Ah, remember the old days……, the days when you had to get to
your bank or credit union branch before 2:00 PM in order to get a deposit
recorded as a transaction for that day. Fast forward to today. As Tom
Groenfeldt, contributor to Forbes so eloquently writes, “When 40-year old
legacy banking systems meet the two-month old iPhone 6, the results aren’t
pretty.” The same thing that happened 20
years ago when a customer visited a branch still happens to you and your iPhone
6 or tablet today. It encounters batch processing. We are in the era of
real-time transactions, real-time processing, and instant access to data, yet
banks and credit unions cannot consistently deliver that experience to their
customers or members. So much time has
passed yet so little modernization progress has been made with North American core
banking systems. The very systems that drive your credit union or bank. How can
you compete against the up-starts, neo-banks, and fintech companies that seek
to take piece by piece your most profitable business and leave you with the
burden of regulation and no profit transactions when your core banking system
is so far behind?
Core banking systems, also known as core data processing
systems were architected and built 30 to 40 years ago. They were designed more
than 20 years before anyone heard of the Internet and their basic architecture
has not changed since then. They were built to handle internally generated
transactions from tellers, loan officers, CSRs and back-office support staff.
They most definitely were not designed and still are not designed to meet the
needs of external users such as customers and members. As a former executive of
a core banking system company, I have seen the inside of the belly of the beast
and it is not pretty. They say that if you see how sausage is made most people
wouldn’t eat it. At least the finished product generally tastes good. If you
saw how core banking systems are architected, enhanced and maintained, the
spaghetti code cobbled together, and the lack of documentation you would not want
to rely on it to run your bank or credit union. The worst part is many banks
and credit unions have a hate/hate relationship with their core banking system
and their provider. Why, because the core banking systems in use today, simply
were not designed to meet the needs of today’s credit union and banks. As much
as your core banking system provider may want to give you what you want, they
can’t. Their core banking system solution simply was not designed to meet the
needs of modern banking and their customer’s expectations, real time processing,
transactions and data management. They are built on outdated technology, they
were built around batch processing, and they have enhanced using Band-Aids and
patchwork.
So what are banks and credit unions that do not have the
resources of the major national and super-regional banks to do in this situation?
Converting from one core data processing system to another core data processing
system is like adding internet radio to your 300,000 mile 15 year old car. It
may provide you with a feature you are missing, but what happens when the engine
blows up?
Fortunately, there are options, and the best part is the options
come with far less enterprise risk than a core banking system conversion and will
add long-term functionality and architecture that will allow your credit union
or bank to move into the world of real-time processing, transactions and data management,
and personalization.
Components, APIs, standards and the cloud allow banks and
credit unions the opportunity to explore true alternatives to the zero sum game
of a core banking system conversion. Componentization, APIs along with emerging
standards such as BAIN (banks) and CUFX (credit unions) and internal or
external cloud environments allow banking
systems to more effectively communicate with each other and allow banks and
credit unions an opportunity to create their own Services Orientated Architecture.
An SOA will modernize the technology environment by allowing credit unions and
banks to mix and match technology solutions they need to adjust and drive their
business model and the ability to quickly adjust and implement new solutions.
Combining a presentation platform on top of a security
layer, an integration layer with business and workflow engines, data analytics tied
to back-end and stripped down core banking legacy systems will provide credit
unions and banks with the flexibility, agility and lower risk profile necessary
to offer members and customers the solutions they demand in order to compete in
the rapidly changing retail financial services market.
Before your bank or credit union considers a core banking
system change evaluate the alternatives which will be less expensive, have a
lower risk profile and can be operational much faster and positions your bank
or credit you to be agile in the quickly evolving retail financial services
market.
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