How CEOs can leverage the augmented core to power strategic growth

As the renowned futurist, Buckminster Fuller, once said, "You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete." In the world of retail banking, this wisdom is particularly relevant today. Traditional banking models that have evolved slowly are now facing unprecedented challenges from technological advancements, evolving customer expectations, and competitive pressures. The solution? Reimagine Banking – build a new model that makes the existing model obsolete – before someone does it to you.

Imagine walking into a bank – whether on a high street or in an online, virtual world. The walls come alive with a wealth of information curated specifically for this person at this time. The data seems alive and aware of the context. Not only are transactions processed in real-time, but often they seem to occur before the conscious thought occurs – prescient almost. Agentic AI leverages vast data stores and computing power to make banking simple, intuitive, and highly personal. This is not a scene from a futuristic movie but the reality that banks are striving to create. The integration of advanced technologies like artificial intelligence, machine learning, and augmented reality is transforming core banking systems into intelligent, proactive, and customer-centric platforms. This is where the Augmented Core concept comes into its own. Where it becomes a strategic differentiator.

Today: The Challenges of Legacy Systems

Before a bank starts considering upgrading a system, it needs to think through how the transformation will affect its strategy. Core banking transformation is not just about technology; it's also about strategic positioning. Banks must consider how they can expand into new market segments, leverage mergers and acquisitions to enhance their capabilities, and manage staff implications effectively during this transformation.

Traditional core banking systems are often based on legacy architectures that lack the agility and scalability needed for modern banking innovations. These systems are typically rigid, making it difficult to integrate new technologies or respond quickly to changing market conditions. The costs of maintaining these systems are high, consuming a significant portion of IT budgets and leaving little room for innovation. For instance, the Net Interest Income in the Banking market is projected to reach $8.94 trillion in 2025, highlighting the significant financial stakes involved. Gaining access to people with the right skills can be extremely expensive, if they are even available. Something has to change.

However, the need for change is not just driven by technological limitations. Customer expectations have evolved dramatically. Today's consumers demand personalized services, seamless omnichannel experiences, and real-time financial insights. In fact, 78% of adults in the U.S. prefer to bank via a mobile app or website, underscoring the shift towards digital banking. They expect banks to understand their financial behaviors and offer tailored advice and products, but without infringing too much on their privacy. They want banks to be open and connected to their ecosystem but also secure and available. They demand the latest innovations at the lowest prices – ideally free. Conflicting expectations abound. Traditional core systems struggle to meet these demands, making an augmented approach essential for banks to remain competitive.

Moreover, the competitive landscape is becoming increasingly complex. Fintechs and neo-banks are driving innovation and competition, forcing traditional banks to modernize their core systems to stay relevant. The fintech market is projected to be worth $394.88 billion in 2025 and reach $1,126.64 billion by 2032. This is not just about technology; it's also about strategic positioning. Banks must consider how they can expand into new market segments, leverage mergers and acquisitions to enhance their capabilities, and manage staff implications effectively during this transformation.

Near Term: Implementing "Augmented Core & Data"

The "Augmented Core & Data" approach involves enhancing traditional core banking systems with advanced technologies and data insights. This integration allows banks to leverage AI for predictive analytics, automate processes, and provide personalized customer experiences. For instance, AI can analyze vast amounts of customer data to offer tailored financial products and services, improving customer satisfaction and loyalty. Banks using AI for customer service saw a 20% increase in customer satisfaction and a 15% reduction in operational costs. As Agentic AI takes hold, banks will need to quickly adapt, lest they lose to fleeter-footed competitors.

In the near term, banks must focus on strategic planning, infrastructure upgrades, and talent acquisition. Cloud technology is crucial for providing scalable and secure infrastructure, while AI and machine learning are essential for deriving actionable insights from customer and transaction data. Currently, over 90% of banks had adopted cloud technology to some extent, with 60% using it for core banking functions. Banks like Westpac and J.P. Morgan Asset Management are already pioneering this approach by using augmented reality for data visualization and customer engagement.

From a business perspective, this transformation also involves strategic considerations such as mergers and acquisitions. Banks can leverage acquisitions to gain access to new technologies and talent, accelerating their digital transformation journey. For example, acquiring a fintech company can provide banks with innovative solutions and agile development capabilities, enabling them to expand into new market segments more effectively. As experience becomes a competitive differentiator, more and more attention must be paid to seemingly mundane issues such as integrating databases and systems in merger situations. Delivering an inconsistent, or worse, a bad experience can lead to escalating reputational impacts.

Staff implications are also critical. As banks adopt more automated processes, they must invest in retraining employees to focus on higher-value tasks that require human judgment and empathy. This not only enhances operational efficiency but also improves customer service by ensuring that staff are equipped to handle complex queries and provide personalized advice.

Future: The Evolution of Banking

Looking ahead, the banking landscape will continue to evolve rapidly. Emerging technologies like augmented reality will play a significant role in enhancing customer experiences and operational efficiency. For example, AR can be used to create virtual bank branches, streamline account management, and provide immersive financial education. AR-powered banking applications can transform how customers interact with financial services, making them more accessible and user-friendly. The pace of change of technology is accelerating so the ‘next killer app’ is out there somewhere, and if history has taught us anything, when it goes viral it will go from curiosity to ubiquity overnight.

Moreover, the future of banking will be characterized by increased reliance on data-driven insights. Banks will need to integrate AI and machine learning more deeply into their core systems to analyze customer behavior, predict financial trends, and manage risks effectively. The rise of GenAI has reinforced the point that there is virtually unlimited potential in data. Imagine what the future holds when easy access to global data pools, supported by massive computing power and self-learning AI models is applied to everyday banking. This will not only improve operational efficiency but also enable banks to innovate and differentiate themselves in a crowded market.

From a strategic perspective, banks must consider how they can leverage these augmented core systems to expand into new markets or segments. For instance, by integrating with fintechs, banks can offer services tailored to specific demographics or industries, enhancing their market reach and competitiveness. But of course, this depends on having the right technology – the Augmented Core – deployed in the first place.

Regulatory Compliance and Risk Management

Regulatory compliance is another critical aspect of core banking transformation. Modern core banking solutions streamline compliance by automating tasks like document collection, verification, and risk assessments for KYC protocols. This speeds up the onboarding of new customers and reduces potential financial risks. However, as banks augment their core systems, they must ensure that these new technologies align with evolving regulatory requirements.

In a complex regulatory landscape, banks must implement solutions that offer centralized compliance engines to ensure error-free adherence across their ecosystem. This involves not just technological upgrades but also strategic planning to manage compliance risks effectively.

Conclusion

The "Augmented Core & Data" approach is not just a technological upgrade; it's a strategic transformation that positions banks for success in a rapidly changing financial landscape. It is a way for visionary banking leaders to live up to Peter Drucker’s suggestion that ‘the best way to predict the future is to create it’. By embracing this new model, banks can create a seamless, intelligent, and proactive financial ecosystem that meets the evolving needs of customers and stays ahead of the competition.

In this era of augmented banking, the future is not just anticipated but actively shaped. Banks that seize this opportunity will not only survive but thrive, offering personalized services, driving innovation, and redefining the role of banking in our lives. The time to build this new model is now, as the existing reality of traditional core banking systems is rapidly becoming obsolete.

As CEOs navigate this transformation, they must consider not just the technological aspects but also the broader business implications. This includes strategic growth through mergers and acquisitions, expansion into new market segments, and effective staff management. By integrating these elements, banks can ensure that their augmented core systems are not just technologically advanced but also strategically aligned with their long-term goals.