Market Dynamics
Core Banking Software Market Drivers
Rising Adoption of Cloud-Based Solutions
The increasing usage of cloud-based or SaaS-based banking platforms offered by software experts such as Temenos AG, FIS global, and Finastra is one of the significant market drivers. Banking businesses can monitor payments, transactions, and other banking activity using cloud-based solutions. As a result, the market will develop as demand for efficiency and innovation in businesses grows.
To acquire a competitive advantage in the industry, key corporations also emphasize introducing new products. Temenos AG, for example, announced Temenos Infinity, a cloud-based digital front office product, and Temenos Transact, a core banking solution, in January 2019. These new solutions would give customers extensive banking functionality. Its goal is to hasten the adoption of cloud computing among businesses.
As a result, different banks' growing adoption of cloud-based banking platforms is expected to propel core banking software market growth in the future years. Increasing adoption of remote banking, cybersecurity, Payment as a Service (PaaS), and Big Data technologies is also likely to support market growth during the projection period.
Growing Demand for Managing Customer Accounts from a Single Server
Over the forecast period, the heaving demand for successfully managing client banking accounts from a unified platform is anticipated to fuel market growth. Core banking solutions provide bank staff with correct information about the bank account through an end-to-end platform. Rapid reporting, enterprise content management capabilities, deposit accounts, credit analysis, customer onboarding, customer relationship management (CRM), account opening, loan origination, workflow, and deposit accounts, are all included in this platform. Also, core banking solutions combine the bank's transactional and core systems, eliminating the need for manual operations and point solutions.
Banks worldwide are working on implementing AI-integrated core banking systems to extract actionable consumer data in real-time. These tools help banks improve operational efficiency, analyze transactions, identify fraudulent activities, minimize risks, and comprehend consumer behavior. Banks can make more informed judgments about their banking services, products, and operations because of their improved ability to evaluate complicated data sets.
Core Banking Software Market Restraint
Privacy Concerns and Data Security
With the rise in complex core banking software, security worries concerning data loss, mobile viruses, software bugs, and unencrypted data have grown. Credit unions, corporate banks, and financial institutes may see a drop in revenue due to data security and privacy concerns. Furthermore, not all core banking software offers operational flexibility at scale, leading to data security concerns and legal challenges.
As per the Financial Conduct Authority (FCA), data breaches at several financial organizations and banks soared by over 1,000% in the 2017–2018 year, according to the Financial Conduct Authority (FCA). Flagstar Bancorp, situated in the United States, suffered a data breach in March 2021, resulting in personal data loss like phone numbers, social security numbers, email addresses, and more. To obtain access to the entry, the hacker used the company's data transfer file program. As a result, as technology advances, the worry about data security grows.
Core Banking Software Market Opportunities
Rising Emphasis Toward Development of Advanced Banking Systems
COVID-19 had a tremendous impact on workplace culture. Due to the situation, various banks and other financial institutions have been forced to allow their staff to work from home (WFH). The financial sector is grappling with rapid fluctuations in interest rates and delayed lease payments, which have caused a significant reconfiguration in the global financial market.
As a result of the present pandemic, many banks and other financial institutions find it challenging to restore changes in the overall loan and credit management scenario. Key market participants focus on releasing advanced software solutions to speed their digital transformation to overcome such hurdles. For example, Temenos AG introduced its sophisticated SaaS-based eight proposals in April 2020, utilizing advanced cloud technologies and Explainable Al (XAI) to help various banks respond quickly to the COVID-19 pandemic. Such proactive actions are projected to boost demand for CBS, allowing the market to flourish.
Core Banking Software Market Trends
Increasing Adoption of Artificial Intelligence in Banking Systems
The banking industry is changing because of the increased use of technology such as artificial intelligence (AI), big data, and the cloud. Bringing such technology into the banking system improves the accessibility of complex data, the management of client queries, and the development of customers' visualization skills. These technologies improve connectivity and offer advanced safety measures in financial institutions and banks.
