Your Core Is Being Retired. Now What?

The core processing market is a fascinating aspect of the financial services industry. With fewer than two dozen credible providers globally and arguably fewer than a dozen in the United States, the moat around core processing as a capability means limited choice and optionality for banks and credit unions – especially in the community market of institutions with fewer than $10B in assets.

Need to Know:

Core system development suffers from major blockades in innovation:

• As the “brain” of the bank, converting from one core platform to another carries enormous risk — one that many executives have historically viewed as career-limiting.
• The feature parity among core systems is massive, often spanning decades of incremental development.
• The cost to build is extraordinarily high, and many financial institutions tolerate outdated products and declining service levels simply to avoid the disruption of a core conversion.

These facts show up in an acquisition dynamic we see frequently in the bank technology space: The large core processing companies most often look to the “buy” option vs “build” simply due to the time and investment required to bring new innovations to the long-toothed cores they have been keeping on life support for years.

The hope is that clients will voluntarily migrate to the newly acquired cores — but the difficulty and risk of conversion is just as real even if migrating to a vendor’s “latest” acquisition. The core providers end up with multiple cores to support and fund from an R&D perspective, which ultimately handicaps any truly new capabilities for any of them. Effectively, the spend is watered down and diluted across the core products, no matter how similar the end user they are designed for.

Reality check: You will face a core migration. Eventually, all financial institutions will find themselves in the position of voluntarily or involuntarily going through a core migration. The stock market hammered one of the largest core processing companies in the world recently, effectively admitting publicly what most of the industry has known for years: They were more concerned about financial engineering of the share price than they were about product engineering a better outcome for their clients.

Unfortunately, the market also learned recently that the largest core processing provider will soon be making some big changes and consolidating many of its core systems.

It’s hard to imagine how a software company can effectively support and maintain this many diverse core platforms – and the rationale behind this decision seems obvious and needed. However, this is an incredibly risky inflection point for banks and credit unions on platforms targeted for retirement.

The hope and bet is that most clients will be incentivized to migrate to one of the remaining cores. But financial institutions should fully anticipate a lot of headaches around pricing confusion (lock-in terms, bundling, and non-coterminous agreements) and migration strategies and timelines.

We are not in Kansas anymore. While specialized consultants exist to guide banks through core contract negotiations and conversions, it’s important to recognize that this moment is truly unprecedented—there’s no proven playbook or guaranteed approach. Core providers will negotiate hundreds of these agreements; your institution will negotiate one. That imbalance gives the provider a significant advantage. Going it alone means you risk missing critical options and negotiation dynamics that could shape your bank’s future for years to come.

This is not time for a hands-off, “let the procurement team handle it” strategy. There are many technical and commercial considerations that bank and credit union CEOs need to pay attention to. With some core contracts being as much as 15 years long, it is not a decision anyone wants to revisit soon. It’s critical to get it right and be confident.