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Going digital is essential today, especially considering the current COVID-19 pandemic when everyone and every business is in lockdown. Offering services online is the only way a business can stay operational and continue to serve its customers.
As the situation demands, the business of banking needs to adapt as well.
No bank wants to be left behind in offering digital services to their clients. The current situation, along with a host of technological innovations, has made digital core banking an essential aspect of the banking sector.
What is Digital Core Banking?
Below is a summary of what what is digital core banking or cloud core banking means.
Core banking services refer to activities, services, and transactions that are traditionally carried out in a bank on a daily basis. Now, when all these traditional banking services, activities, and transactions are moved online, and when a bank’s customers can carry out these transactions online, it is referred to as Digital Core Banking.
Simply put, online or internet banking can be considered a part of digital core banking. This includes the digitization of all the functions, programs, and activities undertaken by a banking or financial institution through traditional banking.
Examples of digital core banking transactions are:
- Online funds transfer
- Online bill payments
- Application for loans and credit cards
- Application for a new savings/current account
- Applying for financial products such as insurance, mutual funds, and so on
- Banking activities such as deposits, withdrawals, and other essential transactions
These services are nothing but the core banking system features that can now be delivered digitally.
According to a report from Deloitte, the major shift in consumer behavior that favors digital platforms is due to the rising demand for financial products by Millennials.
However, even today, many banks don’t have a robust cloud infrastructure. They continue to struggle with offering digital services on web platforms or on mobile devices without problems.
Banks need to replace their legacy systems with a cloud infrastructure that is both efficient and secure. This will allow the banking industry to take advantage of opportunities that the digital economy offers.
Importance of Digital Core Banking
With digital transformation happening across industries and verticals, there has been a tremendous shift in the banking industry from traditional to online. Hence, the demand for digital core banking services has drastically gone up. Here are a few reasons that address the importance of core banking transformation:
- Digital core banking is an important part of the banking and financial system. It offers various advantages over traditional core banking systems that cater to growing customer expectations.
- Digital banking services offer unparalleled user experience and customer satisfaction. Customers can access their accounts and perform transactions from the comfort of their homes or work. An in-person bank visit is no longer necessary.
- The banking sector now has to address the needs of an entire generation of customers – Millennials. This category of customers prefers conducting all of their transactions and financial activities online. If one bank doesn’t offer a particular service digitally, they take their business elsewhere. Along with their business, they also take all the other opportunities the digital economy has to offer.
- The emergence of challenger banks is another reason for digital core banking to rise in importance. Challenger banks are startup digital banks that are trying to compete against existing traditional banks. Challenger banks don’t have physical branches or staff to run those branches. Customers prefer using the services of such banks as they believe the user-experience is better than traditional banking. Challenger banks provide unreserved access, anytime and anywhere. If traditional banks are to compete and remain profitable, they should prioritize offering digital core banking services and better user experiences to their customers.
- As new technologies emerge, cloud core banking platforms are becoming the norm. Banking on the cloud offers flexibility to customers and increases the efficiency of the banks. These systems help secure customer data and other confidential information and reduce the risk of malware attacks and safety issues.
- Integrating legacy systems with future-oriented digital systems is another important aspect that needs attention. With successful integration, banks can offer all of their traditional services on their digital platforms. This increases a bank’s ability to scale its operations exponentially. A bank can service its local clients and also eye other markets without having to open additional physical branches.
Implementing the right digital core banking strategy can provide a massive boost to any bank that is willing to adapt and stay relevant. A bank can choose to make a gradual transition by offering a handful of services digitally. Digital core banking is a massive undertaking for any financial institution. It’s best to start small and expand as the industry demands.
We’re now in an era where customers want everything at their fingertips. Cloud banking is the most preferable option to fulfill this need. Banks that have already embraced digital services have had an early adopter’s advantage over their competitors that are still struggling to cope with issues like digital infrastructure or security for cloud banking.
The only way individual banks and the entire sector can remain relevant and profitable is by making digital core banking a priority.