You may find it amazing that 75% of people in this country say apples are one of their favorite fruits. Interestingly, while many people eat apples, it is our experience that few are interested in eating the core. Nature takes care of its own, which is why it is no coincidence that the core isn't very appetizing. After all, if it were tasty, animals would eat it more often and there would be fewer apple trees. As with apple cores, community bank core banking systems can also be unappetizing. Core banking systems are so unappetizing and unfriendly in fact, that studies find only about 40% of total system functionality is used by the average community bank.
Before we delve deeper on that subject this morning, however, it is important to define a core banking system. For this discussion, a bank's core is the system that supports the company's basic financial products and services. Most often, these will include loans, payments, deposits, branch automation, accounting, client data management and other business support. A high quality core system will be designed to help the bank deliver its strategic plan to the customer, improve service, increase customer segmentation and provide products and services across multiple delivery channels. Customers are a demanding lot and community banks need to have a flexible core system to support a quickly changing competitive environment.
Now that we know what a core banking system is to a community bank, we examine why so little of total available functionality is used. For most community banks, the implementation process is a tough and very long process. To get the conversion completed, many community bankers pick the core system they have used in the past (after all, who wants to learn something new) and tap into the functionality that supports the framework they have historically been accustomed to. Even new banks aren't immune to this issue, with most either minimizing the benefit of or entirely avoiding new options (even when they can be market and customer differentiators).
Let's say you don't yet have a core system, or you are thinking of replacing your current one. To tap into the power of the core system, think strategically. How do you want to measure the performance of the bank? What measurable goals and objectives need to be tracked and what data points need to be captured to do that. In essence, performing a good old fashioned fit-gap analysis is critical. Recall that in a fit-gap analysis, the bank documents what products, services, data and other items it needs to do the job effectively each day. Then, it is easier to "fit" what each core system offers compared to what you need to manage bank profitability, track assets and liabilities, support customers, etc. That will surface any "gaps," which can then be examined more closely. The less a core system fits the needs and requirements of the bank, the more the bank should keep looking.
If you already have a core system, think about the data you capture for loans as a good example. Are you capturing debt coverage ratios on the core, do you know the last time an appraisal occurred on a given loan, do you know the LTV of a given loan and any prior ones (to capture credit migration)? These are but a few of the critical data elements you might want to explore as you determine what options are available on your core system. Deciding on the data you need to capture and track is the first step. Once that is done, finding out how often you need to input it into the system and setting up processes and procedures to institutionalize collection will help you get more out of the core. In addition, a good core system should be able to support product bundling, innovation, flexible pricing, real time processing, have a comprehensive database for each business unit that interacts with the customer and allow for segmentation.
Dig into your core system and don't be shy about calling on your representative to help train your employees. Boosting data reporting from the core system begins with increasing and improving the data housed on the system itself.
The apple core might not taste very good, but within it lay the seeds that will drive the organization to the next level.