05/05/2015

Core Providers Discuss Development Priorities and Third Party Relationships at AFT Summit

You do not get this kind of interaction anywhere else. A quartet of panelists, representing four different major core-banking companies, discussed the definition of today’s core, vendor engagement and the next generation of systems at the 2015 AFT Spring Summit at Bonita Springs, Fla.

Scott Mills, president of the William Mills Agency, in what he called “the most important panel of the whole AFT conference,” was the moderator of a group discussion that also included Peter Connors, general manager FIS; Jonathan Nordhausen, VP, product strategy at Fiserv; Andy Elliott; SVP, CSI; and Don White, Episys product management director, Symitar.

These are some of the takeaways from their dialogue.

What Defines a Core System These Days

Generally, the panel presented broad agreement that core has undergone a major transformation in the past five years or so. As the years progressed the definition of core became broader and broader. The technology is moving away from legacy core, platforms, hardware, software and architecture. While it is still is the main application for processing all transactions and posting updated data on account balances, today’s core also includes ancillaries once sold as separate products.

Its role changes as you go upstream in the market. Generally, small asset financial institutions look at core as a one-box solution that does it all. However, as financial institution assets grow so does their expectations to incorporate or integrate third-party solutions into the core.

Much of that centers on community banks that are struggling financially trying to squeeze more out of their technology and leaning on core vendors to provide them with a choice of core add-on solutions or allowing them to use best-of-breed solutions.

One provider admitted that 28% of its R&D platform goes toward compliance related issues.

In-house system seems to be giving way to application service provider (ASP) delivery of systems. One provider noted that only a third of their processes used today are on premise with the rest using ASP systems.

The way banks use data also changed the way a core operates. Big data is what happened when the cost of storing everything became cheaper than deciding what to keep. With the evolution of the data warehouse the core system now serves as the main or common data aggregation point and system of record.

The unprecedented scale of regulation present challenges for core providers today as well. One provider admitted that 28% of its R&D platform goes toward compliance related issues.

Best Way for Ancillary Vendors to Engage Core Providers

How a third-party approaches a core provider depends on the type of relationship they seek, according to the panel. They want to know upfront whether it is something they will use as a referral product, something that the core will resell or is it just a one-and-done interface option.

Generally the core four suggested ancillary vendors come prepared with a spirit of partnership; a solid value proposition, the ability to adapt to the core with an open interface, and a fully-baked business plan.

Where third-party vendors sometimes fall short is in the client handoff from the sales model and support.

Core of the Future

Most of the providers on the panel saw the core of the future being more of a modular design with the capability to take advantage of common middleware – a componentization of the core going forward.

It is moving to an SOA anytime anywhere environment on the cloud in real-time with seamless integration across channels. It will also contain bidirectional communication between banks and accountholder.

The core of the future contains a caveat depending of what is happening with payment and the disintermediation it presents.