5 Top Things to Keep in Mind When Selecting Your Core Banking System

For almost every financial institution (except de novo institutions), a current core system is already in place. Changing core and ancillary systems creates a significant change event that will impact productivity and morale. It’s not an endeavor to be entered into lightly!

In the PRI article 7 Tips for Getting the Most Out of Your Core System, we discuss how overall core modernization can be a reasoned process done a step at a time, rather than as an all-or-nothing proposition. There are ways to get more out of what you already have. However, with that said, there are many reasons that evaluating a new core system may be the right choice, according to Mike Neale, PRI Director of System Evaluation. 

The Fern Software article The Intricate Selection Process of a Core Banking System says that financial institutions place a significant importance on selecting the right core banking systems, and they spend millions of dollars maintaining the systems annually to avoid regulatory scrutiny, loss of customers’ trust, as well as the potential loss of revenue.

“These core systems are essential in digital banking technology, enabling customers to transact anytime, anywhere, and empowering customers with greater control and ownership over their personal accounts. For financial institutions, these systems help reduce the manpower required, bring down operational costs significantly, shorten turnaround time for transactions, and allow banks to expand their outreach to remote places.” – Fern Software

If it becomes clear that the time has come for your organization to change its core system, Neale suggests considering the items below when evaluating new core and ancillary solutions: 

  1. Corporate Objectives and Strategies 

Neale says that Fis should build a technology stack to support the organization’s objectives and strategies. While many say that an FI must transform immediately to compete, Neale recommends a measured approach that considers the following questions:

  • Do your strategies for achieving business objectives require specific functionality outside of typical community banking business lines?
  • Do your strategies require functionality that supports Banking as a Service (BaaS) or embedded finance?
  • What is your organization’s culture around technology and the speed of innovation? Is your team made up mostly of innovators on the leading/bleeding edge, early adopters, late adopters or laggards?
  1. Best of Suite or Best of Breed 

Some of the largest core service providers offer numerous ancillary services, which will require compromise if taken wholesale. However, by taking a “best of suite” perspective, the FI can greatly simplify its approach to vendor management.

A more innovation-focused culture with a strong IT department may choose a “best of breed” approach that creates a stack of services with the best offerings from multiple vendors. This approach can produce a better, more differentiated customer experience, but the FI assumes full responsibility for managing and negotiating with several vendors at once. Neale suggests considering the following questions when choosing between the two approaches: 

  • Do your strategies require that you source technology from multiple providers focusing on the best solution for each area of functionality?
  • Is the IT governance function of your organization mature enough to support management of multiple solutions and vendors?
  • Does your organization generally find that a suite of solutions from a single vendor is good enough, and do you prefer having one vendor to hold accountable? 

3.      Human Capital 

One of the more critical pieces to study when considering a core system change is the strength of the FI’s human capital. Without fully understanding your team’s capabilities and having a handle on whether you can easily hire talent to support the system, you could be spending a great deal of money while being unable to reap the full benefits of your investment. Different vendors offer differing levels of support from “you’re on your own” to truly white glove service that can handle multiple cases a day. As you evaluate your human capital, ask the following questions: 

  • How well does your organization own their technology? Do they really understand the core solution deeply and are they fully utilizing the system?
  • How well do they assimilate change? If not so well, can and will you be making changes to staff and management? If they do handle change well, how will you retrain them?
  • Does your organization require a high level of support?
  • Do you have staff, or can you hire staff, who can support modern architecture solutions?
  1. Deployment Options  

FIs must consider the regulatory oversight and security implications involved in the different deployment options available to them. Consider where the core system will be hosted and who will be administering it:

  • On-Premise (In-House)
  • Outsourced
  • Cloud Native (Hosted)
  • Cloud Native (FI Instance) 

5.      Tools and Process for Solution and Vendor Evaluation

The IBS Intelligence article 10 Steps for an Effective Core Banking System Selection reminds Fis that core banking systems are the backbone of products and services that banks offer. 

“With technology becoming a value differentiator, a wrong system selection may cost tremendous opportunity losses. While there are multiple vendors offering off-the-shelf packages, each one of them claiming they have a long list of implementations across the glove, one needs to be careful that the solution fits the Banks’ requirement, and this is not always easy.” – IBS Intelligence 

Selecting a new core system is a long-term investment.  Contract lengths frequently run from five to 10 years. The FI is taking on a long-term partner, and they should be financially healthy and interested in your (and their) success and survival in the industry for many years to come. The process should be thoughtful, well planned and include the following steps:

  • Be sure to evaluate both the solution set and the vendor.
  • Organize a committee of stakeholders committed to engaging in the evaluation process. The right mix of experience and expertise is crucial.
  • Develop an objective matrix of key features and attributes for solutions and vendors that align with strategies and add objectivity to the process.
  • Develop a realistic timeframe and project plan for the evaluation and migration to a new solution. The journey should be initiated approximately two years out from desired implementation.  
  • Be sure to perform thorough due diligence in accordance with FFIEC guidelines. The FI will need to provide documentation explaining to regulators why the choice to change was made.  
  • If you decide to change core systems, notify regulators when the contract is signed.   


The Digital Age: Can Your Core Keep Up – Profit Resources, Inc 

7 Tips for Getting the Most Out of Your Core System – Profit Resources, Inc 

10 steps for an effective core banking system selection – IBS Intelligence 

The Intricate Selection Process of a Core Banking System – Blog (fernsoftware.com) 

Five considerations for banking and insurance core systems service model selection (midagon.com) 

Profit Resources specializes in identifying profitability improvement areas for financial institutions through revenue growth, cost control, streamlining processes, and effective use of technology. Contact us to learn more about our personalized approach to propel growth and improve profitability.

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