Next-Gen Banking: Balancing innovation with proven foundations for the future
As banks continue to modernise their IT-landscapes to fuel their digital transformations, they are increasingly adopting next-gen banking solutions, writes Theo Albers from Infosys Finacle.
Next-gen banking is a subject of much interest in present-day boardrooms and executive circles. In the broadest terms, it means evolving banking services to meet customers’ changing needs. Research suggests that as of 2024, 99.1% of banking transactions in Australia occur digitally, with cash usage declining to 13% of payments, a significant drop from 70% in 2007.
At the board-level, next-gen banking is about scaling digital maturity; driving reach and growth by onboarding, selling, servicing and engaging customers digitally at scale; building embedded finance partnerships or marketplace platforms; resetting cost-to-income ratios in line with digital-born businesses; incorporating ESG considerations in thinking and execution; protecting customer data and trust; and refreshing offerings by leveraging cloud and artificial intelligence.
Non-traditional digital businesses, like challenger banks and FinTechs, have positioned ‘next gen’ as something novel, futuristic, and exclusive to them. However, the truth is that next-gen is an ongoing evolution – building on proven foundations to create something new. It’s not limited to young, new-age companies. If it were, we wouldn’t see so many neo-banks trying in Australia and globally, while established banks continue to scale their digital successes.
Infact, Australia's neobanking market is projected to reach US$35 billion in 2025 and is expected to grow at a compound annual growth rate (CAGR) of 8.36%, reaching US$52 billion by 2030.
The foundation for next-gen banking
Similarly, many banks believe that to deliver next-gen banking, they must have a next-gen core. Many players have tried to monopolise the narrative. Thus, banks must beware of being caught in a spotlight marketing traps.
Banks need next-gen and proven core to run and transform their business. The spotlight marketing narratives increasingly focus on select virtues like ‘next-gen core’, ‘cloud-native core’, ‘composable core’, ‘thin core’. Frankly, banks need all of this and more.
Also, these spotlight narratives often present a false dichotomy: one can either choose a recently launched technologically advanced core or a functionally rich proven one. In reality, the market situation is much more nuanced.
Hence before choosing one type of core over the others, organisations should consider various architectural virtues relevant to find the right choice for their context. Key functionalities include:
- Cloud-native and cloud-neutral core, that can be deployed flexibly on a public, private, or hybrid cloud
- Proven scalability to manage increasing volumes from organic and inorganic growth
- Product as a configuration to ensure rapid product development and rollout, and enable personalisation at scale
- API and events-driven core for scaling ecosystem innovation and emerging business models
- Component-based to enable progressive modernisation
- End-to-end DevOps pipeline to accelerate new developments
- Modern data architecture to harness AI fully
- Robust security capabilities at all layers of the platform stack
- Multi-capabilities – multichannel, multi-tenancy, multi-currency, multilingual, multi-time zone for multi-geography modernisation projects
Evaluation factors
When selecting a core banking solution, it is important to consider more than just technology architecture; it is one of eight key criteria. To ensure that the core banking system delivers value to both internal stakeholders and customers, banks should evaluate the following factors:
Functional Richness
The solution should be composable, offering a comprehensive range of functionalities required to serve various verticals and sub-verticals, such as multinationals, mid-market, or retail. Consider the depth of capabilities, including syndicated lending, co-lending, and embedded lending, and ensure that the solution’s functional roadmap aligns with your bank’s expansion plans.
Depth of Experience
Evaluate whether the partner has sufficient experience transforming and migrating banking systems in similar contexts.
Long-Term Viability
Choosing a partner with a long-term perspective and the ability to sustain their business is essential. This is particularly important for venture capital-funded providers, who struggle to secure funding over the extended periods required to generate value.
Customer References
Seek references from other banks that are similar in size and profile to yours before making a decision.
Operational Performance
Rapid digitisation and trends like open banking have led to increased transaction volumes. Core banking solutions must be highly resilient to manage typical transaction volumes and spikes on high-traffic days.
Partner Ecosystem
Besides technology and functional depth, banks should look for strength of the partner ecosystem of their core providers.
Cost of Ownership
While the transformation ultimately yields significant returns, banks can still optimise their total cost of ownership by choosing a core solution that utilises open-source components and offers cost-effective maintenance options.
Good narrative, but is it really beneficial?
Despite what marketing narratives may suggest, there is no one-size-fits-all solution for core banking systems. Each bank must assess and identify the best core system for its specific needs. A comprehensive evaluation with the above criteria will enable them to make a well-informed decision for their organisation
According to Statista, the digital banks market in Australia is anticipated to witness a net interest income of US$29 billion in 2025, with a projected annual decline of 1.60% (CAGR 2025-2029), resulting in a market volume of US$27 billion by 2029. It is indeed possible to find a next-generation core system that is also proven.
