Banking Systems Software

Banking software—sometimes referred to as core banking software—manages and provides the products offered by the Canadian banking industry. Part of this functionality includes the ability to connect to various interbank networks or capital markets. Record keeping and transaction management are also critical functions of this type of software. There are some differences between the application of this software in retail banking and investment banking, but the broad purpose of the software remains the same.

Some of the core features in this type of software include detailed management of transactions made by the banks’ customers to and from their accounts, as well as the ability to track said transactions from a range of methods, such as ATMs or internet banking. In the case of investment banking, Canadian banks use the software to manage their trading desks, track investments, and perform analytics on the market.

The benefits of banking software stem mainly from the automation of several tasks and allowing customers to carry out many actions remotely. The software securely stores account-holder data, allowing users fast access when needed. Being part of the infrastructure of a financial institution like a bank also means the software can be used to roll new products out quickly to customers who use mobile or internet banking.

Banking solutions are focused on the goal and application, which is why this type of software is rarely found outside of retail banking, private banking, corporate banking, and investment banking. It is, however, related to investment management software, financial risk software, loan servicing software, and loan origination software.

With the heavy regulation around banking—not to mention the financial risk that can accompany errors—this type of software has to meet strict criteria regarding how customer data is stored. Beyond that fundamental aspect, the features included can vary slightly between different solutions but will typically include most of the following features:

• Ensuring that business processes are carried out in line with any relevant industry or government regulations through the use of compliance tracking as a means of transparency, keeping complete records of all transactions that can be drawn from in the event of an audit
• Maintain a detailed, accurate, and up-to-date database of customer data—for financial institutions, accurate customer data is crucial for several reasons, from regulatory to communication, as well as it being necessary to have complete and up-to-date customer information when determining what products to offer a particular customer
• Monitor transactions and other customer activity in real-time and compare against historical behaviour and account profiles, enabling effective fraud prevention by identifying suspicious behaviour
• Enable the creation of new accounts and record transactions on a real-time basis, as well as automate the process of calculating interest on loans and processing payments -Allow for Canadian customers to use the features and products available to them remotely through mobile or internet banking

What is Banking Software?

Banking software is designed to serve as a complete software-based infrastructure for a banking platform, allowing a bank or other financial institution to connect with interbank networks and other necessary systems. It provides functions through which customers across Canada can interact with their accounts and make transactions, as well as the underlying data processing and storage associated with those actions. It will also allow for the monitoring of customer actions so that they can be automatically referenced with that customer’s profile to identify suspicious behaviours. All this is built on a fundamentally secure data storage system that adheres to the strict regulations that financial institutions are bound by.

Modern banking is a massively interconnected affair, with communication between various interbank networks, capital markets, credit agencies, and more, all being necessary. All of this communication must occur under the strictest of digital security protocols, both for fraud prevention and to adhere to various consumer laws regarding personal information. These aspects of the software are even more critical as more and more customer interaction moves away from face-to-face interactions in branches and into online and mobile applications.

Beyond the added convenience of online and mobile banking, this type of software also provides automation for several tasks, such as interest calculation and reminders of fees. These aspects of the software reduce the need for financial institutions like banks to dedicate human labour to certain tasks, making the bank’s workflow more efficient and cost-effective. The need for paper is also dramatically reduced by the use of banking software. Customers can be automatically sent digital bank statements and other correspondence, which reduces the need for paper and also minimizes the need for human oversight in the creation of said correspondence. The reduction in physical documents also means a reduced need for storage for those documents.

What are the benefits of banking software?

The benefits of banking software are primarily focused on automation and security, as well as bringing more convenience to customers. Of course, security is a critical aspect of banking, as malicious parties continue to try new ways to commit fraud and theft. Preventing incidents like that occurring protects the customer and the bank's reputation and reduces the costs involved in conflict resolution and technical support. Some of the benefits of this type of software include:

