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What is the ‘digital core’ for a bank?

I’ve been talking about banks replacing their legacy mess with a digital core for a while now. Rearchitect your bank by getting rid of spaghetti based systems organised around products and channels to market, and redesign them for digital structures focused upon customers.

That is not easy, as it implies replacing systems in real-time. How do you change the engines on a jet when it’s flying high? is the usual question, but that is not what I am suggesting. This came to me the other day when someone said: “what do you mean by a digital core Chris?”

I thought about it for a second and realized that the digital core I’m talking about is bank data in the cloud. A single store of data. For some time, I’ve said that bank products are being restructured by the cloud, and that data is the competitive battleground, and this is what I mean by a digital core.

A digital core then becomes a single, consistent provision for access by internal and external users. It moves the bank away from pushing products through channels to providing knowledge through data.

This is why most banks will, over time, take all of their disparate data across the enterprise and move it towards a cleansed and single data store that is cloud based. This cloud based data store will then feed all of their products and services, channels and staff. It is the internal and external store that provides a consistent and comprehensive system for leveraging data across the enterprise.

The more you consider this idea, the more compelling it becomes, as a single cloud-based data store for the bank can then deliver real-time feeds for both internal and external access. Once established, it allows the bank to phase out legacy processing and introduce fresh systems that leverage the digital core (the cloud-based data service). In other words, it de-risks the legacy replacement by allowing the data to be extracted first, before replacing the processing.

Equally, this new digital core will allow all customers to see consistency across all products and access, as will all staff. Any cyber-attack on the bank will also be trapped, as all the data is seen in real-time through the enterprise data store. The old cracks in the banks structures thanks to disparate and fragmented systems disappear.

I am not 100% certain that all banks would be ready to move all of their data to a cloud based store, but I am 100% certain that this is where most will move over the next decade. Private cloud based stores of all bank data, which deliver real-time leverage through APIs into all of the banks products and services.

Meanwhile, for those banks that bite this bullet sooner rather than later, there will be immense competitive advantage for data leverage is the new battleground for banks. The bank that can cleanse, analyse, utilize and leverage their data more effectively than others, will be the bank that wins. However, in order for a bank to do this with their data, they need a digital core and, to create a digital core, they need to move to the cloud.


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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  • Chris, I have been reading many of your posts about the future digital bank and agree with almost all of them however I must disagree on this point. By moving all the banks data to a centralised store you are taking the data away from the owners who have the most vested interest in ensuring the data is correct. Anyone who has been involved in a large data warehouse programme at a bank knows they always end in disaster. The problem has nothing to do with the technology involved but rather to do with (1) ownership and (2) rate of change…
    (1) Ownership – these central stores end up being owned by IT as there is no natural business owner. Since IT don’t know the data well enough data quality issues don’t get fixed and pretty soon the single store becomes an expensive data dumping ground which no business user wants to use
    (2) The operational business systems feeding data need to change rapidly in todays environment in order to keep pace with changing customer & market needs. A single data store will never be able to keep pace with the level of change required
    I would refine your key requirement as follows – A digital core then becomes access to federated data stores but using a single model & schema which allows consistent views to be consumed by internal and external users.
    Using data virtualisation it is possible to create a virtual single store but still allow data to be owned by the business users and give them agility to operate somewhat independently…I use the word “somewhat” very carefully as this model is federated rather than decentralised which means that there is still a requirement to have centralised standards to ensure the consistency. It also requires strong governance to ensure that the standards are being implemented correctly at the source. We call this a “governed free market approach”.

  • Chris Skinner

    Interesting nuances here Gavin as yes, the issue of ownership is a big barrier to any ‘enterprise’ project in a bank.
    Therefore, the digital core I refer to with have striated access through different privacy windows internally and externally.
    That may be what you consider ‘federated’ using ‘data virtualisation’, where I think we both agreed. I just see it as a single digital core with layered access protocol.
    Meantime, I have seen some institutions do this successfully. It takes leadership and guts from the top however, something lacking in many.

  • Siva Navaratnam

    Chris, one other impediment to ths is differing regulatory regimes around the world that do not like cloud based data storage due to confidentiality and privacy reasons. How do you see this being overcomed?

  • AJ

    A couple of issues/points that I need clarity on:
    1. How is a cloud based approach to data going to help in digitization apart from providing a data store? More is need to integrate this data than just moving it to a cloud.
    2. Ownership and regulatory concerns will remain. How can one address this?
    3. A lot of work needs to be done to ensure data/info consistency and availability across access points before moving to a cloud. How can we ensure BAU when this is being implemented?