Core Banking: Integration, Not Reinvention
- The banking industry's primary challenge is not reinventing core processing systems
- Effective integration with modern, customer-facing technologies is the key
- Not all banks are ready to undertake the expense and upheaval of a core conversion
According to a recent opinion piece on the BAI website by Mike Nicastro, CEO and principal of Coppermine Advisors, LLC., the banking industry’s core challenge isn’t reinventing the core processing systems, but integrating them more effectively with modern, customer-facing technologies. Despite widespread dissatisfaction with legacy core providers, most banks are hesitant to switch due to the high costs, disruption, and risk involved in core conversions.
This isn’t terribly surprising; few bankers want to go through a core conversion unless it is absolutely necessary. It’s disruptive, expensive, and often doesn’t achieve the goal envisioned. After all, everyone knows the core processing is the “sausage machine.” It’s not pretty or even visual; it’s difficult, gritty work.
Core processing has become commoditized and, as a result, only a handful of providers remain. When banks do decide to switch, it’s usually due to critical service failures or, increasingly, the inability to integrate new digital tools and features that drive customer engagement and retention.
The post points out that while “neo-core” platforms are often positioned as innovative alternatives, they typically serve as improved front ends still dependent upon the same complex, legacy back-end systems. The real opportunity for banks and technology providers lies in solving the integration puzzle. The core processor that can deliver seamless integration—uniting digital account opening, money movement, and personalized insights—stands to win significant market share.
Embrace and Collaborate
However, not all banks are ready to undertake the expense and upheaval of a core conversion, especially as industry consolidation rises and regulatory protections for community banks weaken. The future, Mr. Nicastro suggests, depends on the industry’s ability to embrace open standards and collaborative integration. If flagship core providers open their platforms and digital innovators focus on differentiated value, the result could be lower costs, accelerated innovation, and a slowdown in industry consolidation.
Core providers have been collaborating with fintechs for decades. Most recently, we have seen them embrace and collaborate with the fintechs to integrate new technologies like AI and machine learning into their platforms. This includes check processing automation and fraud detection.
OrboGraph has partnered with core providers, service bureaus, and other platforms. For small to mid-size banks, integrating these technologies would be extremely difficult and resource intensive. However, OrboGraph AI solutions like Anywhere Recognition and Anywhere On-Us Fraud are integrated directly within platforms to enable banks to leverage the technologies with little to no resources.
While integration of these innovative technologies cannot cover all the reasons for financial institutions to switch, it does assure continuous improvement on their path to modernization.