Is core banking expertise still needed in the age of digitization? The answer is as simple as it is clear! Digitisation does not replace banking expertise.
Core banking expertise encompasses all technical functions, banking products and business processes that are necessary for the provision of basic banking services.
Regardless of the product design or the financial technology used in customer-bank interaction, all basic services must be provided in a technically competent, comprehensive, regulatory-compliant and rational manner.
Example 1: Customer comes to the bank and wants to enter into a business relationship
This step lays the foundation for any further action in the relationship between the client and the bank. It is therefore of paramount importance that this first meeting is properly initiated.
The following points must be observed:
As far as possible, all known regulatory requirements should be covered directly at customer opening.
Today, points such as KYC, AIA, PEP, US Person are a matter of course.
But who thinks of points such as:
- MIFID II
- Basel IV
- Data protection / DSGV
When creating the customer? Who thinks of the partner structure?
Is it ensured that when a new customer relationship is created, it is verified whether the (potential) customer already has another relationship with the bank? For example, AIA requires that a person be reported only once, regardless of the number of contractual relationships that that person has with a bank.
What do I really need to know from the customer?
Today, as much information as possible about the customer is requested and stored. With the new data protection laws - from 25 May of the EU-DSGVO; in Switzerland itself, the introduction of stricter requirements is to be expected by 2020 at the latest - it will be of central importance that such data is kept in compliance with the law from the outset and that no "non-permitted" information is stored.
Where is which information stored in the system?
Since it is not completely clear at the time the relationship is established which products or services the customer will purchase over time, it must be ensured that the information is also available to all potential systems.
It is of little use if the information is obtained via state-of-the-art channels and tools, but is then not available to the core banking platform.
It must therefore always be clear for which products or processes this information is necessary and how the latter is handled. If this is known, one also knows where which information must be available and how.
This clearly demonstrates the importance, even the indispensability, of specialist knowledge in core banking functions. What is not recorded correctly, comprehensively and uniformly at the beginning inevitably affects the subsequent processes. Closing the gaps only when they cause problems is costly and time-consuming. The following examples demonstrate that the use of state-of-the-art technologies cannot replace specialist knowledge. On the contrary, specialist knowledge is essential for the successful use of digital technologies.
Example 2 - Corporate Action
New financial instruments tailored to individual client groups are constantly being developed. These products often combine a large number of instruments in order to be as well tailored as possible to the needs of the client. Unfortunately, it is usually forgotten that the accumulation of instruments has a massive impact on the basic function of securities management.
In order to be able to manage securities efficiently and thus cost-effectively, it is of central importance that the securities are stored in as few places as possible.
The more parties are involved in the custody process, the more complex it becomes to process corporate actions correctly and efficiently.
It is therefore important to consider what the consequences are for the subsequent, often multi-year administration of the instrument when designing the investment instruments.
Example 3 - Securities transfers
Using new technologies such as Blockchain, it is now possible to process a title transfer T+0 in seconds. The first transactions have already been successful in this context.
But what does it look like if this transfer not only involves a movement of securities and money, but also an entry or removal from the share register? When is this transaction really completed? When the transaction has been successfully completed in the blockchain or only when the corresponding entry and removal in the share register has taken place?
The examples listed are only a small selection of all the functions, processes and activities that have to be performed within the framework of core banking. Nevertheless, they clearly show that the core banking business is the decisive factor in the value chain, regardless of the customer offering and the technology chosen. Technology cannot replace well-founded and comprehensive expertise. From the perspective of respect, the implemented functions are only as good as the technical inputs are technically implemented.
With digitalization, individually tailored channels and applications are made available to customers for ever more specific products and services. This is usually without taking into account how the basic functions (core banking) can subsequently be provided again comprehensively and cost-effectively. Tool and technology specialists are needed to be able to use modern technologies. However, these specialists usually do not have the necessary knowledge of the core banking business. All too often, for example, an innovative customer product is realized on the one hand. But on the other hand, highly complex processing structures arise for the complete provision of services in the back office, which lead to massive additional costs.
Only those who understand the complete end-to-end processes and requirements and know the dependency on all activities and also take these into account when implementing new products will be able to sell products that are economically successful in the long term using all new technologies.