Core Banking Research Articles

SOFTWARE FOR NEOBANKING: MODERN WHITE-LABEL SOLUTIONS IN FINTECH INDUSTRY

In the dynamic, unpredictable and so changeable modern world, all spheres of life are facing changes. The banking system was not left aside. Implementing innovative fintech solutions was the only option for traditional banking institutions to stay afloat. That's why the new types of banking institutions - neobanks appeared. The term “neobank”, which originated in 2017, refers to a new type of financial institution that provides modern, fast, and flexible services right in a smartphone or messenger. White-label financial services allow fintech and third parties to showcase a stylish, company-branded front end using an established bank license, regulatory compliance, and back-end technology to offer core banking features that compete with large institutions. The article analyzes the advantages and further prospects of the development of neobanks, the difference between white-label and baas solutions, as well as the principle of operation of each of the systems. An analysis of the modern market of platform developers for neobanks was carried out, which made it possible to identify the largest market players from European and Scandinavian countries. As a result of the study, the features of each of the developers of platforms for neobanks and their contribution to the development of the world economy were determined. Also, the article highlights the factors that make white-label solutions the future of online banking. The article mentions important conditions for the development of white-label solutions for neobanks, traditional and non-traditional banks – the improvement of the regulatory framework that would determine the legal status of such kinds of institutions, as well as the conditions for licensing and regulation of their activities. In the article, the most popular providers of neobanks are described. The conducted comparative analysis gave the opportunity to highlight the factors that provide these companies success, as well as to name the current market leaders. Overall, the study made it possible to identify the advantages, disadvantages, and risks of neobanks, and determine factors that provide stable growth for white-lable neobanks as well as prospects for their development.

Applying Scenario Planning in the Future of Bank Oranye Priority Banking Services

Bank Oranye is engaged in the provision of priority banking services and becomes one of the leading Indonesia’s state-owned enterprises that provides global wealth management. Apparently, Bank Oranye faced an intense competition with several players in priority banking service (which gradually provides complete wealth management products and/or services and able to go digitalize) and compete with investment products substitute offered by Fintech. This research intends to uncover the possibilities by analyzing the driving forces that could affect the priority banking business. The end result is to develop the scenarios and the formulation of implications and options. The scenario planning is developed based on external analysis (using PESTEL model and Porter 5 Forces) and internal analysis (VRIO analysis and Business Model Canvas). The critical uncertainties are determined by conducting in-depth interviews with company’s experts and literature study. The two critical uncertainties that will affect priority banking business of Bank Oranye in the next 5 years are: Technology Development and Adoption in the core banking system (including the adoption among priority customers) and Government Policy and Regulations. These two critical uncertainties will shape the way Bank Oranye performs with its vision to becomes one stop financial solutions for its customers.

Risk Analysis of Microfinance Conversion Based on ISO 31000 PT. Bank BRI Syariah. Tbk Aceh

Aceh government issued Aceh Qanun No. 11 of 2018 about Sharia Financial Institutions, which demands that all financial contracts in Aceh adhere to Sharia principles. This regulation has an impact on the Aceh region's financial business. PT Bank BRI Tbk Aceh has decided to conversion entire financing and funding portfolio to one of its sharia-compliant subsidiaries, PT Bank BRIsyariah Tbk. microfinance portfolio is bigger than other segments. By constructing a risk analysis based on ISO 31000, this study assesses the business risk associated with converting PT Bank BRIsyariah Tbk's microfinance segment in the Aceh region. The results indicate that twenty risks have been identified and evaluated. Risk can be classified into five broad categories: operational, reputational, strategic, credit, and compliance. The risk analysis results indicate that the risk is significant and requires immediate attention. Operational risk is associated with differences in data capacity, servers, the core banking system, and financing applications, whereas strategic risk is associated with differences in financial analysis, guarantee provisions, and regulations.

