efforts to enhance compliance in a much more efficient and cost-effective way. A good core banking system will come preprogrammed with features for monitoring current regulatory guidelines, incorporating them into the platform’s reporting systems, and tailoring the reports it produces accordingly.

With the support of robust core banking software, banks can produce fast, high-quality reports that are aligned with stipulated financial and performance metrics. Automated reporting also enables the institution to quickly and securely collect essential operational and customer data that it can then use across many discrete regulatory requirements.

New and Innovative Competitors

As previously mentioned, most of today’s banking customers are digital natives that have been conditioned to expect highly optimized and convenient experiences from every service provider they make use of. These rising expectations, along with emergent technologies, have opened doors for a new wave of competing institutions to enter the financial industry. These competitors have the luxury of building their systems with widespread digitalization in mind, enabling them to siphon away traditional banks’ customers and erode their profit margins.

Traditional banks today face increasingly stiff competition from challenger banks, fintech startups, and big tech companies looking to branch out into financial services. These institutions are adept at taking advantage of current technological innovations to provide the experiences that modern banking customers demand. They’re likely to outpace legacy banks in terms of the ability to provide superior cybersecurity, more personalized customer support, and seamless cross-channel service.

To keep pace with the competition, it’s more urgent than ever for banks to listen to their existing customers, identify efficiency gaps in their operations, and embrace technological innovation as an avenue for growth. Financial services experts generally agree that banks that recognize the benefits of process automation, high-level analytics, and contemporary intelligence tools have the highest chances of maintaining their competitive edge.

In an increasingly precarious business environment, banks must adapt or risk falling out of relevance. By adopting modern core banking solutions, traditional financial institutions can achieve greater intelligence and business agility than ever before. This evolution is key to maintaining their place in their customers’ businesses and lives.