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Banks without a digital core will fail

Building on the discussion of data being key to disruption, I often use the phrase ‘digital core’ in this context.  Therefore, I was intrigued when someone asked for a definition of a ‘digital core’ and one of the replies was there isn’t a core anymore. 

I wondered what they meant and, in explanation, they referred to the idea of a central point of systems – a mainframe – is no longer the way the markets operate.  Systems should instead be spread across server farms in the cloud so there is no single point of failure.  I totally agree, and therefore felt it worth a little more explanation of digital core as so many misinterpret what this means.

First, I have defined my terms several times before:

But it does no harm to reiterate some points, such as this one.

So a digital core is, in essence, the removal of all bank data into a single structured system in the cloud.  The data is cleansed, integrated and provides a single, consistent view of the customer as a result. 

That’s a big ask, and most banks tell me it’s not achievable.  Silo structures and line of business empires protect data sharing and lock client information in their product focused empires; creating a single, cleansed store of cloud-based data is too insecure, creating the opportunity for any cyberattacker to bring down the bank; a single data store would not be good for risk management purposes; etc, etc.

I understand all these concerns, but don’t agree with them.

The product-focused empires are the problem.  You cannot have customer-centric operations if your organisation is product aligned.

Cyberattackers also find it far easier to steal from fragmented systems than one that can track digital entries in real-time across the enterprise.

Equally, banks are pretty darn poor at risk management in their fragmented, product-focused structures, as evidenced by two meetings with my bank recently.  The first meeting is with my business relationship manager, who tells me all the ins and outs of the banks’ SME operations.  I then, for the first time in living memory, allowed my new personal relationship manager to visit.  He had printed and read very carefully all my information and wanted to complete an up-to-date fact find for KYC and sales purposes.  That was fine.

Halfway through the conversation he asks: “what do you do for a living?”  I said that I thought he would know as I talk to my relationship manager often.  “Oh”, he says, “that doesn’t show on our records.  Who did you talk to?”  I explained that it was Paul, my SME manager, as I have my business account with the bank.  “Oh”, he says, “I didn’t know that”.

This is fairly typical of all banks I talk to – their corporate, commercial and retail bank systems are separated and never the twain meet – but it’s not the way a digital bank would work.

A digital bank with a digital core would immediately create the inter-relationship profiles of the digital footprints of all individuals who touch the bank.  That is the way you can drive contextual relationships and offers to those who touch the bank.  It is also the only way you can drive a consistent, augmented and informed approach to clients who touch the bank.

Equally, a digital bank has a single digital core of data in the cloud that can then be accessed by any form.  The digital core is independent of the processors, and hence you can take out a server or a system at any point and replace it with a new processor, because you have no reliance on the engines.  Your reliance is on the data being clean and consistent.

For me, it is a critical factor in developing the digital bank and yet whenever I get into a conversation about this with a bank, I’m told it’s too difficult.

It may be too difficult but I suspect that if banks don’t bite this bullet, the fintech specialists who do get the data structures right will eat their lunch,

About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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3 comments

  1. Well said, Chris. I couldn’t agree more! It has never been more important for banks to hold one, consistent view of their customers and pulling a bank’s data into a single cloud-based structured system is the most compelling way to achieve this. As technology evolves and the industry’s understanding of it increases, implementing such systems becomes far more secure and straightforward – perennial excuses that change is “too difficult” simply don’t hold water any more. I am of the belief that the banking industry is at a real tipping-point and we will see much more widespread adoption of cloud-based solutions in the next 18 months. These are exciting times!
    Simon Leech, CEO, Validis

  2. Hi Chris,
    I have been working with legacy systems in Banking now for many years and have many scars as a result of trying to find ways of managing them effectively. Your Digital Core end game is what we are all looking to achieve and I am now of the belief that it can be achieved but not perhaps directly in the way you describe.
    Moving peta bytes of data and re-engineering the thousands of old apps that operate that data to the Cloud is not viable, not because the Cloud is not ready, rather the engineering challenge is too great, risky and costly. What is viable though is to use the Cloud to build out the Digital platform of the future for a bank. Banks who are trying to layer Digital on top of their legacy will ultimately not succeed, it will create more complexity and shut them off from the innovative new technology emerging on the Cloud. Its now however entirely feasible to think about evolving a Banks architecture onto a pure Digital Core in the Cloud, over time. For example by using an effective Data and Function/Service API layer on the Cloud in front of the legacy estate will enable the bank to deliver a pure Digital Customer experience quickly but also set them on a path to creating an eventual pure Digital Core by moving chunks of data out over time from behind the API. Reference what the OpenBank Project, BBVA and FIDOR are proposing, in my view this presents a model that can bring a Banks architecture into the Digital age in a cost effective and risk managed manner. Regards Mike

  3. Leandro Duran, from CI&T Brazil, wrote a comment based on this, and you can give it a look here: http://bit.ly/1FD6jL0

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