A Digital Twin for the Win: Solving the Core Modernization Conundrum
Financial institutions today find themselves at a crossroads. On one side stands the dependable but inflexible architecture of legacy banking systems. On the other, a dynamic ecosystem of cloud-native platforms, fintech integrations, and instant payment capabilities. Bridging this divide is no longer optional; it’s a necessity for banks and credit unions striving to remain competitive while ensuring operational stability.
Core banking systems remain vital for their reliability and foundational role in daily operations. Yet, their design, rooted in decades-old technology, often hampers the pace of innovation. Banks face mounting pressure to offer the seamless, real-time digital experiences that customers now expect. Fortunately, there’s a way forward that doesn’t require discarding the core systems. It’s called the “digital twin” approach, a game-changing solution for modernizing without disruption.
What is a Digital Twin?
Think of a digital twin as more than a backup or replica. It’s an enabler—a real-time, cloud-based counterpart to your existing core that unlocks agility and innovation. By abstracting key critical core functionalities into a parallel digital environment, banks gain the freedom to integrate with modern platforms, launch new services, and scale with minimal disruption to legacy operations.
Digital twins have already proven transformative in industries like manufacturing, where they simulate operations to optimize performance without halting production. In banking, this concept serves a similar purpose. A digital twin acts as a high-performance ledger, authorizing transactions, updating balances, and maintaining real-time operability—whether the bank’s core is up or down. It facilitates seamless interaction with APIs and payment rails, enabling the agility needed to thrive in today’s financial ecosystem.
Accelerating Innovation in Instant Payments
The adoption of instant payments has skyrocketed globally, and the U.S. is following suit with platforms like FedNow. Yet, while the rails for instant payments are in place, product innovation is left to individual financial institutions. This is where a digital twin becomes invaluable.
Take the example of banks that want to develop industry-specific solutions, such as portals for B2B instant payments or advanced APIs for fintech collaborations. With a digital twin, these innovations can be tested, refined, and deployed without impacting the legacy core. Imagine offering your customers seamless integrations for open banking, or leveraging structured, real-time data for AI-powered fraud detection or dynamic credit scoring. The digital twin creates a sandbox for creativity while ensuring the stability your core system provides.
Practical Pathways to Modernization
Transitioning away from a legacy core is often seen as a herculean task, with risks and costs that make even the boldest CIOs hesitate. However, the digital twin offers a pragmatic alternative—a bridge between the old and the new. It allows financial institutions to innovate at the speed of customer expectations without the upheaval of a full core replacement.
Instead of asking, “Can our core support this product?” financial leaders can shift their perspective to, “Will our customers love and use this product?” The ability to innovate freely, without being shackled by technological limitations, is the hallmark of a successful modernization strategy.
Building a Stable, Agile Future
The dual benefits of a digital twin—maintaining the stability of the core while enabling real-time, customer-centric innovation—make it a compelling solution for financial institutions of all sizes. It’s a path to modernization that doesn’t sacrifice reliability, but instead enhances it by offloading operational demands.
At Matera, we’ve seen firsthand how transformative this approach can be. From our work with Pix in Brazil to enabling U.S. banks with our Digital Twin solutions, the lesson is clear: modernization is not just about technology; it’s about meeting your customers where they are today—and where they’ll be tomorrow.
By embracing the digital twin approach, financial institutions can move confidently into a future where innovation is not a trade-off but a guarantee.
About Author:
Carlos Netto is CEO of Matera, a trusted technology provider of core banking, instant payment, and QR code payment solutions for financial institutions. Two of the top three global banks, three of the top 10 U.S. banks and one-third of all banks in Brazil trust Matera. To learn more, visit: www.matera.com.