Core Migration with Brad Smith // Cornerstone Hot Takes

The big three core vendors all now have a core modernization strategy. FIS has a modern banking platform, Fiserv bought Finxact, Jack Henry has a strategy. So even the legacies are on this bandwagon.

We get a lot of calls from banks that are eager to make a change. “Okay, let’s move to that. Let’s go to Thought Machine.” The reality is, we may not be ready.

That’s not the same kind of process of, “Okay, go do your feature comparison, do your demos, and then you convert in 12, 18 or 24 months.” Those next-gen cores are still building module by module. They don’t have a fully integrated core solution yet, so it’s a migration path.

What some people are doing is kind of sandboxing next-gen for when they’re standing up a digital bank or for some small line of business.

So they’re modularizing it.

Modularizing it, right. Exactly. This idea of sidecar cores, it’s not quite parallel because you’re not running dual processing, but you might use it for a line of business or a certain use case. Get familiar, get experience with it, and then begin your migration over several years.

Maybe five or seven years from now, you’re fully on a next-gen core. But the market’s not quite ready for most financial institutions, certainly regional banks, to just switch over from FIS IBS to FIS Modern Banking Platform. That’s not what it’s built for yet.

But it’s raising a lot of interesting questions about what the core strategy is. Do we migrate? Do we just wait?

The traditional monolithic model that a lot of people refer to as an integrated core, you’ve got your customer records, deposit servicing, loan servicing, financial accounting and report writing all from one vendor, one system. Then that vendor may also be providing your card processing and digital and all that.

Over the years, we’ve moved to more of a best-of-breed model where we may keep our vendor’s core system, but we’re going to go best-of-breed for digital.

Now, this componentized model is, we may keep core with a legacy right now only for commercial loan servicing or just deposit and loan servicing or deposit operations servicing. So we might mix and match.

There might be some of these next-gen cores that have components that offer a better experience. The next-gen cores right now, their strength is really more on the consumer side. Not many are building out commercial loan servicing.

So you may still use AFS or ACBS, or for mortgage loan servicing use Black Knight or whatever. You just kind of build your own core.

That’s clearly the trend in regional and community banks. Credit unions aren’t quite there yet because that adds a lot of complexity, vendor management complexity and development complexity. But I think that’s very much the direction of where things are headed.