Capgemini helps banks complement, componentize, and extend core banking capabilities

The heart of enterprise transformation for banks is the modernization of their core banking systems, ranking as the fastest-growing service offering among the 21 service providers assessed in our recent study, The Best Service Providers for Retail Banks, 2023. As part of this research, Capgemini shared a statistic with us that caught our eye—125+ core banking transformations across 40 countries. Our interviews with Capgemini and scrutiny of various client success stories help showcase an evolving reality: Core banking modernization is no longer only rip and replace. The starting point for many banks is increasingly to complement the existing core by integrating digital components and functionality to extend the capabilities of their existing aging core banking systems and to offer digital functionality.

A banking-as-a-service offering ahead of its time

Way back in 2015, Capgemini launched a “banking platform” solution based on Temenos core banking, intending to offer banks a utility-based digital banking solution. The offering gained some success, but cloud-native applications and use of the public cloud were still largely a pipe dream; thus, the initial net-net of the offering was that it helped Capgemini sell a lot of Temenos solutions.

Capgemini continued to update its offering, now known as Connected Banking. Its “banking platform” is now a reusable reference architecture with pre-integrated components, including an ecosystem of core banking platforms, fintechs, data and analytics, and Capgemini accelerators. The firm still sells a lot of Temenos, but increasingly, cloud-native headless core darlings like Mambu and Thought Machine are part of the mix, as are nCino, Finastra, Finacle, and other fintechs
and ISVs.

Capgemini’s banking-as-a-service offering was likely early to market, but technology innovation, cloud acceptance and viability, competition from digital banks, escalating end-customer demand, and ongoing bank frustration with inflexible core systems have created favorable market conditions for banks to pursue core modernization. But bankers are the ultimate dealmakers, and they still want solutions on their terms. As Exhibit 1 shows, four primary models have evolved as options for core banking modernization, each with its own set of requirements.

Exhibit 1: Four models for core banking transformation have emerged, each with distinct approaches

*Speedboating terminology borrowed with appreciation from Mambu
Source: HFS Research, 2023

Ecosystem-as-a-service is baked into Capgemini’s core banking modernization offering

The importance of the ecosystem baked into Capgemini’s offering has grown with its ever-expanding, best-of-breed approach. It allows clients to tap into varying levels of functionality based on their needs, risk appetite, and budget. Some banks are not ready to ditch their existing typically highly-customized cores, preferring to complement these systems with point solutions or functionality such as enhanced customer analytics or the ability to offer preferred pricing or customer rewards. Others may be looking to retire an end-of-life core system or launch a separate greenfield core for a spin-off or new offering. The ecosystem and its related services have evolved to support the range of requirements.

One client of Capgemini’s Connected Banking offering is a large Irish bank where Capgemini implemented its platform, helping the bank to define, design, and deliver a new digital banking capability. The bank drove significant cost savings while dramatically improving its ability to offer diverse and personalized offerings. Another example is a six-country Temenos roll-out for a major Japanese bank, which yielded cross-country consistency, improved regulatory compliance, created nimble offerings, and improved costs significantly. Capgemini has also used the framework to support Tier 1 and Tier 2 legacy banks to deconstruct and componentize their legacy monolithic cores and provide a springboard for digital banks to reduce their time to market.

The Bottom Line: Banks must realize core banking modernization no longer exclusively means rip and replace; it increasingly means componentize, complement, and extend.

Banks hungry for change but risk averse or budget constrained can consider complementing their existing core systems with APIs and microservices-enabled solutions that can help extend functionality and fundamentally help buy more time by breathing new life into existing core banking systems. Service provider partners such as Capgemini are increasingly curating and enabling solutions that include ecosystem partners pre-integrated into reference architectures built for banking. This interim “compose and complement” stage will not replace core transformation forever, but it offers forward progress that may be appropriate for the jittery market reality characterizing 2023.