The Case for User-Centric Core Banking Systems in Payments Innovation

Introduction

Sterling Bank’s recent core banking overhaul left over 3 million customers unable to access banking services. This incident underscores the critical role of core banking systems in the ongoing digital transformation, especially in B2B payments.

Core banking systems are the technological backbone of financial institutions, handling daily transactions, managing accounts, and providing various banking services. An overhaul typically involves migrating to a new platform, which can be time-consuming, expensive, and risky.

In Sterling Bank’s case, the migration to SEABaaS, a custom-built core banking application, led to significant service disruptions.

Core Banking Systems and Digital Transformation

Core banking systems are essential for modern banking operations. They process deposits and withdrawals, manage loans and credits, and update customer information in real-time. These systems are crucial for enabling seamless, efficient, and secure banking services, which are vital for the digital transformation of B2B payments. The shift towards digital banking requires core systems that are interoperable, scalable, and user-centric.

The User Experience in Core Banking Systems

User experience (UX) should be central to core banking systems. Interoperability, transferability, and other technical features play a significant role in reducing user friction. Interoperable systems ensure seamless integration with various banking channels and third-party services, enhancing the overall user experience.

Transferability allows for smooth data migration and system upgrades, minimizing disruptions. Additionally, features like real-time processing, intuitive interfaces, and robust security measures are crucial for delivering a superior user experience.

The CrowdStrike Incident: A Case Study in User-Centricity

The CrowdStrike incident is a stark reminder of the consequences of neglecting user-centricity. A faulty update from CrowdStrike led to widespread IT outages, disrupting services in hospitals, airlines, and banks.

The incident caused significant financial losses, with Fortune 500 companies alone losing an estimated $5.4 billion. This example highlights the importance of reliable, user-centric backend systems. When systems fail, the end-users—whether they are customers or businesses—bear the brunt of the impact.

The Role of Core Banking Systems in Payments

Core banking systems are foundational for processing payments, managing accounts, and enabling financial products. Traditional, monolithic systems often stifle innovation and growth. Agile, modular, and customer-focused systems are essential for the payments sector. Banks that have transitioned to user-friendly, cloud-based platforms demonstrate the potential for enhanced agility and customer satisfaction.

• Processing Payments: Core banking systems handle the bulk of payment processing, from simple transactions to complex cross-border payments. A user-centric system ensures that these processes are smooth and error-free, reducing the likelihood of disruptions that can frustrate customers.
• Managing Accounts: Efficient account management is crucial for both customers and banks. User-centric core systems provide intuitive interfaces for account management, making it easier for customers to access and manage their finances.
• Enabling Financial Products: Modern core banking systems support a wide range of financial products, from loans to investment services. By focusing on user-centric design, banks can offer products that are tailored to the needs and preferences of their customers, enhancing satisfaction and loyalty.

The Need for User-Centric Core Banking Systems

The Sterling Bank and CrowdStrike incidents are just two examples that show the impact when user needs are not prioritized. For banks, hoping to gain traction with savvy B2b buyers, it is crucial to have core systems that are reliable, secure, and designed with them in mind.

User-centric core banking systems can enhance customer satisfaction, improve operational efficiency, and drive revenue growth. These systems must be agile, modular, and capable of integrating new technologies to meet evolving customer expectations.

Embracing User-Centric Core Banking Systems

User-centric core banking systems are designed with the end-user in mind, focusing on delivering seamless, personalized digital experiences. Key drivers include:

Demand for Seamless Experiences: Customers expect frictionless interactions across all digital touchpoints. Deloitte's Consumer Experience Research shows that 79% of consumers consider the experience a company provides to be as important as its products and services.

This demand for seamless experiences is pushing banks to rethink their core systems to ensure they can meet these expectations. How can banks provide more B2B buyers with convenient, easy, and secure payment experiences?

Influence of Fintech and Non-Bank Competitors: Innovative fintechs are setting new standards for user experience, pushing traditional banks to adapt. Fintech companies like Revolut and N26 have built their platforms with user-centric design at the forefront, offering intuitive interfaces and personalized services that attract tech-savvy customers.

Regulatory Shifts: New regulations require enhanced transparency and responsiveness, further driving the need for user-centric systems. The European Union’s PSD2 directive, for example, mandates that banks open their payment services and customer data to third-party providers, necessitating more flexible and user-friendly systems.

Benefits of a User-Centric Approach to Core Banking in Payments

• Improved User Experience (UX): Superior UX leads to higher customer retention and satisfaction. Frictionless customer journeys drive loyalty and increase transaction volumes.
• Increased Operational Efficiency: User-centric systems streamline processes for internal users, reducing complexity and enhancing service delivery speed. By automating routine tasks and providing intuitive tools for staff, banks can improve efficiency and reduce operational costs.
• Scalability and Flexibility: Modern core banking systems’ modularity allows for easier integration of new payment technologies and scaling solutions to meet diverse market needs. This flexibility is crucial for banks looking to expand their services and adapt to changing market conditions.