The Al-based core banking system provides legit analytics to end-users while also assisting with enhanced client experience, digitization, and data safety. The rising use of such innovations is expected to provide market players with many growth opportunities. The focus of major companies is on finalizing deals and collaborating with other players to create and drive continuous improvement based on core technologies such as big data, artificial intelligence (AI), and others. For example, in January 2022, Temenos AG introduced its Buy-Now-Pay-Later (BNPL) financial services. This approach will help fintech firms and banks to earn extra profit while also increasing their client and merchants’ ties.
Segmental Analysis
The global core banking software market share has been classified based on solution, service, deployment, end-user, and regions.
Based on Solutions
Based on solutions, the core banking software market has been segmented into deposits, loans, enterprise customer solutions, and others.
The deposit segments provide extensive solutions for managing various deposits such as savings accounts, current accounts, fixed deposits, and recurring deposits within financial institutions. Core banking systems with deposit management features enable banks to automate account opening, deposit tracking, interest calculation, and regulatory compliance. Regulatory compliance, technological advancements such as cloud computing and AI, and operational efficiency are driving the segment growth. Increasing regulatory requirements for deposit handling and reporting drive the demand for advanced deposit management solutions. Key players in this segment are Finacle, Oracle, SAP, etc.
In the core banking software market, the loan segment provides comprehensive solutions for managing and servicing loans such as retail, commercial, and agriculture loans within financial institutions. These solutions include modules for loan origination, processing, servicing, and management of various loans. The main functionalities include automated underwriting, credit scoring, management of loan documentation, risk assessment, and compliance with regulatory requirements. The growth of the segment is driven by increasing demand for digital transformation in banking, efficient loan processing, and the rising complexity of financial regulations.
The enterprise customer solution segment is important in the building of strong customer relationships, growth through focused marketing efforts, and delivering better customer experiences to financial institutions. These solutions are designed to meet complex requirements for financial institutions with robust features including customer relationship management, advanced analytics, reporting, integration with multiple channels such as mobile and online banking, and personalized customer service capabilities. This segment's growth is driven by scalability, enhanced customer experience, regulatory compliance, digital channel integration, efficient operations, and security measures.
Based on Services
Based on services, the core banking software market has been segmented into professional and managed services.
The professional service segment is likely to dominate the global market, accounting for USD 5,662 million at a CAGR of 8.25% during the forecast period. The growing demand for help at every stage of the software deployment process, including project management, integration, pre-implementation of scope, and consulting, can be ascribed to the expansion of the professional service market. Professional service providers provide small and medium businesses with on-demand assistance and resources at low IT service costs, boosting their growth.
Managed services involve the outsourcing of IT operations and infrastructure management to third-party service providers. This includes services such as monitoring, maintenance, support, and security management for core banking systems. Financial institutions outsource these managed services for specialized expertise, operating cost reduction, and regulatory compliance without maintaining an in-house IT environment. The increasing complexity of banking operations, and the need for enhanced cybersecurity, operational efficiency, and regulatory compliance are driving the demand for managed services
Based on Deployment
Based on deployment, the core banking software market has been segmented into cloud and on-premise.
Cloud computing has revolutionized the core banking software market by offering scalable, flexible, and cost-effective solutions to financial institutions. This segment includes the deployment of banking applications and services on cloud infrastructure provided by third-party vendors. cloud allows banks to streamline operations, reduce infrastructure costs, and improve accessibility to services. scalability, flexibility, cost-effectiveness, agility in deploying updates, and meeting the demands of digital-savvy customers drive the growth of the segment. Key players providing cloud deployment to financial institutes are Oracle, Finacle, Jack Henry & Associates, etc.
The on-premise deployment segment is expected to dominate the global market, accounting for USD 3,605 million at a CAGR of 4.25% during the forecast period. When creating an on-premise solution, businesses undertake complete responsibility for integration and any IT-related and security risks. Companies with legacy platforms frequently collaborate with IT experts to retrieve data and save safety and operational costs.