• Providing multiple transaction options: Banking has come a long way in terms of customer convenience. Furthermore, this software takes it further with several ways in which a customer can make a transaction. With baking software, banks can allow customers to carry out transactions online, over the phone, and through mobile banking apps. The ease with which customers can use their accounts leads to increased customer satisfaction and, as a result, more loyalty to the bank. It also reduces the need for physical branches and the costs associated with operating them.
• Paperless correspondence: The move of banking from physical locations to web and mobile apps makes it easier to switch to paperless correspondence since the customers are already digitally interacting with the bank. The more paperless an organization can become, the more money can be saved on different things. These things include the physical material and equipment required to produce hardcopy correspondence, as well as the space required to store backups of the physical copies. Reducing the number of filing cabinets needed will free up space for other things or even make the previously used space for the said purpose entirely unnecessary.
• Workflow automation: While some tasks still need human oversight, many of the more tedious tasks can be automated. These include various activities, such as calculating interest, sending customers reminders and alerts, and flagging suspicious behaviour. Even the ability to process payments automatically is an automation of a task that would previously have required a staff member. In addition to the savings that this creates in terms of human labour, it also eliminates the risk of errors that can come from manually entered data, making the service more reliable and, in turn, saving the bank money on dealing with the problems that arise from those errors.
• Advanced data analysis: The software inherently collects and has access to a great deal of data regarding customer behaviour, allowing for the creation of user profiles. These profiles can then be used for several processes, like targeted product advertising or fraud prevention. A basic example of the latter might be flagging a transaction as suspicious if it was processed from a different country to the customer’s country of residence, but much more complex analyses are possible.
• Direct customer interaction: As touched on above, the use of this type of software allows customers to carry out a large number of actions that would have previously required a visit to a branch or an ATM. These include a range of activities, like checking a balance, transferring money, or making a payment. A more recent addition to this type of software even allows customers to freeze or unfreeze their cards if a card gets lost. All these actions increase the convenience and satisfaction of a bank's customers while reducing the amount of human labour needed to deal with these customer requests.
• Continuous operating hours: the tasks that the software can now automate are no longer attached to a physical branch, so it will no longer require a bank employee to process them. That means that customers can carry out certain actions at any time of the day, making the bank a 24/7 service for certain actions.

What are the features of banking software?

Banking software usually consists of some core or common features that will be found across most offerings. Beyond these core features, there will also be some other features found in some offerings but not others, or it may require an upgraded package to access the advanced features. Here are some of the most common features of banking software:

• Contact database: The creation and maintenance of a central repository of customer data is an essential part of running a bank and a much easier part thanks to this software. Customer data is easy to store, thanks to the digitalisation of the information being stored, and it is also much easier to look up and reference when needed. Additionally, it allows for automated tasks, such as sending out newsletters and other correspondence to customers.
• Core banking: The core features offered by a bank are included in banking software. These features include several functions, like creating new accounts, recording transactions on a real-time basis, processing payments, and calculating interest. Essentially, the only fundamental banking service that can’t be handled by this software is the physical handling of currency. All the other core functions can be conducted more efficiently with the software.
• Transaction monitoring: While banks aren’t necessarily responsible for their customer’s bad habits, it typically works out more cost-effective to ensure their customers don’t become victims of fraud. A proactive approach improves customer perception and also reduces the costs of delivering support for customers who have been defrauded. Banking software will typically provide transaction monitoring functionality, analyzing customer transactions, their history, and their account profiles to automatically detect suspicious activity.
• Online banking: In addition to providing the core banking functionalities required, this software will also allow customers to carry out several actions themselves through an online or mobile banking app platform. These actions include checking account balances, making payments, transferring money between accounts, and more. Another common feature is the ability for a customer to apply for a product through the website or app. In some cases, the software will be able to automatically approve or deny the application based on the customer’s profile. In other cases, the software will automatically refer the application to be reviewed by a human being.
• Compliance tracking: Banks and other financial institutions must adhere to strict rules regarding legal regulations, like the data they store and how transactions are processed. Banking software will ensure that any government or industry regulations are met in the information it handles and the actions processed through the software.
• Multi-currency funds management: Banking is a global industry but more importantly, business in general, has become more global than ever before. With so many individuals and businesses doing business internationally, banks must be able to handle multi-currency funds properly. This software will manage things like conversion estimates, the application of fees, and other tasks associated with managing multiple currencies.
• Customer interactions: A great deal of customer interaction can be handled through this software. The aforementioned core features, such as arranging transactions and checking balances, are obvious examples, but there are also things like live chat and other contact methods. Customers will also typically have an inbox where the bank can send messages about topics, like changes to the terms of service, fee notifications, and special offers.
• Financial product builder: Banking can be a challenging industry to stand out from the crowd, so the products a bank offers need to be tailored to that specific bank. Banking software will often provide a straightforward product builder that will allow banks to quickly and easily create new products and roll them out to their customers.
• Customizable interface: Another aspect of standing out from the crowd is branding. This type of software will often be used by many organizations from the same area of the market and so will provide the means to customize the look and feel of the software to match the bank’s branding.

What should be considered when purchasing banking software?

