Why African Finance Should Go Coreless

TL;DR: African banks spend millions in foreign currency on outdated core systems, which are still prone to costly migrations (if they choose to change providers) and service disruptions (as seen with recent GTBank and Zenith Bank cases). A radical shift to "coreless banking"—a flexible, API-driven approach where banking functions are broken into independent microservices—could free Africa's financial sector from this costly technological dependency. This architectural shift would reduce foreign exchange exposure, lower operating costs, and enable faster innovation while maintaining regulatory compliance and system stability. For Nigeria specifically, where banks collectively spend ₦82 billion annually on core banking software, going coreless represents both a technological and economic imperative. XYB by Monese, Engine by Starling Bank (one of the UK's fastest-growing and most successful digital banks) and BIAN are already pioneering this change in Europe. We in Africa can too!

In October 2024, Guaranty Trust Bank (GTBank), one of Nigeria's largest banks, had 32.8 million retail customers. It became the centre of attention for all the wrong reasons. The bank had recently migrated to Infosys's Finacle core banking system, but the transition was far from smooth. Customers faced failed transactions, inaccurate account balances, and repeated downtimes, all despite the bank’s extensive planning, which included flying in engineers from India and investing ₦25 billion or $15 million (about 30% of their annual tech budget) on the new system.

This wasn’t a one-off issue. Similar challenges surfaced at Sterling Bank and Zenith Bank during recent migrations, echoing the struggles banks face globally when updating their systems. The Royal Bank of Scotland, for example, faced a £56 million fine in 2012 after a system upgrade left over six million customers unable to access their accounts. These incidents expose a fundamental problem: the core banking systems that many financial institutions rely on are outdated and difficult to modernise.

Core Banking Systems: The Digital Heart of Banks

Core banking systems are the backbone of any bank’s operations. They manage everything from customer accounts to transaction records and operational workflows. When these systems go down, it’s not just the bank that suffers—customers feel it instantly, from ATM downtimes to failed mobile transfers. Unfortunately, most core banking systems today still rely on technology from the early 2000s, with limited ability to meet the demands of a fast-evolving digital world.

In Nigeria, the problem is compounded by an alarming overreliance on foreign core banking providers. Foreign software giants dominate, with Infosys, Oracle, and Temenos all supplying systems for major Nigerian banks.

Current Core Banking Landscape in Nigeria:

While these platforms have supported the industry for years, they come with several challenges:

1. Financial Strain: Licensing fees for these foreign systems are dollar-denominated, putting pressure on banks amid currency fluctuations. For instance, GTBank’s recent Finacle switch reportedly cost ₦25 billion.

2. Operational Challenges: These systems aren’t designed with African banking nuances in mind, leading to compatibility issues, slower response times, and complex integrations. Features are usually made based on request and aren't very dynamic.

3. Migration Risks: As evidenced by GTBank and others, transitioning a “core” system from one to another is fraught with technical hurdles and customer-impact glitches.

The Legacy Burden and the Need for Innovation

Legacy core systems are notoriously resistant to change. Built on outdated architectures, they are challenging to modify, costly to maintain, and incapable of meeting the demands of modern digital banking. In fact, maintaining these systems can consume up to 80% of a bank’s IT budget, leaving little room for the kind of innovation that today’s market requires.

One of the biggest hurdles banks face with these legacy systems is the lack of control over customisation. Any time a bank needs a new feature or modification, it must request the change from the core banking provider. This dependency creates bottlenecks, as banks can’t simply implement changes in-house and must instead wait for the provider to build or adapt the functionality—an often slow and expensive process.

To circumvent these limitations, some banks have built middleware layers on top of their core systems. While this middleware enables banks to create advanced features and applications without relying directly on the core provider for every change, it’s not a perfect solution. The middleware still depends on the underlying core system, which means any issues or limitations within the core affect the entire operation.