The SaaS/Hosted segment involves the delivery of core banking applications and services by the internet, hosted and managed by third-party providers. These solutions are mostly managed and maintained by the software provider itself, reducing the load and burden of updates and maintenance on the bank's IT department. Due to the easier integration with other digital platforms and third-party services, SaaS solutions facilitate more innovation and agility. Temenos, FIS, Avaloq, etc., are key players in this segment.
The licensed model of the core banking software market includes financial institutions buying full licenses for software outright. This model grants complete customisation and ownership but also carries ongoing IT infrastructure and initial investment. The growth of the segment is steady due to the increasing adoption of cloud-based and SaaS solutions, ongoing costs for maintenance and support, secure and customizable solutions.
Based on Bank Type
The large banks segment represents a significant portion due to their extensive operational requirements and scale. The large banks segment requires large-scale, flexible solutions that can handle the complexity and regulatory requirements of their operations. Growth of the segment is driven by Digital transformation, regulatory compliance, operational efficiency, rising customer expectations, technological advancements, scalability, competitive pressure, and enhanced data integration and management. For instance, the digital transformation initiative by HSBC, to upgrade its traditional banking technology with Temenos core banking platform.
Midsize banks require flexible, scalable solutions to streamline operations, enhance customer service, and meet regulatory requirements effectively. These solutions enable midsize banks to compete with larger institutions by offering integrated banking functionalities and personalized customer experiences. increasing competition and regulatory demands, cloud-based solutions, operational efficiency, and technological advancements are driving the segment's growth.
Small banks require cost-effective solutions to manage basic banking operations, ensure regulatory compliance, and deliver personalized customer service. Small banks prioritize affordability and ease of implementation, often opting for cloud-based solutions that reduce the need for extensive IT infrastructure. cloud-based solutions, streamline operations, improve customer service, and comply with regulatory requirements are driving the growth in the segment. For instance, the adoption of Temenos Transact by Varo Bank, a fintech startup that began as a small digital bank and rapidly expanded its services.
Community banks, serving specific geographic regions or communities, prioritize relationship-based banking and tailored solutions for their customers. community banks leverage specialized core banking solutions to deliver personalized services, ensure regulatory compliance, and compete effectively in local markets. cost-effective, user-friendly systems, customer expectations, and digital transformation are driving the growth.
Based on End-User
Based on End-User, the core banking software market has been segmented Financial Institutions, Retail Banking, Treasury, Corporate Banking, Wealth Management
Financial institutions include various organizations such as banks, savings & loan associations, and credit unions. These institutions depend on core banking software to manage their daily operations, simplify transaction processes, ensure regulatory compliance, and improve customer service. shift towards digital banking, real-time transaction processing, technological advancements such as cloud computing and AI, and increasing focus on customer-centric banking is driving the growth of the segment.
Retail banking provides services to individual consumers rather than businesses. Core banking software for retail banking supports various functions such as real-time transaction processing, integrated payment solutions, comprehensive reporting tools, personal loans, mortgages, and online banking solutions. Growing adoption of mobile banking, online services, cloud-based solutions, and regulatory compliance are driving the growth of the segment. The growing preference for digital banking services among consumers is driving the need for advanced core banking systems.
The corporate banking segment comprises software solutions tailored for businesses and financial institutions managing corporate accounts and services. These solutions are designed to address the complex needs of corporate clients such as advanced transaction processing, cash management, trade finance, and corporate lending. cloud integration, enhanced data analytics, operational efficiency, and seamless customer experience are driving the growth of the segment.
The wealth management segment includes providing solutions to financial institutions that serve high-net-worth individuals. Core banking software for wealth management includes features such as portfolio management, investment advisory, estate planning, and personalized financial services. It helps wealth managers offer tailored solutions and enhance client relationships. Increasing global affluence, personalized financial services, advancements in technology, and focus on enhancing client's experience are driving factors for growth in this segment.
