The Future of Banking: A Look at the Trends 2024 Shaping Core Banking Systems

The banking sector is undergoing a seismic shift due to the rise of digitality and technological innovations, customer demand, and the transforming regulatory landscape. The central one lies in the core banking system, which is the spinal cord for all financial institutions.

Let us explore the trends of 2024 that are shaping the core banking systems and the future of banking. Before diving into the trends, let us start by understanding the rise of digital core banking systems.

The rise in digital core banking systems

Conventional core banking systems were rigid, monolithic, and frequently unable to keep up with the quick changes occurring inside the financial sector. However, a paradigm shift has occurred with the introduction of digital core financial systems. 

“A report by Accenture reveals a significant surge in digital core banking adoption. It found that 75% of banks globally are investing in digital core banking transformation initiatives. Additionally, the report highlights a substantial increase in cloud-based core banking solutions, with a projected growth of 25% in the next five years.” Scalability, flexibility, and agility are made possible by the cloud-native architectures on which these systems are based. They provide better consumer experiences, increased capacity for innovation, and increased operational efficiency.

Trends of 2024 shaping core banking systems

After looking at the rise, let us look at the key trends of 2024, shaping the core baking systems.

• Cloud Migration: Core financial systems are moving more quickly to the cloud.  A recent report by Gartner predicts that by 2024, 75% of banks will have adopted a cloud-first strategy for core banking applications. Benefits from this change include lower costs, more scalability, and enhanced disaster recovery capabilities.
• API-First Architecture: To facilitate smooth interaction with outside apps and foster the development of cutting-edge financial goods and services, banks are progressively implementing API-first designs. This can be said on the basis of the study done by McKinsey, according to which large banks are giving 14 per cent of their IT budget to API programs. 
• Artificial Intelligence (AI) and Machine Learning (ML): These two fields are being used to increase fraud detection, improve consumer experiences, and streamline operations. The evidence of this is the report by Accenture, which states a 20%-30% increase in operational efficiency with the incorporation of AI in their core banking systems. 
• Open Banking: As more and more open banking standards are adopted, consumers will be able to access a greater choice of financial services and share their financial information with outside suppliers. 
• Data Analytics and Big Data: Banks are utilizing data analytics and big data to explore new business opportunities, improve risk management, and obtain deeper insights into customer behaviour.
• Cybersecurity: Considering the growing threat landscape, maintaining the security of essential financial systems continues to be of utmost importance. The Ponemon Institute reports an average data breach cost of $4.35 million for financial institutions. To safeguard sensitive client data, strong security measures are necessary.
  

Challenges of 2024 dealt with by core banking systems

Not only are there trends, but there are several challenges that will shape the future of the core banking systems.

• Modernizing Legacy Systems: A lot of banks continue to run on antiquated core banking systems that are challenging to update or incorporate with newer technologies.
• Customer Expectations: It takes constant innovation and development to satisfy the ever-changing demands of digitally aware customers.
• Regulatory Compliance: One of the biggest challenges facing core banking systems is complying with ever-changing and complex rules.
• Talent Acquisition and Retention: It's getting harder and harder to find and keep qualified workers who are knowledgeable about fundamental banking technologies.
  

The future of banking

While we looked at the key trends and the challenges that will be integral to the shaping of the core banking systems, it is now time to have an idea of what the future of the banking sector will look like.

• Hyper-Personalization: Banks will use AI and data analytics to offer highly customized goods and services that are based on the needs of each individual consumer.
• Embedded Finance: To provide a smooth user experience, banking services will be integrated into a variety of platforms and ecosystems.
• Real-Time Payments: Due to regulatory reforms and technological developments, instantaneous payments will soon become the standard.
• Blockchain Technology: This technology has the ability to completely transform trade finance, securities settlement, payments, and other areas of banking.
• Sustainable Finance: As banks integrate environmental, social, and governance (ESG) considerations into their daily operations, there will be an increasing emphasis on sustainable banking practices.
  

Conclusion

The core business systems are transforming under the influence of technology and innovation, along with evolving customer requirements. What we see is a transactional phase that will keep evolving with time and development. Here we discussed the key trends and challenges that will be a core force in developing the future of banking. 

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