Challenges and Considerations for Executives

• Cost and Resource Allocation: Modernizing core systems requires significant investment. Executives must carefully consider the costs involved and allocate resources effectively to ensure a successful transformation.
• Cultural Shift: Adopting a design-thinking mindset within large institutions can be challenging. It requires a shift in culture and mindset, focusing on collaboration, innovation, and continuous improvement. Integrating a nimble, expert team like WDIR into your organization's design processes is a competitive advantage.

• Legacy System Dependencies: Balancing transformation with existing system dependencies is crucial. Banks must find ways to integrate new systems with legacy infrastructure without disrupting ongoing operations.
• Cybersecurity and Compliance: Ensuring robust security and compliance in user-centric systems is paramount. As banks adopt more user-centric approaches, they must also strengthen their cybersecurity measures to protect sensitive customer data and comply with regulatory requirements.

Implementing a User-Centric Core Banking Strategy

• Steps to Transition:
  • Conduct UX Research and Customer Journey Mapping: Understanding the needs and preferences of users is the first step in creating a user-centric system. Banks should conduct thorough UX research and map out customer journeys to identify pain points and opportunities for improvement.
  • Create Agile Teams for Iterative Development and Testing: Agile methodologies allow for rapid development and continuous improvement. By creating cross-functional teams that can iterate and test new features, banks can ensure that their systems remain user-centric and responsive to changing needs.
  • Partner up for Co-Innovation and System Enhancements: Collaborating with fintech companies and industry experts can provide banks with access to innovative technologies and expertise. These partnerships can help banks enhance their core systems and offer new, user-centric services.

Measuring Success

When implementing a user-centric approach to core banking systems, banks can measure several B2B-specific metrics to gauge success and identify areas for improvement. Here are 10 key metrics to measure:

• Customer Satisfaction (CSAT)
  • Definition: Measures how satisfied customers are with a bank’s services.
  • Importance: High customer satisfaction indicates that the bank’s services meet or exceed customer expectations.
• Net Promoter Score (NPS)
  • Definition: Measures the likelihood of customers recommending the bank’s services to others.
  • Importance: A high NPS indicates strong customer loyalty and satisfaction.
• Customer Retention Rate
  • Definition: The percentage of customers who continue to use the bank’s services over a specific period.
  • Importance: High retention rates indicate customer satisfaction and loyalty.
• Transaction Success Rate
  • Definition: The percentage of transactions processed successfully without errors or delays.
  • Importance: High transaction success rates indicate reliable and efficient core banking systems.
• Time to Resolution
  • Definition: The average time taken to resolve customer issues or inquiries.
  • Importance: Faster resolution times improve customer satisfaction and operational efficiency.
• System Uptime
  • Definition: The percentage of time the core banking system is operational and available to users.
  • Importance: High system uptime ensures uninterrupted access to banking services, which is crucial for customer satisfaction.
• API Performance
  • Definition: Measures the efficiency and reliability of APIs used for integrating core banking systems with other platforms.
  • Importance: High API performance ensures seamless integration and data exchange, enhancing the overall user experience.
• User Adoption Rate
  • Definition: The percentage of customers who adopt and use new features or services offered by the bank.
  • Importance: High adoption rates indicate that new features are well-received and meet customer needs.
• Operational Efficiency
  • Definition: Measures the efficiency of internal processes and the ability to deliver services with minimal resources.
  • Importance: High operational efficiency reduces costs and improves service delivery.
• Customer Lifetime Value (CLV)
  • Definition: The total revenue a bank can expect from a customer over the duration of their relationship.
  • Importance: High CLV indicates strong customer loyalty and profitability.

The Future of B2B Payments Is User-Friendly

Payment executives must prioritize the end-user experience in core banking systems to stay competitive. Embracing modern, flexible systems that cater to evolving customer expectations is essential for future success. By focusing on user-centric design, banks can improve customer satisfaction, enhance operational efficiency, and drive revenue growth.

Key Takeaways

• User-Centric Design: Essential for meeting customer expectations and driving loyalty.
• Operational Efficiency: Streamlined processes and faster service delivery.
• Scalability: Modular systems that can adapt to new technologies and market needs.
• Security and Compliance: Robust systems that ensure data protection and regulatory adherence.

You don't have to go at it alone. Working with an expert UX team like WDIR can help you embed a user-centric strategy in your product and service design. We work with Fortune 100 companies and innovative fintechs globally to shape more seamless, intuitive, and secure business payment experiences. Get in touch today!