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Core Banking Systems: The Industry’s Achilles Heel

Core systems used by retail financial institutions are sorely overdue for a major upgrade. Many have been nursed along for decades with little more than bandaids, duct tape and some chicken wire. If you're going to compete in the Digital Age, it's time to bite the bullet and get serious about a core conversion.

Subscribe TodayResearch from NTT DATA Consulting reveals that only 4% of banks plan to replace their existing core deposit systems in the next three years. At that pace, it would take 25 years for the entire banking industry to replace all the legacy systems in place today.

The research, which encompassed more than 1,000 U.S. consumers and over 100 institutions, investigated how U.S. banking providers are modernizing the core deposit systems as external threats and evolving expectations continue to challenge the banking industry. In the survey, 70% of banking execs expressed frustration with their current system, saying they do not feel existing tools and processes can adapt quickly enough to change. And everyone in the study said their institution’s core system posed at least one major challenge.


Considering the pace of change in the Digital Age, this is clearly unacceptable. Keep in mind that many core systems were originally developed back in the 80s and 90s. Even if your system is relatively “new” — something within the last decade — there’s a reasonable chance it won’t be built for today’s realities. As a military strategist might phrase it, “You aren’t going to win the next war using weapons and tactics from the last war.”

Peter Olynick, a senior retail banking analyst with NTT DATA Consulting and author of the report, says modernizing core deposit systems should be a top priority for banks. “Banks need to satisfy rising consumer expectations, achieve a myriad of operational efficiencies, and improve their time-to-market for innovation products,” he cautions. “Antiquated legacy systems are hindering banks’ ability to pursue growth opportunities and improve the customer experience.”

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Unfortunately, only one in ten banks say they are making the fundamental changes necessary to stay current. It’s not that banks don’t want to modernize. They just struggle to see the way forward, particularly when they are pouring so many resources into sustaining their legacy systems. In the study, 78% of banks’ IT budgets are spent simply on maintaining their legacy core deposit systems. And the cost — both in terms of money and time — isn’t going down. Four out of five institutions say they expect to maintain or increase their investments in their legacy systems.


These findings come at a time when customer loyalty to traditional banking providers is teetering on a precipice. 23% of consumers say they would consider leaving their bank or credit union for a more modern alternative. One in three say they would leave their bank simply for a better online and mobile experience. And if a large retailer such as Target or Walmart were to start offering banking services, 47% of U.S. consumers would consider switching.

Why Should Financial Marketers Care About Their Institution’s Core System?

All the themes dominating the financial marketing world today are hampered — in some way — by the challenges created by legacy systems. So many new products and features have been bolted on to these Frankenstein core platforms that it’s nearly impossible to get a “single view of the customer.” Many institutions can’t even tell you how many products their customers hold. How are marketers supposed to “increase depth of wallet” and “grow products-per-household” when they don’t even have a good baseline metric they can measure? How about segmentation? Personalization? Automation? Big data? Not with a core system from 1986.

You could argue that the current state and selection of a future core banking platform isn’t really an area where Marketing has any responsibility. Looking at banking through the traditional lens, an institution’s core backbone is typically the responsibility of Operations and IT. Of course, this is one reason traditional banking providers are struggling (think: silos). In the Digital Age, financial marketers should play a pivotal role in the fate of their institution’s core system. When the time comes for your next core conversion (hint: soon), your C-suite needs to make sure Marketing has a seat at the table, because they have just as much skin in the game as anyone.

It’s this simple: You won’t deliver the type of modern customer experience you need in today’s digitally-driven world, nor can you incorporate any of the contemporary strategies in marketing today until you completely overhaul your core banking system. You won’t survive in the Digital Age using tools from the Stone Age.

All content © 2017 by The Financial Brand and may not be reproduced by any means without permission.

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  1. Jeebus, Jeffry — you had me at “bandaids, duct tape and chicken wire.” But here’s the thing, except for CO-OP, which really isn’t a core system but acts like one with their shared-branching switch, all these core systems are built without significant input from marketing. Or, consumers. If I had a dime for each time I’ve muttered, “What the hell were they thinking?” I’d be running a fishing resort in Alaska.

  2. All great points with which I agree. But what alternatives exist vs the old school big iron options out there today? There are, what, 3-4 options? I think it’s more a lack of ‘can do’ vs ‘want to.’

    That said, folks like Simple and Movem have figured this out. Anyone know what core systems they use – have they found ways to deal with these legacy systems or are they built on better technology?

  3. Bill, Simple is also sitting on top of an old legacy core system. They are all about the UI. Deposit-only neobanks are not a good model to follow for a complex bank. There are several options, but US Execs can’t part from the FIS, Fiserv, Jack Henry pradigm.

  4. Sujay Sivasankaran says:

    Now or Later Banks will end up modernizing their old legacy systems to newer and faster core systems with out doubt !…

  5. Gentlemen, please check NYMBUS.com – we are the only modern full stack cloud based API driven core banking platform. And I agree with mostly everything in this article. Thank you, Jeffry. Amazing summary. Let’s get in touch – I would love to show you our system.

  6. For a dose of reality I’d suggest that you read the column I wrote for BAI Banking Strategies regarding the next generation of core systems. You can find it at:


    The reality is that there is little appetite or for that matter a need for a new core system. All of the alleged marketing problems have long since been overcome by any number of ancillary solutions which integrate to the core. Sales pitches to bank presidents which contain terms like “modern full stack cloud based API driven core banking platform” ring hollow. The reality is that all the techno spin doesn’t begin to solve a community banker’s biggest problem. Regulatory compliance and management. I’ll let the article say the rest.

