Skip to Main Content
PCBB Banc Investment Daily July 27, 2016
Banc Investment Daily
July 27, 2016

Memory Foam To The Core

by Steve Brown Topics: Core
It seems that there is almost no area of our daily lives that hasn't been impacted by technology. So, naturally, it didn't take long for technology to begin influencing the evenings of many people as well - specifically the mattresses we sleep on. Gone are the days when mattresses were comprised of little more than coils, springs, padding and material. Today's mattresses run the gamut from old school coil, to air, to high-tech memory foam. Now there is even a mattress, known as a "smartress," that alerts people through a mobile app to let them know if their partner is cheating and has a set of 24 ultrasonic sensors built into their core. The sensors are able to generate a real-time 3D map, indicating which portions of the mattress are under the greatest pressure and whether movement is taking place - information that is relayed to your mobile phone.
We couldn't help but think about how odd it is that there is now a mattress with a high-tech core, while much of the banking industry continues to operate using core systems that are extremely outdated. This matters deeply to bankers because such core systems support all loan, deposit, and other transactions. Simply put in technology terms - if the activity touches a customer it touches the core.
For community banks, we note research by American Banker finds the largest core processors by market share for banks with assets <$1B are: Fiserv (43%), Jack Henry (21%), FIS (20%), CSI (8%), D+H (6%) and DCI (2%).
Given all of the customer demands out there, you would think bankers would be going crazy trying to upgrade their core systems. However, if a recent survey by NTT DATA Consulting is any indicator, this may not be the case. It found that only 4% of banks plan to replace their core system over the next 3Ys. Despite high levels of frustration among banks - some 70% said they are frustrated with the limitations their current core systems put on their businesses, few are ready to replace their core. This is despite the fact that many core systems are based on 1980s to 1990s technologies.
This is also too bad when you consider banks also point out in the survey they are facing many challenges with their existing core systems. These include the cost of responding to regulatory pressures (35%), the cost of maintaining legacy systems (29%), the complexity of integrating with other systems (29%), the cost of product development (28%), a lack of scalability of the core to support growth (26%) and difficulty in improving the customer experience (26%). These factors and the fast adoption of technology by the consumer are serving as critical pressure points on the industry.
There are many reasons for this reticence to replace something that isn't doing what bankers want, but one certainly relates to cost of implementation and the implementation process itself. These are certainly key factors, but consider the survey also found bankers said 78% of their overall IT budget is spent to just maintain their core deposit systems.
While community banks may not have the benefit of being able to attach sensors to their core systems to determine when customers are planning to cheat, it is no secret that the days of customer loyalty are long gone.
Whether or not your bank decides to update what might be a sleepy core system, doing so certainly remains in the dreams of community bankers seeking to deliver faster and better technology to demanding customers.