Tech, ExplainedFintech
Concept

Core banking modernisation

Swapping the engine while the plane flies.

HOW IT WORKSA new core isinstalled beside theold coreNew products launch onthe new coreOld accountsmove across insmall batchesEvery balance ischecked against theold coreBatch after batch,until the old core isswitched offThe bank never stops working, and a mistake affects one batch of accounts, not every customer.HOW IT WORKSA new core isinstalledbeside theold coreNew productslaunch on thenew coreOld accountsmoveacross insmall batchesEvery balanceis checkedagainst theold coreBatch afterbatch,until theold core isswitched offThe bank never stops working, and a mistake affects one batch of accounts, not every customer.HOW IT WORKSA new core is installedbeside the old core↓New products launch on the new core↓Old accounts move across in small batches↓Every balance is checkedagainst the old core↓Batch after batch, until the old core isswitched offThe bank never stops working, and a mistake affects onebatch of accounts, not every customer.
A new core runs beside the old one, new products launch on it, and old accounts move across in checked batches until the old core can be switched off.
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Core banking modernisation means moving a bank from its old core banking system to a new one. The core is the system that holds every account and loan, records every deposit and withdrawal, and calculates interest every night. Many banks still run a core that is 20 or 30 years old. Replacing it is one of the riskiest projects in business, because the bank cannot stop working while it happens.

Why not switch everything over on one weekend? That approach is called a big-bang replacement. On Friday night the old core is switched off, and on Monday morning the new core is switched on, with every account copied across. If anything goes wrong, crores of customers may see wrong balances, missing salary credits or blocked cards. So most banks now replace the core slowly, a few accounts at a time.

Here is how the slow approach works. First, the bank installs a new core beside the old one. It launches a new product, such as a credit card, on the new core, so no old account is touched. Then it moves the old accounts across in small batches, one weekend at a time. After each batch, it checks that every balance on the new core matches the balance on the old core. This check is called reconciliation. If a batch has problems, only those accounts are moved back. After a few years, the new core holds every account, and the old core is switched off. AI models now help as well. They read the old core's code, often written in COBOL, a programming language from the 1960s, and help translate it into a modern language.

Take, for example, a bank that wants to launch a new card quickly. A card issuing platform with its own cloud ledger lets it do so without touching its old core.

Consider a life insurer. Its insurance core system must keep each policy correct for 30 years, so every live policy has to move across without losing a single premium.

Imagine a city government whose accounts run on software from the 1990s. Moving to a government ERP means moving every budget and staff record while salaries continue to be paid.

How is this different from an ordinary software upgrade? An upgrade changes a system that keeps running. Modernisation replaces the system of record itself: the one place where the official balance of every account is kept.

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Fintech
Healthtech and life sciences
Govtech and nonprofits
  • Government ERP↗ GovTechA government replacing its old accounting software moves budgets and staff records to a ready-made ERP.
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