Core Banking Software Market

Market Overview

The global core banking software market size was valued at USD 13,334.60 million in 2022. It is expected to reach a valuation of USD 45,924.87 million by 2031, growing at a CAGR of 14.7% during the forecast period (2023–2031).

 Banking firms utilize core banking software to keep the flow of banking activities, including post updates to user accounts, payments, transactions, and other financial records. It provides users with real-time online centralized banking services. Various banks deploy CBS to help their customers with bank-related tasks, including money transactions, loan processes, debts, and account access. Core banking solutions assist banks in lowering operating and support costs, providing real-time transaction processing, and managing bank accounts across several locations. As a result, this has become the market's most crucial growth element.

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.

Regional Analysis

The global core banking software market share has been segregated into North America, Europe, Asia-Pacific, Latin America, and the Middle East and Africa. 

Asia-Pacific Surpasses Other Regions

With a market value of USD 12,181.95 million by 2031, registering a CAGR of 16.2%, Asia-Pacific is expected to be the most prominent core banking software market. The increasing adoption of mobile and web-based business applications in the banking sector is expected to boost the market growth in Asia-Pacific. Also, several banks in the region are working on implementing core banking systems, which allow them to handle large volumes of transactions and banking services without interruption. Furthermore, the increasing economies of Asia-Pacific countries like India and China are likely to drive core banking software adoption in the region. The regional market will grow further as these countries emphasize R&D activities and technological innovations.

North America is expected to be the second-largest core banking software market with a value of USD 4,233.47 million by 2031, registering a CAGR of 14.2% during the forecast period. The regional market is likely to increase as prominent banks adopt modern core banking software. Furthermore, small and medium businesses in the region employ these solutions to ensure a smooth flow of funds. Over the projected period, the fast-growing sizes of companies and the expanding areas of application of these solutions are expected to boost the regional market's expansion. In recent years, the region has seen surged demand for next-generation cloud-based core banking systems.

Segmental Analysis

The global core banking software market share has been classified based on solution, service, deployment, end-user, and regions.

On the Basis of Solutions

Based on solutions, the core banking software market has been segmented into deposits, loans, enterprise customer solutions, and others.

The enterprise customer solution segment is expected to dominate the global market, accounting for USD 5,767 million at a CAGR of 6.85% during the forecast period. Enterprise customer solutions link seamlessly with ERP and CRM systems and manage management software and client data via a bank's central database. Data integration for many reasons, such as CRM, cross-selling, and regulatory reporting, enables banks and financial institutions to realize economies of scale. Furthermore, these technologies assist financial institutions in identifying critical business drivers and making decisions that promote client loyalty and happiness.

On the Basis of 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.

On the Basis of Deployment

Based on deployment, the core banking software market has been segmented into cloud and on-premise.

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.

On the Basis of End-User

Based on end-user, the core banking software market has been segmented into banks, financial institutions, and others.

The banks' end-user segment is expected to dominate the global market, accounting for USD 11,817 million at a CAGR of 8.25% during the forecast period. The considerable improvements in information technology and the expanding internet network across the globe are responsible for the segment's rise. Banks can use these technologies to improve operational efficiency and save manual labor. The core banking software is deployed at many bank branches and then linked together via internet networks, telephone, and satellite. Core banking solutions' advantages, such as system flexibility, lower extra costs, better efficiency, and accessibility, are likely to accelerate their adoption across institutions.

Impact of covid-19

COVID-19 had an unfavorable effect on the market development. Many businesses have been severely impacted by the outbreak, which has resulted in a global recession. This compels banks all across the globe to put initiatives into action. Numerous core banking, deposit accounting, and loan accounting systems are not intended for functional versatility. As a result, globally, banks and financial institutions emphasize business continuity planning. They are mainly responsible for ensuring that customer relations activities and branch distributions are not disrupted.

In many businesses, the outbreak substantially affected the working environment. Due to the constraints, many financial institutions and banks have been obliged to let their staff work from home. The finance system is dealing with late lease payments and rapid interest rate fluctuations, which has resulted in an enormous reconfiguration of the global financial system.

Market Recovery Timeline and its Challenges

The post-pandemic period will be significant for the global core banking software market. The market's growth is likely to be hampered due to privacy concerns, security of data, and skilled professionals working with advanced technologies. On the other hand, factors like the rising demand for cloud-based solutions from banking corporations and the growing demand for managing customer accounts from a single server will likely continue to drive the market growth over the forecast period. Overall, the recovery of the global core banking software will be quick.

Recent Developments

• September 2021- SAP SE announced the establishment of "Fioneer," a financial services industry joint venture between Dediq GmbH and SAP SE. SAP Fioneer is a financial services software add-on from SAP. In the ever-changing banking and insurance industries, it offers new solutions to help its customers.
• August 2021- As part of the Oracle Banking suite, W1TTY integrates Oracle FLEXCUBE, Oracle Banking APIs, and Banking Payments. Real-time payments, digital experience, and retail and business banking applications are all part of the package.
• October 2020- Finastra launched Fusion Payments to Go, a pre-packaged payment solution, to help small and medium-sized banks in the United States, Europe, and South Africa operate domestic and cross-border payment services. This system provides superior functionality and rules to support clearing and settlement procedures, improve client experience, and achieve revenue growth.