Future-Proof Your Community Bank's Core

A core conversion is a significant undertaking, which is one reason why many community banks sign on the dotted line at each renewal. But the right core configuration and partnership are critical if a bank is going to meet not only its needs now but well into the future—which means less disruption down the line.

How can community banks determine which core will give them what they need in the future? What considerations come into play when a community bank is deciding whether to work with their existing provider to add on services or move to a new provider altogether?

“If you’re a growing bank, or if you anticipate future growth or market expansion, looking ahead is critically important.”

—Anne Balcer, ICBA

“If you’re a growing bank, or if you anticipate future growth or market expansion, looking ahead is critically important,” says Anne Balcer, senior executive vice president, chief of government relations and public policy for ICBA. Before joining ICBA, Balcer served as legal counsel at Forbright Bank, formerly Congressional Bank. 

“I started at a $240 million-asset bank that grew to over $6 billion,” she says. As the bank grew, the core reached the limits of its capabilities, necessitating the move to a new core provider.

Brad Bolton, immediate past chair of ICBA and president and CEO of $190 million-asset Community Spirit Bank in Red Bay, Ala., moved to a new core provider for different reasons.

“We had been on the same core since 1982, and it took so many ancillary products to make it run,” Bolton says. “You had not only the core but also a separate vendor for internet banking and another for financial management, debit and credit cards. For the bank’s future, we needed to have something under one umbrella to serve our customers most effectively.”

Reasons to explore a new core provider

These are just two reasons for moving to a new core provider. You also might be dissatisfied with the level of service and response time from an existing provider. There might have been a change in your bank’s strategy, such as an expansion of your digital banking offerings. Or your community bank could need easier maintenance, cloud storage, greater ease in adding new services and products, and other upgrades. For all these reasons and more, it may be time to change providers.

But before switching to a new provider altogether, ask yourself whether you can get the functionality you need with an upgrade, advises Lance Noggle, senior vice president of operations and senior regulatory counsel for ICBA. 

It may be worth doing if an upgrade will be significantly cheaper, less disruptive and hold you over for another five years. But you should also consider the age of your existing core and weigh the pros and cons of reconfiguring your current system against moving to a new provider. 

Whichever route you choose, putting a plan in place that includes the right configuration and partnerships is essential for success.

Identifying the right core starts with a plan

Future-proofing your core begins with the strategic planning process. Identify your top priorities for growth, consider industry trends and developments and determine how to differentiate yourself from the competition. Ask questions like:

• How will you maximize the opportunities inherent in real-time payments?

• What gaps do you see in your current product offerings?

• Where do you want to improve efficiencies to meet regulatory requirements?

• What do you need in place to better manage fraud and control risk?

However, even the best-laid plans don’t always work out. How can you prepare for the unexpected? You can’t. But your best solution may be partnering with a forward-looking core provider with a proven track record of success.

“It is incumbent upon banks to enable a core ecosystem that can adapt and take advantage of opportunities as fintech evolves in the coming years.”

–Fiaz Sindhu, FIS Global

Fiaz Sindhu, senior vice president of community banking for FIS Global, explains why the right core configuration is critical to meeting the evolving needs of banking and customers.

“We have seen more change in banking and fintech in the last five years than we’ve seen over the last 20 years combined,” says Sindhu. “Given the pace of change, it is incumbent upon banks to enable a core ecosystem that can adapt and take advantage of opportunities as fintech evolves in the coming years.”

Accounting for ‘unknown unknowns’ is a given in the world of technology. However, having worked with a number of pioneering banks over the years, Sindhu says that the common denominators of these banks were that their core ecosystems had advanced application programming interface (API) and data integration capabilities while supporting a broad spectrum of banking deposit and product types.

“It’s not just the core configuration that matters; I think that the right partner is critical,” says Stacey Zengel, Jack Henry’s senior vice president and president of bank solutions. “A business partner with a modern core platform that helps customers stay relevant and up to speed with technology and the competition they face is extremely critical.”