ROLE OF TECHNOLOGY IN FINANCIAL INCLUSION IN INDIA

Technology and financial inclusion are the popular coinage in banking parleys in the country. While technological upgradation and mobile banking are catching up so fast, financial inclusion is tardy. Financial inclusion is a major agenda for the Reserve Bank of India (RBI). Without financial inclusion, banks cannot reach the un-banked. It is also a major step towards increasing savings and achieving balanced growth. The reach the country is having with technological progress mobile banking has the potential to emerge as a game changer in terms of costs, convenience, and speed of reach. Business models of banks, telecom operators and other stakeholders need to converge. However, the banking industry’s penetration to un-banked areas is still found sluggish. The role of the Indian banker is challenging. At one end of this spectrum lies the demand to achieve financial inclusion as nearly 50 per cent of the population is yet to be covered under the formal system of banking and at the other end lies the task to fulfil the needs of the existing customers. The first priority for banks is to adopt core banking solution (CBS), including all regional rural banks (RRBs). Next, a multi-channel approach using handheld devices, mobiles, cards, micro-ATMs, branches and kiosks can be used. However, it should be ensured that the transactions put through such front-end devices should be seamlessly integrated with the banks’ CBS. In rural areas, where accessibility is a problem, banks are using the microfinance network and business correspondents and facilitators to bring more people under the ambit of banking services. Capitalising on the huge untapped potential in smaller towns and cities and rendering financial services to this segment of people poses a big challenge. Few banks have explored technology solutions to increase the scale of their microfinance portfolios, with the use of smart cards and core banking solutions. KEYWORDS- Technology, Financial Inclusion, Core Banking, Business Correspondents

Interbank Network Reconstruction Based on Local Clustering Features

Accurately reconstructing the interbank network is the primary task of carrying out research on systemic risks in banks. The empirical study found that the minimum density method underestimated the density of the real interbank network and could not reproduce its core-periphery structure. This paper proposes an interbank network reconstruction method that integrates local clustering features. By introducing a local enhancement matrix, the probability matrix of the minimum density method is modified to enhance the connection tendency among core banks. Furthermore, the adaptive factor method is introduced to distribute the weights of the interbank relationship reconstruction process, so as to establish a low-density interbank network with local clustering characteristics. The experimental results on the 2018 annual report data set of 272 Chinese banks show that, compared with the unintegrated interbank network, the interbank network integrated with the local clustering network has increased by 83.9% and 60.1% in terms of density of core bank’s and average clustering coefficient. Moreover, the reconstructed interbank network has empirical network structure characteristics such as sparsity, disassortativity and scale-free properties.

Digital transformation in treasury, risk and finance: COVID-19 to accelerate establishment of smart analytical centres in these departments

Digital transformation has been a growing focus in the banking industry for several years, with the introduction of digital technologies of the Fourth Industrial Revolution. The recent COVID-19 outbreak had a significant impact on banking, one being that its aftershock might lead to an acceleration of digitalisation efforts in core bank management departments. The reason is that the COVID-19 pandemic is dangerously unique. It differs from the 2008 financial crisis in that it is an exogenous risk that is not the result of the unravelling of previous financial imbalances. It is truly an uncertain event, with a wide range of outcomes that depends on unpredictable noneconomic factors. Therefore, the challenges facing banks and the course of action required are divergent from the situation post-2008. The purpose of the paper is to identify a few of the effects COVID-19 had on banks, but particularly focus on its impact on the responsibilities of internal management departments such as treasury, risk and finance. The reason is that the crisis highlighted some of the pressure points that exist in traditional approaches and technology solutions. The paper postulates that the pandemic might be the catalyst that speeds up the pre-COVID trend of adopting digital technology in treasury, risk and finance and thereby drive establishment of smart analytical centres. The advantage of smart analytical centres is bank management departments that will be better prepared, not just to handle future crises through intelligent and rapid decisionmaking, but also better equipped to enhance day-to-day operations in business-as-usual times. An implication emphasised in this paper is that to establish smart analytical centres, it is vital to study the applicability and benefits of digital technologies, as well as recognise the importance of putting a well-defined digital transformation plan in place.

