While new core system vendors bring more modern architecture and user interfaces to the table, bankers need to do their homework before signing on with these players.
GonzoBankers, let’s take a moment to really appreciate this brief period of calm before vendor conference season starts. We all know what happens at conferences. C-level chiefs, ambitious marketing managers, and all other manner of bosses get their heads inflated about the cool new core system vendor technology that’s coming. Then, to save themselves from running in circles reacting to these can’t-miss technology trends, bankers have to backfill the vendor prognostication with facts without coming across as defensive or curmudgeonly.
I guarantee one fire drill bankers will have to endure this year is the industry buzz about new core systems emerging. The CEO’s buddy from BAI school knows a guy whose bank is considering talking to a new core vendor, and bank execs will have to explain why that’s not on their radar. Sometimes the new vendor will be an international player breaking onto the U.S. market. Sometimes, it will be a new domestic player. The common denominator is that they have almost no U.S. installations.
Let’s be straight though. The new players bring more modern architecture and user interfaces to the table. No doubt about it. They also can be aggressive with pricing to establish market momentum. And there is a lot to be said for young, energetic companies trying to mix it up. All big pluses from the new kids.
However, it’s never as rosy as it seems. Before bankers drink the new core Kool-Aid, they need to keep a few things in mind:
Functionality will require patience.
While many of the new cores technically can check most of the boxes when asked if their product can do X, Y or Z, the functionality I’ve seen and heard about can be pretty thin to start. And that only makes sense. The New Cores on the Block (NCOB) are brand new. They’re an iteration or two into evolving their functionality to meet the demands of the market, and they are literally decades behind the established players in terms of smart bankers pounding on the vendors to get the features they need.
Rule of Thumb: Past the checklist level, most of the new players are going to talk a big, loud functionality game, but in reality, they will be paper thin until they’ve endured years of client pummeling.
New companies mean new company financial statements.
New software companies are almost never profitable for several years, and new banking software companies are far from the exception. Big picture, a bank might be able to stomach an unprofitable company as long as its revenue is rising and expenses haven’t hit ludicrous levels. But the vendor management staff, CFO, auditors and examiners might have a very different opinion of what financial hurdles a prospective vendor needs to clear – especially for CORE.
Rule of Thumb: If a new vendor tries to explain how stupid you are for not understanding how EBITDA is the right measure to gauge financial performance – run, don’t walk.
Don’t put too much stock in the Architecture Hype.
The NCOBs try to mask their lack of experience with cool network diagrams and stories of how open their technology is. Open technology is a good first step in the right direction, but it’s impossible to overestimate how important experience is when it comes to using architecture for better integration.
Here’s an example. The bank asks the vendors about integrating core to, say, Vantiv’s credit card processing system:
NCOB: “With our modern technology we could definitely do that. It would be easy. We haven’t done it yet, but don’t you agree it should be relatively simple?”
Legacy Cores: “Not only can we do it, but we have 50 clients now integrated to Vantiv, and about half of those are bigger than $1B in assets.”
So, who does the bank trust – the vendor that theoretically could do an integration project with ease, or the one that’s done it 50 times and knows it’s hard to do? Who cares what the architecture diagram looks like?
Rule of Thumb: For the NCOBs, start the question with “How many times have you …” as opposed to “Can you …”
Being open to a system that has been used for many years doesn’t mean the bank lacks vision.
No, it means the bank has been around the block a few times and has learned from colleagues whose careers took a beating by trusting a vendor’s promises one too many times. Best practice bankers learned about projects that got delayed or scrapped altogether because inexperienced vendors overestimated their own skills and underestimated how hard things can get in the trenches.
So, get excited about the NCOBs’ vision, architecture, and UI. Get excited about new competition putting pressure on the Big 3 to get some real, meaningful development done. Cornerstone can’t wait to see some of the NCOBs hit gold and put the squeeze on the establishment. But at the same time, don’t let them or people from the bank who are NCOB True Believers make you feel like an idiot because you don’t want to bet your bank’s future on a product that is heavy on vision and light on just about everything else.
Sometimes vision and a nice PowerPoint deck are all the NCOBs have to offer, and your job is to weed out the big talkers early. An affection for the “tried and true” isn’t old-fashioned – it’s good common sense.