    With all due respect to the team at Nymbus (I respect your effort) I have a news flash. With your acquisition of RC Olmstead and Sharp Bancsystems, you’re now a Legacy System provider. You now have all the same problems that the large competitors have and you’ll experience the same pains they experience in consolidating systems while trying to retain the client base. The acquisitions created a huge opportunity for your big competitors to pick-off the “modern full stack cloud based API driven core banking platform” non-believers in those bases. That said, we can now officially welcome you to the industry. Good luck.

  7. Michael, thank you for your comment. You seem to disagree with the facts, stated in Jerry’s article.
    1. Our motivation in acquiring legacy cores is not the same as the big 4’s. Btw we have acquired Sharp Banc Systems as well.
    2. We are more than just a core.
    3. We actually solve many problems related to compliance (decrease the cost of the regularity burden dramatically) and management (dramatically increase productivity).
    4. We have no shortage of financial institutions who want to migrate to our platform. Some are even willing to pay early termination fees to convert earlier.
    5. We understand the strategy of the legacy guys completely. And I understand your interest as well.))
    6. Thank you for the welcome. We are in not because of our acquisitions though, but thanks to our technology and product.
    7. Let’s chat in one year – it will be interesting to put you in touch with some of our clients and you will explain to them why they didn’t need to convert to NYMBUS.))

  8. Yes, I completely disagree. Jerry’s position isn’t fact. It’s his opinion. Just as is mine and yours. The facts will only become facts from the history of how this all plays out. History which in this case is not your friend.

    Alex, your passion is admirable. It’s what I would expect from a CEO who has convinced venture capital to invest $200 million in a market that is shrinking faster than you’d ever be able to convert it to critical mass. A market where the major players can claim they have anything and everything that you claim to have and can price you right out of the game. You’ve got guts and attitude, but you’re 20 years too late.

    I would hope that within a year you will have an institution up on the platform. Maybe even two. After all you did just purchase two legacy core providers. If you still don’t have a client in a year then you have bigger problems. Besides, for you to ever have a chance at profitability you’ll need to consolidate those platforms. So you wouldn’t be the first player to use a “forced march” conversion method. It may be disruptive (especially to the bank or CU who didn’t want to go through a conversion) but it’s not revolutionizing the industry. It does allow you to do some marketing spin.

    You might even get one of the “early adopter” tech focused institutions. It more than likely will be a credit union as they are a little more aggressive with technology. But who knows? The industry loves to Ooh and Ahh about new technology. Especially when there’s a new UX. But getting them to sign on the dotted line and then take the risk to go through a conversion is another story. I wish I had $100 for every institution who told a salesman “They were going to pay the early termination fees.” Yeah, right up until it gets to the board.

    Sorry Alex but the core war is over. No amount of bravado, Techno-spin, acquisitions or venture funding will change that fact. You now have a small legacy beachhead but you’ll be squeezed from every side. Unless of course you can convince your VC or private equity to buy one of the Big Four.

    Best of luck, you still have a very long way to go and a whole bunch of stuff that you’ve yet to deal with. Just wait until your first FFIEC exam.

    One last thing, I’ll be more than happy to take that meeting in a year.

  9. Michael, thank you. We have 1 bank already live and 2 more are going live within the next 6 months (obviously the conversion is well on the way). First credit union goes live early 2017. Will announce the names soon. Many more conversions are scheduled for 2017. We have no shortage of clients, even at this stage. I understand your position, but can tell you that the market doesn’t share your point of view, so I guess we’ll meet in one year.:-))

  10. I know this is futile but let’s see if the numbers can help you understand. Traditionally, about 20% of US financial institutions come up for renewal each year. The logic is based on the tradition of a 5 year contract. In reality, because many renewal deals are being cut for 7 years or more, the annual opportunity for core changes is probably closer to 10%. But for the sake of argument let’s say it’s 15%. The fantasy that institutions will pay early termination fees en masse is just that, a fantasy. One her or there, but the extreme exception and not the rule.

    We have roughly 13,000 institutions remaining (and shrinking fast) so the viable annual market is liberally 1950. Between those who won’t even consider looking and those for which the biggest issue is price the renewal rate is about 95%. So at best 98 institutions are up for grabs. If you scored a 10% win rate it would be astronomical and would drown your conversion resources. But let’s say you get 10. Then let’s say by some miracle you even get a 25% growth rate each year for the next 10 years. After 10 years you might have 150 core clients. When the industry had 40 core providers that would have been impressive. With the big 4 and the 4 or 5 regionals now commanding the industry, not so good. Certainly not disruptive. That doesn’t even take continued consolidation into consideration.

    Good for you that you have one “live” whatever that means. There were many a core start up back in the client server days who installed a module and called it “live”. You’re also not fully understanding what becoming a legacy provider has done to your ability to move forward. You won’t simply be on the offense but you’ll be playing a lot of defense as well. The good news is 95% tend to stay put. At least with established providers.

    The numbers really do tell the truth and story here. Not all the articles or LOI’s in the world will make the difference. Except maybe to keep the VC’s at bay.

    Enjoy the Independence Day weekend.

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