Core Banking System Scalability Review

In carrying out the digital transformation, bank has to find their optimal routes to exploit the Open Banking opportunity and minimize or manage any threat. However open Banking models will be making implication on the increasingly hit from the external parties. It will be new and more unpredictable data volumes as third parties request access to the banking system. Bank has to prepare their Banking system on the Enterprise Architecture, and one of the concerns is on the scalability. For the traditional core banking system, the platform of mainframe and other legacy technology could remain the bottleneck to agility and scalability. In this paper, scalability testing and analysis are carried out to verify whether the traditional banking core system running on the power platform can be scalable to support open banking strategy. The results found were that the core banking system could be scalable, but needed a lot of enhancement on the core banking application side, as well as capacity upgrading on the server side.

Organization Development Intervention on Users Acceptance of core Banking System in Myanmar

This action research has three objectives, comprising 1) To diagnose the current acceptance level of users on the core banking system, 2) To implement Organization Development Intervention (ODI), and 3) To examine the impact of pre-ODI and post-ODI in perceived usefulness, perceived ease of use, attitude toward the use, and behavioral intention to use. The research site is MMM Microfinance Company Ltd, Myanmar, involving three groups of participants, which are loan officers, accounting, and IT departments, totaling 30 people. This experimental research employs structured questionnaires and semi-structured interviews for data collection, comprising two phases: pre-ODI and post-ODI Data analysis and treatments include the Pair sample T-test and Pearson Correlation test and the contents analysis of the interview’s passages translated from Myanmar to the English language for coding. The key findings show a significant difference between the pre-ODI and the post-ODI for perceived usefulness, perceived ease of use, attitude toward use, and behavioral intention to use. Recommendations comprise developing the core banking software usage in the focal organization, analyzing demographic factors and the acceptance of technology, and the relation of organizational structure and technology acceptance.

A survey of storm-induced seaward-transport features observed during the 2019 and 2020 hurricane seasons

Hurricanes are known to play a critical role in reshaping coastlines, but often only impacts on the open ocean coast are considered, ignoring seaward-directed forces and responses. The identification of subaerial evidence for storm-induced seaward transport is a critical step towards understanding its impact on coastal resiliency. The visual features, found in the National Oceanic and Atmospheric Administration, National Geodetic Survey Emergency Response Imagery (ERI) collected after recent hurricanes on the U.S. East Atlantic and Gulf of Mexico coasts, include scours and channelized erosion, but also deposition on the shoreface or in the nearshore as deltas and fans of various sizes. We catalog all available ERI and describe recently formed features found on the North Core Banks, North Carolina, after Hurricane Dorian (2019); the Carolina coasts after Hurricane Isaias (2020); the Isles Dernieres, Louisiana, after Hurricane Zeta (2020); and the southwest coast of Louisiana, after Hurricanes Laura and Delta (2020). Hundreds of features were identified over nearly 200 km of coastline with the density of features exceeding 20 per km in some areas. Individual features range in size from 5 m to 500 m in the alongshore, with similar dimensions in the cross-shore direction, including the formation or reactivation of outlets. The extensive occurrence of these storm-induced return-flow and seawardflow morphologic features demonstrates that their role in coastal evolution and resilience may be more prominent than previously thought. Based on these observations we propose clarifying terms for return- and seaward-flow features to distinguish them from more frequently documented landward-flow features and advocate for their inclusion in coastal change hazards classification schemes and coastal evolution morphodynamic models.

