Deconstructing the Core Banking Platform

In the beginning there was the core banking system and it was good.  The system created accounts, processed transactions, generated statements, and managed compliance.  Whether an institution ran this system within its own IT environment or as a shared service, the original mainframe solutions offered security, stability, and speed.  Some were created for traditional banks, some for credit unions, investment banks or savings banks.  There were systems with lots of features and others designed to be low cost solutions.  However, the common denominator for most of these is that they were originally built on and for mainframe operating systems.

Much ink is spilled bemoaning the inertia in the traditional banking industry, but there's good reasons for this inertia because first, these systems are built like winter coats for Antarctica, meaning utility is not fashionable.  Second, mainframe systems are reliable and can take in and spit back many thousands of transactions per millisecond.  Third, all the modern features required by banks has been stiched into them with little thought of ever un-stiching them.  Fourth, if you're using a specific company's solution and want to integrate a new service, they want it to be their service, so choosing to go it alone comes with a cost.  I could keep going, but these are the main points.

In our super-heated fintech climate however, there's lots of companies wanting to step in and fix all that.  Some of them are more traditionally-focused core banking systems, but others are...something else, which brings me to consider the question - what exactly is a core banking system today?  I read with interest, an article in Techcrunch about a new fintech platform called Synapse. Here's what their Mission Statement says:

"Synapse provides payment, deposit, lending and investment products as APIs to FinTech companies who build and launch their financial innovations on top of our banking infrastructure. Our mission is to ensure that everyone around the world has access to best-in-class financial products, regardless of their net worth."

One of their new investors called it "...the AWS of banking based on its potential to let anyone build a fintech company...".  Synapse appears to work (and welcome any corrections from the company) in part, as a front end to regulated banks.  For example, their mult-bank savings account distributes deposits across more than one bank in order to better manage exposure.  Read about that here.  In other products, such as depository accounts, they work with Evolve Bank.  Therefore, much like AWS, they've created an API for any number of banking functions including debit and credit cards, wire transfer, custody accounts, and a host of other functions and deliver them in an easy-to-integrate infrastructure.

Open Banking, by definition, is an environment where a third party is given permission to access a bank account or account-related data in order to provide services direct to the user.  That's not this. I believe developers like Synapse are actually creating a new kind of core banking system.  One which unpacks a bundled system into individual account components and then serves them up through an API portal in a way that allows a financial services entity to pick and choose the ones relevant to their offering.  Right now, it appears that Synapse is working with other banks in the background, but the real potential for this kind of technology is to deconstruct a bank's back end into various operating components.  The CEO of Synapse describes it as "Lego bricks" for financial services, an apt description. 

For me, this points to the real future of banking services and while the current big core system providers are busy tying up the market through acquisitions, solutions like Synapse are busy figuring out how to reconstruct a core banking system for a digital-first era. 


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