Eastern Europe Core Banking Market Research Report: Forecast (2023-2028)

Market Definition

Core banking can be defined as a back-end system that processes banking transactions across the various branches of a bank. The system includes deposit, loan, and credit processing. The essential core banking services include floating new accounts, servicing loans, calculating interest, processing deposits and withdrawals, and customer relationship management activities.

Market Insights

The Eastern Europe Core Banking Market is projected to grow at a CAGR of around 16.5% during the forecast period, i.e., 2023-28. Eastern Europe banking and financial institutions have increased the adoption of the core banking system owing to enhancing agility and increasing operational flexibility. The core banking structure in Eastern Europe no longer focuses on competing on their ability to provide the functional needs of the bank. Instead, it looks to differentiate based on the integration strength and flexibility of the underlying architecture.

Therefore, the changing functionality in a commodity would increase the market growth of Eastern Europe core banking through 2028. Moreover, the core banking system helps reduce costs, simplifies the IT landscape, and ensures the shredding of operational costs. Besides, the core banking system has also pushed geographical boundaries by centralizing and integrating global operations.

Moreover, in 2021, the banking sector in Bulgaria showed a sign of recovery from the COVID-19 pandemic. According to The European Banking Federation, the substantially lower impairment expenses and accrued provisions, the accelerated lending and business activity, the low-interest rates, and the management of the credit portfolio quality positively impacted the financial outcome of the banking sector. What has further influenced the industry is the established close cooperation between the BNB & the ECB, incorporation of the Bulgarian lev in the exchange rate mechanism (ERM II), Bulgaria’s commitment to adopt the single European currency.

Further, amid a portfolio of disparate point solutions within the core banking ecosystem, many banks have planned to simplify or simplified their IT landscapes through a new core banking system. Banks and Financial Institutions have undertaken core overhaul to support evolving digital banking capabilities. The state owned regional banks in the region are suffering from the digital gap due to their outdated and internally developed systems. These institutions are increasingly leapfrogging to the latest digital technology, thereby upgrading existing CBS.

Market Dynamics

Key Driver:

• Expanding Adoption of Block Chain Technology

The major banks in Eastern Europe are trying to enhance the end-to-end customer experience by gradually adopting advanced technologies such as Block chain to offer digital products in the market. These strategic initiatives are estimated to boost the core banking solutions market growth. Moreover, the increasing demand for the upgradation and replacement of the legacy system is also influencing the core banking industry's ascension.

• Augmenting Cloud Deployment Demand by Financial Institutions

Banks and financial institutions across Eastern Europe are digitalizing their core banking with cloud technology to improve service and efficiency. Since the core banking platform is critical to a bank’s IT infrastructure, tech giants are constantly developing innovative software to enable the hassle-free transition of core banking to the cloud. This software plays an essential role in modernizing the core banking platform and aligning it with the current needs of the banks and customers.

Growth Opportunity: Introducing Digital Banking or Supporting Digital Banking Capabilities

Curating digital banking strategy has been a high priority for banks to capitalize new market opportunities and attract substantial customers. The expansion of banks in digital payments and real-time payments is driving the adoption of core banking software, which, in turn, increases the demand for integration, training, etc.

The offshoots of digitalization are emerging in countries like Hungary, Bulgaria, Poland, and others, and banks are gradually increasing their investments in IT upgrades. As a result, Electronic payments increased dynamically in 2019, accounting for 1.4 billion payment transactions.

Key Trend: Expansion of customer base (retail and businesses) across Eastern Europe

Expanding retail customer base and SMEs and MSMEs by introducing tailor-made offerings induce the need for new CBS. In 2021, Komer?ní Banka and the Czech Republic selected Temenos Transact to modernize its retail and corporate banking by simplifying and consolidating the IT landscape and delivering leading-edge products to the market faster. Temenos banking platform provides an agile and flexible approach that supports the cost-income rate's profitable growth. In the same year, when KBC Bank NV acquired the Raiffeisen bank Bulgaria, the Bulgarian Banking Sector went through a consolidation process.

Market Segmentation

Based on Component,

• Service
  • Managed Service
  • Professional Service
• Software

Among others, Software captured the highest market share in the historical period. It is primarily because core banking software enables banks to analyze the data and create strategies to capitalize banks while generating opportunities for the customers and, subsequently, the market. In addition, it also drives down operational costs while ensuring backup, up-gradation of data, and maintaining flexibility in operations. Thus, software adoption in the core banking system is projected to expand and positively influence the market share of Eastern Europe between 2023-28.

Based on Deployment,

• On-Premise
• Cloud

Of them all, Cloud Segment is projected to grow at the highest CAGR during 2023-28. The market shares of the cloud segment are escalating owing to factors such as shredding operational cost, easy installation, accessibility, and operational flexibility. Also, the migration from traditional banking to cloud banking is increasing at a very sharp rate to provide a better banking experience to clients, increased operational flexibility, and optimization of cross-border operations. However, due to the cost barrier, the financial institutions in the region, particularly in Hungary, are more inclined to COTS packages, primarily cloud-based. Therefore, cloud deployment is expanding in Eastern Europe, accelerating market growth in the coming years.

Regional Projection

Geographically, the Eastern Europe Core Banking Market expands across:

• Hungary
• Romania
• Poland
• Czech Republic
• Serbia
• Bulgaria
• Others

On the geographical front, Hungary's core banking market majorly supports the banking and financial system of Eastern Europe owing to the various factors encouraging market growth. The changing banking application of larger banks focuses on renovating their core banking components, such as cloud-native infrastructure providing comprehensive capabilities that would create value for the bank. In addition, the emerging need to reduce operational costs and increase flexibility and accessibility for clients through cloud deployment is gaining ground in the country.

During 2020, the coronavirus pandemic massively impacted the expansion of the banking system, reducing the transaction volume. However, the investment in replacing legacy platforms is expected to soar as the digital transaction registered a marginal increase in 2020. Therefore, the adoption of core banking for better integration of payment. Additionally, the increasing upgrades required in core banking software to facilitate digital solutions and improve overall CX have boosted the services' market revenue, including training, upgradation, integration, and consultation, among others.

• The National Bank of Hungary has implemented its domestic instant payment solution and launched it on the 2 March 2020 with the obligatory participation of the GIRO Zrt. and 34 domestic payment services providers.

Regulatory Landscape in the Eastern Europe Core Banking Market

UNEP FI and the European Banking Federation (EBF) have launched a unique report named “Testing the application of the EU Taxonomy to core banking products: High-level recommendations." It aims to assess the extent to which European Union could apply the Taxonomy on Sustainable Activities to core banking products for labeling or disclosure purposes. The analysis comprises concerting efforts of 26 major banks, seven banking associations, and five observing organizations to test, pilot, and assess the complexities involved, intended for investors, to core banking products.

Recent Developments in the Eastern Europe Core Banking Market

• In November 2022, Finastra announced the launch of Finastra Digital Banking Insights, a fusion Digital Banking app that harnesses data and analytics to provide financial institutions with actionable insights into account holder behavior.
• In March 2022, Sopra Steria, a European tech leader in digital services, consulting, and software development, and IBM announced the launch of new AI services, the Sopra Steria Alive Intelligence (SSAI) solution - hosted, operated and secured in France for companies and public bodies operating across Europe.

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