Banking system stability: A prerequisite for financing the Sustainable Development Goals in Nigeria

The banking system, which has been the fulcrum of funding for Nigeria’s economy, is plagued by instability in the face of a growing amount of non-performing loans. This is examined in the current milieu of the need for funding the Sustainable Development Goals (SDGs). Using a number of proxies for SDGs 8 and 9, annual time series data covering 1992 to 2019 were used with variables such as GDP per capita, commercial banks’ loans to small-scale enterprises, banking system stability indicators and liquid assets to total assets of banks. The study utilized the Autoregressive Distributed Lag. Findings showed that banking system stability has a significant positive effect on funding the SDGs 8 and 9 beyond the five per cent level of significance within the study period. Non-performing loans remained negative throughout the study. The result suggests that banking stability would enhance funding of the SDGs, and banks would be stable if they finance the SDGs. The policy implication explains the importance of banks actively pursuing opportunities to build sustainable enterprises and developing strategies that will enable their core banking business to be more venture-driven rather than consumer-oriented. In conclusion, there is a need to completely eliminate or reduce the quantum of non-performing loans from the system and establish a regulatory framework that will facilitate its expected role of intermediation in the economy profitably and successfully. AcknowledgmentThe authors would like to appreciate Covenant University for financial support to publish this paper.

Human Resource Outsourcing and Skill Variety of Outsourced and Core Staff: Evidence from the Nigerian Banking Industry

In Nigerian banking industry, Human Resource outsourcing has grown beyond the externalisation of auxiliary activities to include core activities. The consequences of this practice on employee skill variety are rarely discussed in the industry. This study therefore, investigated the skill variety of outsourced and core staff in Nigerian banking industry with evidence from Bank X, Southeastern region. Survey research design was adopted. Bank X was purposively selected due to its reputation for employing outsourced staff in its core banking operations while its branches in Abia, Imo and Enugu States were randomly selected. All 352 workers in the three States comprising 218 outsourced and 134 core staff were enumerated. Mixed methods were used to collect data while descriptive statistics and Chi square at p<0.05 alpha level of significance were used to analyse data. Outsourced staff had less variety in their tasks compared to the core staff. They had less opportunities to acquire additional skills and were required to utilise fewer skills in the course of their work, leading to low skill variety. Their employment status by implication deprived them of human capital investment either privately or corporately. Mode of employment was significantly associated with skill variety.

Mapping a sector's scope transformation and the value of following the evolving core

AbstractsResearch SummaryA surprisingly neglected facet of sector evolution is the evolutionary analysis of firms', and thus a sector's, scope. Defining a sector as a group of firms that can change their scope over time, we study the transformation of U.S. banking firms. We undertake a sectoral, population‐wide study of business‐scope transformation, with particular focus on which segments banks expand into. As financial intermediation evolved, a continuously shifting set of activities became associated with “core banking,” with scope changing and relatedness itself (measured through coincidence) evolving over the banking sector's history. Banks that expand scope while staying close to this evolving core attain net performance benefits. Identification tests show that the benefits of following the evolving core are robust to endogeneity.Managerial SummaryWhen does it pay to diversify into new segments? Our study looks at the transformation of U.S. banking firms from 1992 to 2006. Drawing on the full population of banks, we show that, as financial intermediation evolved, a continuously shifting set of activities became associated with “core banking.” Bank Holding Companies expanded their scope on aggregate, moving in and out of new segments. We find that while entry into new segments is negatively associated with performance improvement, diversification into this evolving core of activities is positively associated with performance improvement. This redefines “related diversification” and its positive value, showing relatedness changes over time, as a function of the evolution of the sector. We find that our results are robust to selection.

A Study of Impact of Cloud Computing and Artificial Intelligence on Banking Services, Profitability and Operational Benefits

Banks have seen a convergence in end-customer banking interactions over the last decade, owing to IT-enabled solutions and services such as Core Banking, Online Banking, Mobile Banking, Wallet, Wallets Kiosk Banking. The evolution of IT in the banking industry supports both banks and their clients. Banks' business models are now centered on delivering consumer joy via IT-enabled solutions and services. Cloud technology allows banks to follow a digital paradigm for providing novel channels, reducing TAT to market new offerings, fulfilling consumer expectations, and adhering to regulatory requirements at a lower cost. In constantly evolving technical paradigms, cloud-based solutions offer a higher value proposition to IT solutions and services. Device administrators can remotely assemble, upload, customize, and execute virtual tools to manage a business solution using cloud infrastructure. Furthermore, cloud IT technology can be scaled up or down at any time based on planned use and specifications without incurring high costs. To assess the impact of cloud computing and artificial intelligence in operational and service advantage Confirmatory factor analysis (CFA) technique is used. The thesis demonstrates how well the measured variables reflect the number of constructs and whether the estimation hypothesis is confirmed or rejected.