Meanwhile, digital challengers like fintechs are raising the bar by introducing new features in weeks, compared to the months-long cycles that legacy-bound banks must endure. This puts enormous pressure on traditional banks to find flexible, cost-effective solutions that allow them to innovate and stay competitive. It’s this urgency that is driving many to explore alternatives, such as coreless banking architectures that offer the flexibility and control needed to thrive in a digital world.

Enter Coreless Banking

Coreless banking represents a groundbreaking shift from traditional monolithic core systems. Instead of one large, all-encompassing system, coreless banking breaks banking functions into a series of interconnected microservices that communicate through APIs (application programming interfaces). Think of it as replacing a massive, rigid machine with a network of specialised, flexible components.

Key benefits of a coreless approach include:

• Microservices Architecture: Each banking function—like account management, transaction processing, and customer data—operates as an independent service.
• API-First Design: APIs enable seamless integration between services, making it easier to add new features or work with third-party providers.
• Cloud-Native Infrastructure: Coreless systems are built for the cloud, making them scalable, resilient, and geographically distributed.

Why Coreless Banking Makes Sense for African Banks and OFIs

Nigeria’s dependency on foreign core banking systems presents both a vulnerability and a unique opportunity. Building local solutions may be complex and require investment, but the potential benefits for banks and the broader economy far outweigh these challenges.

1. Financial Benefits: By developing local systems with naira-denominated pricing, banks can significantly reduce their foreign exchange exposure and better control costs. This reduction in dependency on foreign providers also means fewer capital outflows, leading to a healthier local economy.
2. Technical Flexibility: One of the most compelling advantages of coreless banking is that banks don’t need to build an entire monolithic suite from scratch. Instead, they can adopt a more modular approach, focusing on specific areas that address the needs of their customers or solve their unique challenges. This targeted strategy enables banks to bring in the right talent for the right problems, allowing them to innovate in stages rather than undergoing costly wholesale system changes.
3. Empowering Innovation: Adopting a coreless model also opens the door for banks to build, iterate, and refine these systems internally, without depending on external vendors for every change. This flexibility not only enhances their responsiveness to customer needs and regulatory changes but also positions banks as potential providers of coreless systems to other financial institutions, turning a once-costly dependency into a valuable business model. We see companies like Starling Bank (UK) already adopting this with their coreless product called XYB.

In the African context, where market needs are unique and demand for digital services is growing rapidly, coreless banking presents a strategic path forward. It enables banks to take control of their technology, innovate more rapidly, and potentially even reshape the financial landscape by providing scalable, adaptable solutions to other banks across the region.

Coreless Architecture: A Blueprint for the Future

Transitioning to a coreless structure requires a strategic approach. Banks can begin with a detailed pre-migration assessment, identifying dependencies, assessing risks, and ensuring that stakeholders are aligned. An incremental migration—moving functions in phases rather than all at once—can reduce disruption. Post-migration support is also critical, with active monitoring and continuous optimisation to keep systems running smoothly.

The Path Forward

For African banks, the transition to coreless banking may not just be about modernising technology; it’s about positioning themselves to thrive in a digital future. By embracing coreless architecture, banks can finally free themselves from the constraints of ageing technology and costly foreign dependencies. With proper planning, African banks can leapfrog legacy systems, becoming not only more competitive but also more responsive to the needs of their customers.

Conclusion

African banking stands at a pivotal moment. Coreless banking offers an opportunity for transformation—empowering institutions to break free from costly foreign dependencies, reduce dollar-denominated licensing fees, and finally build systems tailored to their market. The challenges faced by GTBank and others show that the traditional path is increasingly unsustainable.

For Nigerian banks, in particular, the shift to coreless architecture isn’t just a technological upgrade; it’s a strategic imperative. The line between fintechs and traditional banks is blurring, and survival in this dynamic market will demand agility, innovation, and control over technology. By embracing coreless solutions built with local expertise, African banks can redefine themselves as resilient, customer-focused, and future-ready institutions—capable of competing not just locally but on a global scale.