Core processing platforms are the lifeblood of the banking system. Without these systems, banks would be operating in the "stone age," manually processing and tracking transactions.
Over the past few decades, these platforms have been able to handle all types of transactions and payments, from credit cards to checks. However, with technology evolving, new payments channels arising, and customer expectations changing, core platforms are hard-pressed to keep up.
Over the past few years, one of the major key developments in the industry has been the ability for these core platforms to collaborate with new fintechs, leveraging the newest technologies to increase customer capabilities. The Financial Brand takes a look at a variety of tech solutions being called "plug and play," and the reasons this approach may be a boon for smaller banks and credit unions.
Anyone who’s ever added new software to a home computer and had it work right away understands the concept of “plug and play.” It now applies equally, if not quite so simply, to far more sophisticated software applications that banks and credit unions increasingly need to stay competitive.
Thanks to the rapid adoption of application programming interfaces (APIs) — and greater openness (finally) from the mainstream core technology providers — smaller financial institutions can now integrate snazzy fintech functionality accessible only to much bigger competitors in the past.
“There is a lot of creativity in the marketplace now and I’m encouraged by what fintechs are coming up with,” Jonathan Fischer, chief operating officer for Timberland Bank in Hoquiam, Wash., tells The Financial Brand.
A New Perspective on Fintech Partnerships
The key is to attain and maintain contacts. At any given time, Fischer explains, Timberland is in talks with 15 to 25 fintechs about their offerings, finalizing five to ten partnerships each year on average.
One of Timberland’s most recent partnerships was with Array, which allows the bank to provide digital services such as credit score management, personalized financial insights and identity protection to its customers in a way that is embedded into their banking experience.
Sabeh Samaha, chief executive officer of the technology consulting firm Samaha & Associates in Miami Beach, says that most core providers are indeed looking at fintech partnerships in a new light.
“For many years, the oligarchs wanted banks and credit unions to be dependent on them,” he says of the traditional core providers. So the robust APIs necessary to integrate outside technology from the likes of fintechs were rare or nonexistent. But, over the last few years, core providers have added APIs and focused more on interoperability.
“Finally, there has been good evolution in most areas,” says Samaha, who has overseen credit union and bank core conversions and tech stack implementations for nearly 25 years. “The posture has gone from defensive to a much more open, liberal approach from core providers. They are no longer competing with third parties but are looking to work with them.”
Open Architecture Becomes Key
Core systems with open architectures are getting the attention of Fintechs -- consequently, that "species" of tech are developing robust offerings, according to Eddie Army, chief marketing officer at Credit Union of Texas.
Determining what tech solution might make sense is an ongoing pursuit for his credit union, which has $2 billion in assets, 17 branches and more than 151,000 members.
“We have done focus groups and are working on surveys through our online banking so we can get more real-time feedback from members,” says Army. “A lot of the implementations we have done are a result of feedback from a number of different channels.”
The ability for core platforms to integrate new technologies from fintechs has increased the ability of smaller banks and credit unions to compete with larger financial institutions equipped with corresponding larger budgets and resources. This includes artificial intelligence and machine learning technologies that automate operations like check processing to increase check fraud detection via image forensic AI. These integrations create access to technologies that smaller banks and credit unions would not be able to deploy on their own -- leveling the industry playing field.
As the industry continues to innovate, core platform providers will play a major role in enabling smaller banks and credit unions to remain competitive.