Core Banking System on a SaaS Platform – What’s the Difference?

First, let’s clarify what SaaS means to provide context for this article. SaaS (Software as a Service) is a method of delivering and licensing software. The client gains access to the software online, while the software itself is installed and operated outside the client’s infrastructure, integrated only through APIs over the network, usually in a subscription model.

What does this mean? The client does not need to install or maintain (backups, updates, etc.) the software themselves. All work related to the software lifecycle (SDLC) is covered by the provider for an agreed price.

Cloud services that offer many benefits to clients are one of the main factors behind the growth in SaaS popularity. Therefore, SaaS is also being introduced in the area of Core Banking Systems, but will it work?

The world is moving forward at a dizzying pace, especially in IT. Today, we are used to having information and services available everywhere and anytime we need them. Clients expect 100% availability of our products, with the highest quality and speed. Everything, of course, must be available online, on any device on which it will be consumed.

Anyone who has worked in a bank’s IT department knows how costly it is to build solutions that can guarantee the required availability, and how difficult it is to continuously update such solutions to reduce technical debt. Hundreds of systems operate within banking infrastructure to support this availability. The most important of these is the CBS (Core Banking System), which handles the basic functionalities of all banking products for all client segments.

Most CBS systems are delivered as monoliths. By definition, CBS are huge systems that are difficult to develop and maintain, especially since most known banking systems are quite old and written in various legacy programming languages. Even if a bank has the competencies to develop some functions customized to its own needs, such customizations create dependencies with the core system that later complicate its updates. Ultimately, it requires great effort to adapt locally developed solutions to the latest core versions and perform regression testing. On the other hand, skipping updates increases technical debt, which is also not the best approach. To find a balance between these two options, banks choose to update every few versions of the core system, but it is still costly and risky.

As a solution to this problem, combined with new technologies such as cloud computing, new possibilities arise. What if we could use a core system but not own it or have to maintain it ourselves?

As a SaaS provider, you deliver end-to-end:

• Support• Management
• Scaling
• Continuous updates and service improvements
• Security guarantees

As a result of cooperation with partners Microsoft and Amazon, Temenos introduced this year its Temenos Banking Platform, which is a CBS SaaS system running on Azure and AWS platforms.It is a single platform with a unified codebase, the same for all clients. This makes it easy to update and continuously modernize. The platform offers over 700 API services that are already built-in and ready to use from day one.

Anyone who has worked with Temenos products knows they have always allowed clients to customize the system themselves. This is also possible in the SaaS model. Temenos delivers core banking functionalities developed solely by themselves. They also offer an Extensibility Framework that allows clients to make changes to the system without creating strong dependencies on the core system part.

So, what is really better for banks? The answer, as always, is: it depends. Every client must analyze all the pros and cons of this solution and decide what will be best for them. Certainly, it is good that such a choice exists and that clients make this decision.