The Need for Core Banking Software

Would you agree with me that financial institutions need channels to deliver their products and services to consumers?

Historically, financial institutions have relied on in-person interactions; requiring members to visit branches in order to open accounts, access loans, and savings products amongst other offerings.

Given the advancements in technology and ease of access to internet-enabled devices, financial institutions now favour a digital, self-service approach that not only provides instant, round-the-clock access to products and services but improves customer experience and reduces operational costs.

Choosing a core banking software for your credit union, microfinance bank or FinTech organisation is one of the most important decisions you will make as an organisation. The banking application would be the face of your organisation and the key service delivery channel, particularly in a digital-first, post-pandemic era.

Traditionally, this decision is made mainly by the board of directors of credit unions based on marketing presentation by software vendors, with cost being the major or only factor in some cases. In other cases, there is little input from the IT team or external independent analysts.

This is why you find many organisations with banking software that come with the following challenges:

• They do not fulfill the desired functions or requirements of the credit union
• They are too expensive to maintain
• They are not scalable / Difficult to enhance
• Bad customer experience / Not user friendly
• Compliance issues
• Compatibility issues
• Data Protection & Cyber security concerns

How then do you make the right decision when choosing your core banking software application?

15 Features & activities to consider

1. Open Banking Architecture
2. Artificial Intelligence – Transaction Monitoring, Anomaly detection
3. Security by Design – Strong Customer Authentication
4. RegTech & Built-in Compliance
5. Mobile & Contactless Payments
6. FX & International Money Transfers
7. API Integrations
8. Card payment Infrastructure
9. Penetration Testing
10. Digital & Cryptocurrency Integration
11. Customer interactions and Chatbot
12. eCommerce & Marketplaces
13. *** Product development roadmap
14. *** Technology stack
15. *** Costs

1. Open Banking

About Open Banking

Benefits of Open Banking for Customers & Banks

1.  Give customers greater access to their data
2. Increase competition and  Value creation for customers
3. Improve Overall Customer Engagement with Open Banking APIs
4. Increase Digital Revenue with Open Banking APIs
5. Banking-as-a-service: Open Banking Strategies with API-led Connectivity
6. Creation of new revenue streams
7. Provides a sustainable service model for traditionally underserved markets
8. Centralization of services
9. A number of governments & Central banks are implementing the Open Banking framework

2. Security by Design

Strong Customer Authentication (SCA), Compliance &   Risk Management

Security should be a key consideration throughout the platform. Your banking application should feature several consumer safety and security measures as standard, in compliance with the Strong Customer Authentication (SCA) under PSD2, GDPR and other regulatory requirements.

The SCA requirement

The use of two independent sources of validation by selecting a combination of two out of the three categories multi-factor authentication.

1. Something you know (e.g. PIN, password)
2. Something you have (e.g. Card/phone)/
3. Something you are (e.g. fingerprint, iris scan, other biometrics)

Biometric Authentication

Implementing Biometric Authentication

• Fingerprint Recognition
• Facial Recognition
• Voice Recognition
• Retina Scan / Eye Pattern Recognition

3. Mobile & Contactless Payments

• Mobile app deployment on iOS & Android at the least
• NFC & Contactless payments
• Digital Wallets
• Peer-to-Peer payments
• eCommerce / Point of Sale
• Mobile Authentication, SCA, 2FA, Multi-FA,

The Future of Payments

Possibilities Created by Mobile & Open Banking

• The increasing availability of mobile phones – which is anticipated to rise over the coming years – has led to new possibilities with regards to mobile payments and transfers.
• Digital wallets, integrating billing, and in-app payments are all facilitated through the fast-evolving smartphone.
• These mobile payment solutions are examples of open-loop systems, which facilitate consumers’ access to the existing network-ecosystem, by improving the connection between the customer and the point of sale through a mobile device (World Economic Forum, 2015).
• It will be cashless.
• Payments will be increasingly automated and invisible.
• The industry will be increasingly about customer interaction.
• The process will be driven by data.
• The transparency of financial data will allow for increased access to loans.
• The technology will be built on available infrastructure, thus reducing the cost of transactions.

4. Artificial Intelligence Ready

• Behavioural analytics / Behavioural biometrics
• Transaction Monitoring
• Anomaly detection
• Geolocation tracking
• Biometric Authentication
• Fraud prevention

5. RegTech & In-built Compliance

• eKYC – Tiered and automated KYC
• AML / PEP / Sanctions Checks
• Continuous KYC / AML monitoring
• Liveness checks
• One-click reporting
• Capital requirements monitoring
• Other in-built regulatory compliance based on jurisdictions

6. FX & International Payments

• You will find that a number of your customers/members make or receive international money transfers.
• International payments and money transfers could be a huge source of revenue for the organisation.
• Your members/customers travel around the world and should be able to access their funds from anywhere in the world and in any currency.