When purchasing banking software, it is crucial to consider many factors carefully. The many solutions available on the market will share the core features of this type of software but will be very different beyond that. For example, the software intended for retail banks will be noticeably different to the software intended for investment banking and, likewise, for corporate banking. Some offerings in this space are very specialized and only tackle a specific aspect of what banking software typically provides. Ultimately, the biggest consideration is whether the software provides the features that are needed and whether those features come at a cost that is feasible for the organization. Below are some of the specific things to consider when buying banking software in a little more detail:

• Is the software flexible enough? Given the tightly regulated nature of the financial industry, banking software will need to be flexible enough to accommodate any regulatory changes. These changes will often come with plenty of warning but may mean significant differences in how the software operates. An ability to handle that change will be crucial in the long run.
• Does the software have adequate data security? Cybercrime and fraud are becoming more sophisticated and pervasive these days, and preventative measures are something that customers pay close attention to when deciding which banks and other financial institutions to use. The data that banks need to keep on their customers must be kept secure and following any data protection laws. In addition, there should be two-factor or multi-factor authentication for customers who are accessing their accounts. It's also important that the software ensures that any data transmitted is encrypted to prevent it from being intercepted and accessed during transmission. Finally, the software should be able to filter network traffic to root out any malicious activity or unauthorized attempts to access the system.
• What are the key features of the software? The suite of features offered by this kind of software can vary significantly between offerings, so it is vital to ensure that the one chosen by an organization has the right set of features to meet their needs. The most common examples of feature-matching are the inclusion of private banking, retail banking, and corporate banking. Software that provides all of these core features will naturally be more expensive, so there will often be little sense in choosing one that does all three when only retail banking is required. Likewise, if all three are required, choosing software that only does corporate banking would be unwise.
• How much does the software cost? Financial institutions and people will understand that the cost of the software is an important consideration. Finding a balance between what an organization can realistically afford and the features needed will be crucial to making the best use of that money. It may be that it makes more financial sense to choose a software solution that is missing some less-important features because of the difference in cost. Similarly, if the budget is higher, it may make more sense to choose a solution containing features that aren’t mission-critical but are inexpensive enough to include.
• Is the software compatible with other software? Not all banking software offerings are an all-in-one solution. Indeed, many solutions focus on a specific aspect of banking. When purchasing this kind of software, it is crucial to ensure that the chosen solution will work with any existing software that it may need to interface with. Alternatively, it may make more sense financially to purchase a software solution that handles these tasks and sunsetting the original software solutions.
• Does the software provide any automated features? Automating the various tasks that banking software is used for is one of the biggest money-saving aspects of this type of software. Tasks that would previously have required hours of labour from human workers can be taken care of in no time automatically, but the software needs to provide that functionality for those benefits to be taken advantage of. It is also worth comparing the things that a potential software solution automates against the automatable tasks that cost the organization the most.
• Does the vendor offer strong technical support? The move towards Software as a Service (SaaS) has many undeniable benefits, but it does remove an organization from its software. This is not a problem when everything is working but can quickly become a serious issue when things go wrong. Ensuring the vendor of a potential software solution has solid technical support can prevent serious problems further down the road.
• Is the software cloud-native? Banking software, like many types of software, has had to make the transition from in-house to cloud-ready, but this is not the ideal solution when starting over with new software. Cloud-native software is more flexible and more agile, and it can be spun up or down as needed, which typically makes it more cost-effective.

What are the most relevant banking software trends?

There are many trends to consider going forward, but the most relevant banking software trends centre around the increasing use of cloud-native applications and AI-powered data analysis. It is likely that the trend of automating certain tasks will continue, while additional functionality to the customer will keep being added as it becomes feasible to do so. Here are some of the relevant trends in a little more detail:

• Customer features and automation: Giving customers the ability to carry out more and more banking tasks themselves allows for customer convenience. It also reduces the cost of labour dedicated to these tasks. Moving forward, banking software will likely strive to provide customers with more ways to manage their accounts, transactions, and other features. This will improve customer satisfaction and save the organization money.
• AI-powered data analysis: The power of AI is still being discovered, but it is already a valuable tool in the world of data analysis. AI can be used to analyze customer data and recommend products based on their profile or to provide automated denial or approval of applications in some cases. AI analyzes not only provide users with a great deal of analytical horsepower more cheaply than a human workforce could. It also offers a much deeper level of insight into the data.
• Cyber security: Cyber security is unlikely to stop being a critical issue for financial institutions. As innovative as security measures continue to be, cybercriminals also innovate and will not stop trying to find new ways to defraud customers. With technologies such as biometrics and the blockchain maturing, there will likely be advances in the options for securing a customer’s account. Strict adherence to zero trust will also be a factor in this aspect of banking software.
• Automated validation: As the ability of banking software to judge a customer’s profile on certain criteria becomes reliable, there is likely to be a shift to a more automated approach to approving things like credit card applications. It is unlikely that human oversight will go away completely any time soon. However, an automated approval process will likely take over a larger volume of applications for various services. This will not only reduce the human labour needed for this task but also significantly speed up the processing time of these applications. In cases where human oversight is not needed, an application will often be instantaneous.

Sources

The features highlighted were identified based on their relevance and the percentage of products in Capterra’s directory that offer them. The following sources were used for this document:

1. Capterra Banking Systems Buyer’s Guide (Date accessed: Saturday, April 30, 2022)
2. Wikipedia Banking Software (Date accessed: Sunday, May 01, 2022)