Core banking systems have sure come a long way since they got their start in the 1960s — basically software made in-house by financial institutions (FIs) themselves on mainframe computers to reduce the tedious manual process of recording transactions and maintaining bank ledgers. The software processed the transactions in batches at the end of each business day, so customers had to wait until the next day for updates on their accounts. Fast-forward six decades and the core ecosystem is vastly more efficient and complex, with ever-growing technologies enabling more and more services and functionality.How do FIs feel about their core systems and the companies that provide them? The American Bankers Association asked its members these questions and recently released its 2024 ABA Core Platforms Survey, with nearly 800 FIs responding.Core Satisfaction TrendsCollectively, FIs were moderately satisfied overall with their core providers, with an aggregate rating of 3.19 on a scale of 5, a slight increase from 3.01 in ABA’s 2022 survey. FIs’ aggregate rating of their core provider’s effectiveness was lower, at 2.78, though it was slightly higher than the 2022 rating of 2.67.When viewing satisfaction scores individually and not in aggregate, the report’s authors stressed that due to the wide range of scores — even within individual providers — it’s less important for an FI to find the “best” core than it is to find the “right” core for their particular strategy.Still, FI satisfaction with their core steadily drops the longer an FI remains on their core contract term, reaching a low of only 41% within two years of renewal, according to the survey. At this stage, many start to consider converting to another platform from another provider. Aside from costs, respondents cited two main reasons for changing cores: disappointment with customer service (42%) and the relationship with their core provider (38%). One silver lining: the top two reasons for considering conversion in 2022 — integration support and products not being current — both fell by 10 points or more in 2024, which means that core providers evidently have been making progress on those two fronts.Despite flirting with conversion, only 19% of respondents said they are likely to make the jump at their next renewal date — and two-thirds are extremely or somewhat likely to remain with their current provider. Why? Experts outside of the ABA report shed some insight on the issue.“There is nothing more difficult for a bank to undergo than a core vendor change. It’s like open-heart surgery. Switching out a core system is the most complex, difficult thing that a bank will undertake,” says Charles E. Potts, chief innovation officer of the Independent Community Bankers of America. This is why he thinks that just a mere 2% to 3% of FIs actually convert to another core each year.Factors To Consider Before SwitchingIf your FI is considering switching core providers, there’s going to be a lot of work ahead. Here are some things to consider before making the decision:
- Ideal timeline. Since it can take one to three years to interview and select a new core provider and then actually go through the conversion, FIs should begin the process 24 to 30 months before their current contract expires, Eric Devine, president and CEO at Vitex.
- Future-proofing the core. FIs need to go beyond the “here and now” and think of the features and functionalities that they’ll need 5 or 10 years from now to be competitive. Those are important things to consider when looking to switch, says Tyler Brown, a senior research analyst with the bank consulting firm CCG Catalyst.
- Making the jump to the cloud. FIs need to thoroughly examine core providers’ ability to move away from legacy-based systems and offer cloud-based cores that can more readily incorporate emerging technologies, says David Saylor, founder and president of Genesys Technology Group. If considering a next-gen provider, though, FIs should conduct due diligence on their financial stability to make sure they’ll still be around after a conversion.
- Customer service. Brad Smith, a partner at Cornerstone Advisors recommends that FIs ask colleagues at other FIs how they feel about their core provider — and not just those who offered testimonials. Before signing any core contract, make sure there are service level protections included, to maintain your leverage.
- “Sidecar cores.” Some FIs that decide to stay with their existing core provider also add a “sidecar core” — using another core vendor to run a single operation, such as online banking or a BaaS solution, if the latter’s solution is more advanced. There are pros and cons to weigh, including your appetite for dealing with the idiosyncrasies of two core providers.
- Leveraging the expertise of a consultant. If you want to assess other core providers or even renegotiate with your current provider, you can reach out to a firm that specializes in core contract evaluation. A core contract consultant can solicit and analyze vendor RFPs, make recommendations, and negotiate with your preferred vendor. This type of service can also be available to you through the strategic relationships of a trusted partner, like PCBB.
While overall satisfaction has slightly improved, challenges around long-term contracts, customer service, and core-provider relationships remain significant. Successful core selection hinges not on finding the “best” provider but the “right” one aligned with an FI’s unique strategy. FIs should plan ahead, evaluate options carefully, and prioritize innovation to ensure long-term success.
