According to McKinsey, approximately 70% of banks globally are pursuing core modernization initiatives as a rapidly evolving banking landscape makes new cores a necessity to delivering competitive customer experiences and cost reductions.

A few years ago an initial wave of cloud-enabled core banking disrupters emerged on the European scene, typically going after one of two approaches:

1. Powerful toolkits like Thought Machine provided customizable platforms that were highly extensible and able to serve large and complex tier 1 banking use cases. Unfortunately, these solutions have also proved complex and resource-intensive for smaller market participants to implement.
2. Productized solutions such as Mambu prioritized standardisation, speed-to-market and ease of deployment, making them ideal for fintechs, tier 5 banks and bank-owned neo-bank brands. However, they tended to also remain monolithic architectures which limited flexibility, the ability to deploy modularly, and to easily configure.

As a result, there remains a need for tier 2-5 banks that have struggled for choices when looking for core technology that is sufficiently flexible, functionally rich and cost-effective to maintain. We are now seeing a new generation of core banking platforms emerging to fill this gap.

These providers are offering:

• Cloud-based and hybrid deployment: offering scalability, flexibility and security
• Microservices and modular architectures: allowing banks to pursue piecemeal progressive modernization
• Event-driven with high-throughput capability: delivering performance at scale.
• Out of the box functionality with an extensible architecture: providing the flexibility for customization and configuration
• Ecosystem-enabled: enabling collaboration with fintechs and third-party developers.

There are manifold challenges for providers in the space, not least the complexity of managing implementations, partner ecosystems, long sales cycles, and localisation requirements. New platforms must also gain trust and credibility to thrive in a mission-critical software category.

But the ongoing spend on modernisation by banks is vast for players that get this right.

At Dawn, we’re proud to have backed FlowX, a platform that sits adjacent to the core banking market that allows banks to achieve progressive modernisation between core systems over time. Read more about our investment here.