Core banking system
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Core banking is another way of saying the core functions of a bank. These functions represent the essential (core) business of banking. Because of the plethora of services banks now provide, it is easy to forget that the root of banking is accepting deposits and lending money. The definition of core banking may have been muddied by the emergence of packaged computer solutions which combine core banking functions with other elements of a bank’s operations but at the most basic level core banking manages financial transactions and their impact on the accounts of its customers.
To achieve this it is obviously necessary to hold details of the bank’s customers (often called customer static data - their names and addresses, for example) or to link into another database that holds that data. Therefore a core banking system will often offer a basic customer database function, often referred to as a Customer Information File or CIF.
Often, a core banking system will maintain linkages between accounts and customers. A banking system that holds a single instance of a customer’s record and then relates all of that customer’s accounts to that record is said to be ‘customer centric’. By looking at the customer a banker will then be able to see all of that customer’s accounts – which enables the bank to manage across the entire customer relationship (CRM or customer relationship management). A core system that holds a list of accounts without linking them back to a single instance of a customer is said to be ‘account centric’. In this day of integrated banking services and cross-selling there is little scope for account centric systems, although these may exist in other, more specialised areas of the bank.
Another essential function for a bank, as for any business, is to maintain its own set of accounts. The bank’s own books, or chart of accounts, represent the bank as a business concern and should show the normal business activities (premises, staff costs, etc.) as well as the balances it holds on behalf of customers, interest and charges that have accrued and other assets, liabilities, income and expense items. A core banking system will usually provide some of these basic accounting services.
A core banking system will often provided other routine maintenance activities. Such essential activities as opening and closing accounts, calculating interest (both due to the customer and due from the customer), processing customers’ standing orders, providing account statements and interfacing to outside systems for making and receiving payments are all considered to be part of the core business of banking and therefore the legitimate functions of a core banking system.