Mapping a Sector’s Scope Transformation and the Value of Following the Evolving Core

A surprisingly neglected facet of sector evolution is the evolutionary analysis of firms’, and thus a sector’s, scope. Defining a sector as a group of firms that can change their scope over time, we study the transformation of U.S. banking firms. We undertake a sectoral, population-wide study of business-scope transformation, with particular focus on which segments banks expand into. As financial intermediation evolved, a continuously shifting set of activities became associated with “core banking,” with scope changing and relatedness itself (measured through coincidence) evolving over the banking sector’s history. Banks that expand scope while staying close to this evolving core attain net performance benefits. Identification tests show that the benefits of following the evolving core are robust to endogeneity.

Business Process Improvement (BPI) with Enterprise Resource Planning (ERP) Financial & Control (FICO) and Procurement Modules Using SAP S/4 HANA to Handle Non-Banking Processes in Case Study: PT Bank Mantap

PT Bank Mantap is a private bank that manages pension funds in Indonesia. Currently, banking and non-banking process are handled by the Core Banking application. However, in the non-banking process, it is just limited in making a journal, the other non-banking processes are still done manually, so it takes a long time. This is causes various problem, such as the results of calculation of transaction data are less accurate, the process of making journals takes a long time, information between Finance and Procurement department is not integrated and the purchase request form is not standardized. From those problems, PT Bank Mantap has difficulty analyzing its financial data. Therefore, PT Bank Mantap conducts Business Process Improvement (BPI) by improving existing business processes by implementing Enterprise Resource Planning (ERP) Finance & Controlling (FICO) and Procurement modules using SAP S/4 HANA. It is the latest generation of the business suite from SAP that can help customers to simplify the company business process in an integrated environment. The results of this implementation can solve the problems encountered in which business processes become more effective, integrated, and the calculation results of transaction data become more accurate.

Banking sector competitiveness

Despite core banking, banks also engage in off-balance-sheet (OBS) market activities. In many developed banking industries, OBS activities have grown to be significant during the last two decades. This paper provides rather scarce evidence on the competitiveness among banks for OBS activities and its impact on the degree of banking sector competition in Sri Lanka. Panzar-Ross H statistic approach employing in this study to estimate bank competition used a comprehensive set of bank-level data of the whole commercial banking sector in Sri Lanka covering the period 1996-2018. The first-round analysis of the study uncovers substantial differences among banks concerning the OBS activities. EGLS panel estimation procedure applied in this study provides evidence for a lower level of competitiveness among Sri Lankan banks for OBS activities. More interestingly, the findings further reveal that the degree of competitiveness for OBS activities has a significant positive impact on the overall competitiveness of the banking sector in Sri Lanka. These results suggest banking institutions re-visit their business models with greater emphasis on nonconventional banking activities in enhancing bank-level efficiency and hence positively contributing to the overall competitiveness of the banking sector.

Effects of Core Banking System on Customer Satisfaction in Commercial Bank of Ethiopia

