If anyone ever told you that the only way to modernize your core was to replace your system, they were greatly mistaken. While we certainly advocate for onboarding a modern core platform, it’s not all or nothing.
In this post, we share three different strategies a bank should consider when thinking about modernizing their core. From taking steps towards a full core transformation to making a few upgrades to your existing system to simply keeping everything as is, we define each strategy and map out their advantages and their disadvantages. By the end of this article, you should have a better understanding of your options and know who to contact if you need help selecting the right one for your bank.
Let’s begin.
Core Strategies to Consider
1. Full Core Transformation
A full core transformation requires the replacement of the existing core platform with a new, modern core banking system. Banks will pursue this approach when they urgently need to replace their core system because of its obsolescence, regulatory requirements, barriers to the bank's growth plans, or because their core provider is sunsetting the system.
The advantage – While a modern core transformation requires a higher initial investment and a more diligent core conversion and onboarding process, there are several benefits that justify the upfront hard and soft costs. These include labor savings through automation of manual activities; operational savings through gains in branch efficiency; reduced IT maintenance by moving to a common platform; and increased ROI due to faster rollout of products.
The disadvantage – Timeline and cost can certainly be factors that dissuade bankers from taking on a full core transformation. A full transformation takes some work, often involving large data migrations as well as integration of multiple processes and systems. To have a successful transformation, it is critical to work with a core provider who is transparent about all costs and delivery in the contract. Moreover, there needs to be an assessment of all existing technologies and an implementation strategy and plan to address expectations and reduce the risk of operational disruptions.
2. Core Intervention
For banks that desire modernizing their core, but believe it is viable for the next five to ten years can consider a core intervention. As opposed to replacing the core system, the bank keeps the existing system and can choose to upgrade it, make updates to the database or codebase, enhance existing products, or add new products. Additionally, the bank could work with their core provider to build a separate core system that serves as a sandbox for testing new products and capabilities.
The advantage – Banks are able to modernize their core piece by piece without experiencing the challenges and risks that often come with a full core transformation, e.g., the challenges with data migration and employee training and the risk for potential disruptions to the business.
The disadvantage – While a core intervention may seem to buy your bank some time and money up front, if your existing system isn’t flexible to add on modern applications or tack on significant upgrades, you might as well try to place a square peg in a round hole. Trying to make older systems work with newer frameworks may not be as seamless as one thinks, which can extend the delivery time and, in some cases, abruptly pull in new resources or partnerships that result in added costs that could amount to nearly the equivalent of a new platform. We’ve also heard that in some instances the end product isn’t as functional as it was intended and, therefore, has a low adoption rate or simply grows obsolete.
3. Keep the Core as Is
There is always an option to make no changes to the current core system. This could be for many reasons: 1.) The bank's decision makers believe their core is meeting their expectations and staff are comfortable using it. 2.) The bank may not have the resources currently to upgrade or make a full transformation. 3.) The last conversion was a negative experience because it was expensive, had a long delivery time, and/or caused multiple disruptions to operations.
The advantage – Everything stays the same and the bank doesn’t have to worry about investing time or money into a new implementation. Banks with this approach can take their time exploring modern core products and services and can operate proactively, instead of reactively.
The disadvantage – If the bank has a legacy system, it may not have options for modernization, which could include keeping up with security and data privacy compliance standards, causing the bank to increase its risk profile. Not only that, but systems that are decades-old face expiring maintenance and support contracts. Banks in this situation often struggle to find resources that have knowledge in older technology languages and mainframe systems.
Determining the Best Strategy for Your Bank
There are a few factors to consider that can help determine your bank’s best core strategy. These include the taking note of the size of your bank, the sustainability of the existing platform, the level of risk, the urgency to transform, the need to innovate product and service offerings, and the complexity of your system’s data management. In ranking the above factors, you may find that one strategy is far more beneficial over the others. And if you are uncertain on which road to take, have a discussion with your existing core provider about your needs and see if they can offer up some helpful options.
The IBT Apps Adaptable Approach
Modern core banking technology is our bread and butter, so it should be of no surprise that we recommend starting from a clean slate and undergoing a full core transformation. However, we also recognize that that option may not make sense for every bank and why try to fix something if it’s not broken? That’s why we lead with our partnership first, have discussions to understand your needs, and then provide a solution that will work best for your business.
- We meet you where you are, so if you’re not ready for a full core transformation, we can start on a smaller scale, one application at a time.
- We respect your existing contract and keep new products affordable, so you can invest in modern technology, while staying competitive.
- We’re responsive and supportive if you have product requests, questions about our products, or are ready to make a move to a new system.
