At best, German banks are in the midfield when it comes to digitization. They underestimate the disruptive power of digital technologies and overestimate their own knowledge advantage over the new players on the market. The core banking system (CBS) as the decisive strategic adjustment screw rarely receives the necessary attention.

The greatest danger for banks is that digital disruptors drive a wedge between them and their customers. Amazon in the USA and Alibaba in China have shown the way: customers no longer buy in stores, but order the desired goods via centralized platforms. Despite these experiences, banks often continue to use traditional strategies to increase profitability and maintain the existing business model. Robo Advisory, process automation and services that the customer can use without complicated contact points are promising strategies to resolve the contradiction between more service at lower costs. Unfortunately, today’s core banking systems do not follow suit.

In addition to outdated technology, there is an outdated organization

Many banks have aligned their organisational structures with the core banking system used and its processes. Even if it were possible to reduce the technical overhead, the human components remain in the process model.

Digitalisierung: Kernbanksysteme spielen eine entscheidende Rolle

They cannot be easily adapted without significantly increasing the size of the workforce. After all, both the conventional processes and the digitally driven satellites must be adequately equipped with personnel.

In addition, there is a typical problem in change processes: Between employees from the old world and employees for the new world, there is often a gap that is difficult to bridge.

retire an old system

At worst, this two-tier structure prevents the organisation from developing in line with the market and customer needs. When the Fraunhofer Institute criticizes in its series of studies on banking and the future that customer centricity hardly ever takes place in the institutes, then the CBS is one of the main reasons for this. At this point, banks often revert to conventional recipes for greater profitability.

“Out of this vicious circle, only a strategy can emerge that is seriously concerned with shutting down obsolete systems (application retirement). 42 percent of core banking systems in use are more than ten years old.”

At least once, the migration scenario should be run through in order to determine whether the CBS, due to its notoriously high complexity, can pull a bank further under water or, with corresponding simplifications, still provide good services in the medium term. Institutions that can in no way separate themselves from the core banking system should at least consider setting up an agile parallel system. Otherwise, other players will take over access to the customer first and then the entire business.

In addition, legacy systems tie up significant resources. Banks spend up to 75 percent of their IT budget and more on maintaining existing applications and infrastructures. To at least partially discontinue the operation of such systems is in itself an economically sensible decision.

Digitalisierung: Kernbanksysteme spielen eine entscheidende Rolle

Initially, the focus is on those applications that are directly linked to the CBS or even fulfill functions that are ideally covered by the future CBS itself. Who knows his switch-off scenario, can develop the migration scenario based on it. But now is a good time. Particularly costly IT components such as the associated infrastructure can be obtained from the cloud at the push of a button. Infrastructure-as-a-Service is now mature. Current CBS developments already take these new possibilities into account and create the necessary technological basis for them. In this way they help in the development of institutions: From the driven to the drivers of digitization.


Kay Wossidlo is a partner in the software and IT consulting firm Senacor Technologies.

Jürgen Pöllath is Partner & Principal Architect at the software and IT consultancy Senacor Technologies.