What does it mean to hollow out your bank’s core?

Introduction

In the last blog, we covered the important topic of decomposing complexity in your banking architecture, a process where you remove key business logic from your monoliths and turn it into a modular capability or microservice. Before we move on, I’d like to quickly explore a similar process: hollowing out your bank’s core systems.

Now, you may be wondering if there’s a difference between decomposing complexity and hollowing out your bank’s core. In a word: no. 

These processes are extremely similar and intrinsically linked, to the point that institutions like McKinsey use the two terms somewhat interchangeably, here and here, for example. It’s up to your bank to determine which terminology you prefer, and to clear things up, we’ll give you a high-level overview of what it means to hollow out your bank’s core.

Hollowing out your core banking system

As you’re well aware, many traditional banks are still shouldering the burden of their legacy tech, including decades-old systems, point solutions, and operational silos. These are all housed within monoliths, which contain valuable business logic you’d do well to preserve, if you want to accelerate your bank’s digital transformation.

To that end, you can hollow out your bank’s core systems, extracting the logic — including services and processes — and moving them to a more appropriate layer of a modern, cloud-based banking architecture. And while you do so, the best approach is to use this logic to create modular capabilities and microservices that will help you reduce your reliance on core systems while also increasing agility, boosting cost efficiency, and empowering scalability, to name just a few of the benefits.

To finish hollowing out your core, you’ll also need to outsource other core banking functions to external providers. Thanks to APIs and open banking, you’re able to integrate with a vast range of fintechs and platform providers, ones that will free you up from maintenance and give you time to truly innovate. But what processes should you outsource? We cover this topic in greater detail in our guide about the “buy plus build” approach, but focus on mature technologies that have become commoditized, as well as components that aren’t customer-facing, because if your users won’t notice the difference, why bother reinventing the wheel?

By hollowing out your core, you’ll significantly extend the life of your core systems, and without slowing your digital transformation. And that will prove essential as the banking industry continues to change around us.

Rethinking your bank’s operating model

It’s finally time to move on to another key topic: rethinking your bank’s operating model. In the following blog, we’ll give you some background on why you should care about this, including pain points, as well as benefits. And after that, we’ll show you how you can generate continuous customer and business value.

For more information, check out our Banking Reinvented podcast, where Backbase Founder/CEO Jouk Pleiter dissects similar topics alongside Tim Rutten, EVP/Chief of Staff, and other digital leaders. Stay tuned as they chat about everything from progressive modernization to decomposing your bank’s complexity.