WWhat does the core platform market look like in the coming year? Five years after the ABA Core Platforms Committee began its work, there have been dramatic changes in the financial services technology market.
The ABA Core Platforms Committee continues to work with community and midsize banks to identify core banking challenges and find solutions. Recently, to address customer service challenges in certain hubs and continue their core market assessment work, the committee met with several hubs, including the three largest hubs, as well as some recent and growing entrants in the US market. .
Here are five key insights from committee members on the top trends in 2023:
1. Core approaches to APIs and open banking differ from vendor to vendor.
“Open banking” has been a buzzword for more than a decade, but openness remains in the eye of the beholder. While cores often use similar language around APIs and open banking, committee members note that in some cores, openness to solution integration is limited to using the core’s own offerings, while that others have embraced the digital potential of the API ecosystem. Pricing approaches also vary widely. One key thing to consider in commodity development is the extent to which open banking marketing matches the reality of open banking.
“One of the things that stood out to me the most was the differences between the major vendors we met with,” says Steve Schieffelin, senior vice president and head of bank IT business relationship management at Dime Community Bank in New York. “I was surprised by the differences in how and where they are investing in their own technology infrastructure and ecosystems. When combined with his approach, vision, and investment in open banking and APIs, I found real differences that I think most banks don’t believe exist.”
2. Middleware is an increasingly important option for innovation.
In line with the focus on APIs, the Core Platforms Committee is developing resources for banks in the increasingly important middleware sector. “Middleware can be a necessary innovation enabler, particularly if single-source innovation for your bank’s core isn’t possible or if you’re pursuing strategies that aren’t directly in the path of capability for your bank’s core.” says Trey Maust, CEO. and co-founder of Lewis and Clark Bank in Oregon City, Oregon. These solutions are in the gap, connecting the core of a bank with a set of solutions.
3. Legacy cores are aware of your customer service issues and plan to respond.
In 2022, many banks faced significant customer service challenges from their core providers. With demand for tech talent still active in the early part of the year, before the tech sector began layoff rounds at the end of the year, some hubs encountered staff shortages and timelines for ticket response and submissions. projects became unacceptably long for many bankers.
The cores with whom the committee raised customer service issues acknowledged their challenges and described their plans to improve performance. However, real improvements in customer service are likely to take some time to impact bankers.
“I was very surprised by the diversity of responses and plans and that each provider had a somewhat unique interpretation of the problems,” says Steve Lewis, CEO of Thomaston Savings Bank in Thomaston, Connecticut. However, in a preview of the survey research scheduled to be published in CoreConnection during the ABA Conference for Community Bankers, frustration with cores continues to simmer, with half of banks with two to four years remaining in his main contract considering a conversion.
4. Hubs where the CTO sets the strategy may have an advantage.
Some of the legacy cores don’t have a single corporate CTO setup strategy on their products, which can leave them behind in keeping up with the digital future. Cores where the CTO’s responsibility is split across products can be hampered and instead focus on the need to standardize across platforms rather than focus on end-to-end integration capabilities. “For a technology company, that surprises me,” says DJ Seeterlin, director of innovation and strategy at Kilmarnock, Va.-based Chesapeake Bank and immediate past chair of the Core Platforms Committee. “I think this gives those companies an advantage because they have a cohesive focus where the company can make big bets for long-term strategy.”
For the committee members, the digital transformation strategies of some providers were a proof point of the committee’s work. “If only two of the cores are making major investments like these three years after we met with them to tell them they needed to improve, that means our message has been heard, our work is paying off, and we’re moving the dial. for the industry,” notes ABA president-elect and former chair of the Core Platforms Committee, Julieann Thurlow, president and CEO of Reading Cooperative Bank in Reading, Massachusetts.
5. Legacy kernels retain some advantages for “core” functionality.
Customer service issues aside, kernels can be useful for their “core” functions. In its previous work, the committee identified core strategies as “best-in-class” or “sidecar” kernels that employ a legacy kernel for continuous general ledger and record system functionality, but allow banks to take advantage of new providers for other functions. Committee members believe that many banks will continue to find inherent value in relying on established providers for a system of record while innovating at the edges.
“While innovation can be challenging when relying on your core, there are benefits that shouldn’t be overlooked in keeping critical functionality in an incumbent core,” says Trey Maust, noting that major core vendors understand and live under a regulatory umbrella, they are vetted, tested, and safe. “Essentially, they act as solid foundations that you can build on.”