The use of core banking System in the various banks is drastically changing the way banking activities are being organized. Almost all banks in Ethiopia are in the process of transforming their banking systems to the modern technology in which they can offer efficient and globally competent services to their customers and get customers satisfaction in return. This study aimed to assess the effects of core banking system on customer satisfaction in commercial bank of Ethiopia. Stratified and convenient sampling techniques were used in the selection of each respondent from the commercial bank of Ethiopia. Conveniently 400 customers were selected and structured questionnaire and interview was used to collect relevant data for the research. The data gathered through the questionnaire was analyzed by using Statistical Package for Social Science (SPSS). The result of the study indicated that core banking information technology system indeed has a positive significance impact on customer satisfaction of commercial bank of Ethiopia. The Multiple linear regression analysis also showed a positive coefficient and adjusted R 2 was 89.1%, which simply mean that there is significant and strong positive relationship between core banking system and customers’ satisfaction. In general, core banking Information Technology system has positively impacted on customer satisfaction of commercial bank of Ethiopia. Finally, it’s suggested that commercial banks in Ethiopia needs to continue to explore and implement sustainable business linkages and collaborations with core banking system. Keywords: Core banking system, customer satisfaction, Commercial Bank of Ethiopia, electronic service quality, electronic recovery service quality DOI: 10.7176/IKM/11-2-02 Publication date: March 31 st 2021

Can the Plight of the European Banking Structural Reforms be a Blessing in Disguise?

One of the problems perceived to be at the heart of the global financial crisis was an amalgamation of various commercial and investment banking activities under one entity, as well as the interconnectedness of the banking entities with other financial institutions, investment funds, and the shadow banking system. This paper focuses on various measures that aim to structurally separate the banking entities and their core functions from riskier financial activities such as (proprietary) trading or investments in alternative investment funds. Although banking structural reforms in the EU, the UK, and the US have taken different forms, their common denominator is the separation of core banking functions from certain trading or securities market activities. Having reviewed the arguments for and against banking structural reforms and their varieties in major jurisdictions, including the EU, UK, US, France, and Germany, the paper argues that a more nuanced approach to introducing such measures at the EU level is warranted. Given the different market structures across the Atlantic and the lack of conclusive evidence of the beneficial impact of banking structural reforms, the paper concludes that the withdrawal of the banking structural reforms proposal by the European Commission has been a prudent move. It seems that in the absence of concrete evidence, experimenting with structural reforms at the Member-State level would be less costly and would provide for opportunities for learning from smaller experiments that could pave the way for a more optimal approach to banking structural reforms at the European level in the future.

The Islamic Banking Operations and Carroll’s CSR Pyramid. A Systematic Review

The corporate social responsible is not new concept in today’s business life. Which has now turned from literary to more strategic and influences the profits of an organizations. Islamic finance in itself is also considered as more social than conventional one. It is thought that products offered by Islamic banks comply with the concepts of social responsibility. To find out the fact; this study was initiated by making comparison of widely used Carroll’s CSR pyramid with the basics of Islamic finance. For the purpose, readily available literature was reviewed and concluded that Islamic banking products are in parallel with all five components of Carroll’s CSR pyramid. Islamic banks are acting as development institutes rather than loan houses by eliminating interest from the core banking activities. The concepts of Islamic finance are aimed at equal distribution of wealth and equal opportunities available to poor or suppressed sectors of economy for more productivity; hence resulting in foster economic growth. Like conventional banks (those follow Basel committee rules), Islamic banks also follow rules/guidelines formulated by AAOIFI and IFSB to ensure transparency, trustworthiness and sense of responsibility. In overall operations/progress, Islamic banks are acting as good corporate citizen.

How Does Exogenous Shock Change the Structure of Interbank Network?: Evidence from China under COVID-19

This paper utilizes China’s interbank deposit system under COVID-19 to examine how interbank network changes with considerable uncertainty surrounding exogenous shock. We investigate the interbank network in China by specifying the core-periphery pattern to disentangle the network development and the pandemic onset. In order to model the interbank deposit system, maximum entropy and partition-based approach are employed to estimate the bilateral exposures for banks and identify the network structure, respectively. We find that the four largest global systemically important banks (G-SIBs) in the world play a critical role in bearing interbank burden under this crucial period by increasing interbank assets and decreasing interbank liability. By comparing the situations before and after the outbreak of the pandemic in stress-testing, the empirical evidence shows that the number of core banks and capital of banks is declined in 2020Q2; however, the topological structure of the network is increasingly similar to a typical core-periphery pattern, and the changed interbank network can better absorb the loss and interrupt the contagion of systemic risk.