Core banking: what is it?

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Core banking refers to the core operations of a financial institution. Since there are different types of banks, their core business actions may vary. In most cases, however, the core functions of a bank are the processing of deposits and withdrawals. The technology driving performance improvement in these areas is known as core banking solutions (CBS). Implementing CBS offers benefits such as the ability to link branch offices and maintain more accurate records.

It is normal for companies such as banks to offer a wide range of services. For example, a bank can hold money in a savings account, can make loans, and can act as an intermediary for investors. There are some services, however, that will be considered core functions of a particular financial institution.

For most banks, the majority of customers are individuals and small businesses. The types of services most often requested by these types of clients are depositing and withdrawing funds. These two functions therefore represent the core banking for most financial institutions. Specialized financial institutions, such as retail banks or treasury banks, are likely to perform other key functions.

Technological progress changes the way people live and conduct business. These changes generally create demands, such as better accessibility and speed. It is in a financial institution’s best interest to meet these demands with respect to its core banking. This is commonly done using CBS.

Core banking solutions refer to software that performs a variety of functions. One, which has drastically changed the banking industry, is branch networking. CBS allows multiple branches of a bank to operate as a single unit. To understand the effect technology has had, it is important to first note how banks generally operated in the past.

It used to be common for transactions at a bank branch to be localized. This means that if a customer transacted at Branch A, that was the only place to have an immediate record of that information. It would be made available to other branches some time later. The CBS implementation, however, allows a transaction at branch A to be immediately reflected in the books at branches B, C and D.

Technology is also making core banking more accessible by providing more means to conduct transactions. Instead of having to go to a branch to access a bank’s primary services, a person can do so through a variety of means, such as the telephone, automatic teller machines (ATMs), and the Internet.

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