7. Card Payment Infrastructure

• At the least, the core banking application should support card integration VISA / Mastercard / AMEX etc.
• Smart Debit Card features:  Users can control debit cards from the banking app in real time. Disable card, activate card,
• Authorise online card payments in-app
• Compatibility with Apple Pay, Google Pay, Samsung Pay etc

8. eCommerce & Marketplaces

• Market place (offers & wants)
• Alerts for advertisement matching personal interests
• Member directory
• Messaging module
• Brokering / agents
• Business referrals and transaction qualifications

9. Technology Stack

• This looks into the technology with which the core banking software was built.
• It is important to avoid legacy software (Outdated programming languages, tools, frameworks, and methodologies).
• Some modern programming languages are more versatile, AI & data-friendly.
• A functional, object-oriented technology stack should be favoured.
• The tech stack/framework determines the scalability of the core banking software

10. Digital Wallets & Crypto Integration

• Digital wallets are very convenient to modern financial service consumers
• All you need is your phone to make a payment. Apple Pay, Google Pay and other Digital Wallets.
• Cryptocurrencies such as Bitcoin, Ethereum, and other stable coins are increasingly becoming the preferred payment method of choice for many consumers.
• Governments are now creating their own digital currencies. E.g Dcash by the East Caribbean Central Bank.
• A Modern Core Banking software should support integration with crypto and other digital currencies as they spring up.

A number of central banks (Bank of England, East Caribbean Central Bank, Central bank of Nigeria etc) have developed or are developing digital currencies. CadaWada has been designed with an open architecture to allow easy integration of future payment options.

Some crypto asset and digital currency use cases are described below:

1. Crypto to Cash Exchanges: Allow users to liquidate their cryptocurrency to cash and withdraw into their digital wallets or bank accounts.
2. Point of Sale Crypto Transactions: Allow users to shop in-store or online and pay via digital currency. The recipient can receive funds via crypto or instantly convert them to cash and pay into their bank account/wallet.
3. Crypto Transfers: Transfer of supported cryptocurrencies to other users.

11. Penetration Testing

• This is not a feature, rather an activity that should be undertaken before proceeding with a core banking software.
• Due to the cost, you may not be able to do this for all applications in consideration, rather this should be done once a decision has been made to go with one vendor.
• It involves a specific type of test undertaken by third-party professional, ethical hackers; typically using a mix of automation testing tools and manual practices to simulate an attack.
• Penetration testing (or pen testing) is a simulation of a cyberattack that tests a computer system, network, or application for security weaknesses. These tests rely on a mix of tools and techniques real hackers would use to breach a business.
• Other common names for penetration testing are white hat attacks and ethical hacking.

12. Product Development Roadmap

• Sometimes, it may be tricky to find a software vendor with all the features you need. A compromise may be reached if you have some of the features.
• You should request a comprehensive product development roadmap (PDR) to show what the vendor plans to add to the core banking application in the coming months/years.
• In some cases, the PDR should form part of the license agreement / contract to ensure the vendor lives up to its obligations.

A high-level product development roadmap sample for FinTechs

13. API Integration

Application Preference Interface: Utilising a Network Innovation Approach

API is the acronym for Application Programming Interface, which is a software intermediary that allows two applications or computer programs to talk to each other. Each time you use an app like Facebook, send an instant message, or check the weather on your phone, you’re using an API. It is a type of software interface, offering a service to other pieces of software. A document or standard that describes how to build such a connection or interface is called an API specification/documentation.

Network Innovation

Your banking software should focus on leveraging on partner networks and external data channels to drive its value creation for consumers.

“APIs have become a key enabler of digital transformation and agile business, driving massive revenue generation for small and large organisations”. [Forbes 2019]

Open banking APIs

These APIs would provide a link between the PFM platform and the user’s bank account. It will enable performance of a number of functions such as:

• Account Login: Provide consent and access to bank account to enable third-party app identify users.
• Confirmation of Payee: Conform with KYC/AML by ensuring all payments come from the same account name as the registered user.
• Status of Payments: Monitor the status of all account funding and redemption payments. More to follow

Blockchain / Crypto Exchange APIs

These APIs would enable the PFM carry out a number of transactions in relation to Crypto/digital currencies.

Payment Processing API:

This will enable the platform receive bitcoin payments and convert this into cash for investments.

Exchange Rate API:

Real-time data feed to display market rates for FX & crypto currencies

KYC/AML APIs

Integration of third party APIs would also facilitate the quick, compliant onboarding of consumers.

Other Partner APIs

The PFM platform will also create networks with third party financial product providers, consuming their respective APIs end points to provide product information, market performance data etc.

• Currency / FX rates APIs
• Supplier & Partner APIs
• Payment Gateway APIs

14. Cognitive Assistant / Chatbot

• AI Powered Chatbot / Cognitive Assistant to provide 24/7 customer services
• Voice Technology integration – Siri, Google, Alexa
• Chatbot integration with 3rd parties.
• Carry out transactions on Facebook, Skype & WhatsApp via API integrations

15. Costs

• The cost of the application can be a major determining factor.
• When analysing the costs and ROI, it is important to consider other tangible benefits that require features which may influence the cost
• It is important to measure the value that the software will create for people society and the business.
• It is also important to analyse all possible ways of implementing a core banking software with all the desired features at the lowest possible cost.