“From a partner viewpoint, community banks should look for someone that is a true partner, not a vendor, someone who will listen to them and understand where they want to go,” he adds. “I think it’s really important that the core [provider] understands the customer’s needs and the customer understands what the core does and doesn’t do.”

Building core connections

Communication and responsiveness are critical components of a successful core conversion, which proved true with Community Spirit Bank and its choice of a new core provider. 

After working with a consultant to identify four potential core providers, the community bank narrowed the decision to two finalists. Although they were comparable solution providers, the companies differed significantly in their receptiveness to questions and response time.

“What the decision came down to was that one company was extremely responsive, and the other delayed weeks and weeks before we heard back from them,” says Bolton. “And I’m thinking, ‘Well, if this is how they treat us before we sign, what will it be like afterward?’ It was the relationship we had with the other company that really rose to the top.”

Although the right configuration and partner are critical for a successful core conversion, other considerations also come into play. 

“There’s a lot more flexibility from the cloud to embrace open architecture at scale.”

–Dave McIninch, Fiserv

For example, technologies are always evolving, and it’s important that your core provider stays up to date on new developments in this area. Recently, a number of core providers have moved to cloud-based platforms.  

“There are obvious economic benefits to moving to cloud providers, including an opportunity to leverage scale,” explains Dave McIninch, senior vice president and head of Next Gen Solutions, Fiserv. “There’s a lot more flexibility from the cloud to embrace open architecture at scale.” 

A tool to level the playing field 

Another benefit attractive to community banks is the advantage cloud-based core platforms have over legacy systems when it comes to disaster recovery and business continuity. However, perhaps the cloud’s most compelling edge is that it levels the playing field, giving community banks access to many of the same capabilities big banks offer.

Open core infrastructures are quickly becoming critical components of core platforms, allowing banks to innovate more efficiently and reducing the effort and expense of fintech and third-party integrations with the core platform, explains ICBA’s Core Processor Resource Guide. APIs are also “the preferred industry standard for allowing bank customers to securely share their personal financial data with authorized third parties without forfeiting usernames and passwords.” By using APIs, community banks can offer enhanced customer experiences, potentially increasing customer loyalty and retention. 

With the recent launch of the FedNow Service and the growth of The Clearing House’s Real-Time Payments (RTP) network, your core provider’s ability to meet the growing demand for real-time payments is a critical differentiator. But it’s not just real-time payments that customers expect. Real-time transactions of all kinds are an important feature that customers have come to expect. A community bank unable to meet this need through its core processor is at a competitive disadvantage. 

Other considerations  

Because a core conversion is such a massive undertaking, community banks often choose to work with subject matter experts—core processor consultants—to help guide the process. 

“We’re in the business of dealing with banking issues every day and taking care of our customers,” Bolton says. “So, we put bids out for proposals from people we met at conferences or came across over the years, and we narrowed it down to three different consulting firms that specialized in core selection processes. We chose a small consulting firm that was a good fit for us.”

When working with a consultant, the community bank maintains control of the decision-making process. But it helps to have input from someone who specializes in core conversions and can help guide and interpret the information-gathering and decision processes. 

Also, hiring the proper legal counsel is critically important when it comes time to sign the contract. The challenge with core contract negotiations with a core provider is that there is little room for customer edits. As a community bank, you can make edits and revisions, but the core rarely accepts them.

However, legal review can prove helpful to make sure all of the terms and pieces line up. Core contracts are complex and often hundreds of pages long and frequently have a line that states the core provider has 30 to 90 days to fix an issue. But if your customers can’t access accurate information for that length of time, it could put you out of business. That’s why being clear about the terms and conditions and the roles and responsibilities of each party is essential.

A community bank’s core processor is a strategic partner that plays a crucial role in helping the bank meet its long-term strategic goals, enhancing the customer experience and positioning the bank for future success. Determining whether working with your existing provider to add on services or whether moving to a new provider altogether will best meet the needs of your organization and its customers requires careful and strategic thought. There is no one-size-fits-all solution. 

While many community banks may decide to stay with their existing core provider, they should, nevertheless, make an informed decision, ensuring they derive sufficient value from the relationship, and that their choice helps them remain competitive and viable for years to come.