Core Processing: The Heart of a Bank The Beat Goes On By Marsha Cansler
With revolutionary products such as Internet banking, imaging and bill presentment literally changing the way we bank, core processing can seem rather "ho-hum" by comparison. Indeed, the glitz and glamour tends to revolve around the newer solutions in the marketplace - those that surround the core.
However, to have a good product suite and enjoy the benefits of a fully featured and functional system requires a solid, stable core processing solution. Put another way, core processing is what Jack Henry & Associates National Sales Manager Ed Rhea calls "the DNA of the bank." "Sometimes you can get caught up in looking at Internet solutions, new account platforms or the presentation of a system," says Rhea. "But when it really comes to the nuts and bolts - managing customer information, processing their accounts, generating their statements, producing the bank's financial and regulatory reporting - you spend a lot more time doing that than you do on all the other pieces of the business."
That's why Jack Henry Vice President of Technology Services Tony Wormington stresses, "It's important for a bank to peel back the layers of the onion when looking for a core processing system to make sure it has all the functionality necessary to run an institution." He explains that a core product may look good on the surface, but upon implementation, the discovery is often made that there are products and services a bank has that the system is unable to service. A mature, feature-rich solution, on the other hand, will handle a full range of applications.
Integrating vs. Interfacing to the Core
Core systems continue to be refined to better support the increasing demand among customers for a number of complementary products. Ed Rhea observes, "A growing trend is toward integration - not interfacing - but integrating tightly woven complementary products around the core to deliver the whole solution." While it is rare to find a vendor that offers fully integrated products in the marketplace today, both Rhea and Wormington see the industry headed this way for several reasons.
"Customers today expect to be able to walk into a bank, obtain their account balance, and receive that same balance through the ATM, voice response or on the Internet," says Wormington. "Core and complementary products must integrate together and be real time to provide consistent, accurate data to customers regardless of the delivery channel through which they are provided." Integration makes this possible.
Integrated complementary products are designed to work in harmony. They don't merely "talk" to one another, as do ancillary products that are interfaced. Development teams work together to ensure complementary products are fully integrated from inception. An added benefit is that the various products are consistent in terms of their look and feel. Consequently, when a new release of the core system becomes available, engineers aren't scrambling to interface products such as the teller system. They are integrated to function hand in hand.
Many banks are moving to the idea of one-stop shopping for a fully integrated solution. They are looking to a single vendor to provide a complete financial product suite that handles everything from the backroom of core data processing through all the touch points of a customer - truly extending appropriate core functionality via all the alternate delivery channels that would be utilized to deliver information.
In so doing, financial institutions get a cohesive offering and, at the same time, they get something else of immeasurable value … consistent and reliable service and support. With only one number to call, it is easier to get questions answered and problems solved. And there's no more finger-pointing among a variety of vendors. Knowledgeable support personnel handle issues in a timely manner with care and expertise.
Ownership vs. Partnership
Traditionally, most core processing vendors have partnered with those that provide ancillary products, interfacing the systems in order to offer full solutions to customers. In recent years, however, an increasing number of solution providers are consolidating, finding it more beneficial to acquire other companies and integrate their products together. "I think the bigger players will move toward owning as opposed to partnering," says Rhea. "You have more control and are able to deliver a consistent product from soup to nuts to your customer." He adds, "It is financially more attractive to own as opposed to partner, not only for the vendor, but also for our customers."
This financial incentive for a bank to contract with a vendor that owns the entire solution goes beyond just the reduction or even elimination of interface fees. Installing an integrated solution eliminates the need for a financial institution to employ a large technology staff to handle the interfacing of multiple products from multiple vendors. Clearly, vendor consolidation and the ensuing integration of products create a win-win situation for all parties involved.
Evolving Technology
Technology is changing from both a hardware and software perspective to improve core processing. "One of the things I think is helping core processing today is that hardware is being scaled upward in what are considered to be medium-sized community banks," Wormington notes. "This enables many core products to scale to larger institutions with assets of several billion dollars."
There is a strong appeal for these larger banks to implement totally integrated solutions that include all the complementary products. Thanks to core processing systems that are built around the CIF (customer information file), any size institution is now able to tie these products together for an accurate overall picture of the customer. Vendors are creating software architectures that are more customer-centric, with applications such as deposits and loans developed underneath the CIF. Wormington explains, "Just as the core is the heart of all complementary products, so is the CIF the heart for the core itself." Rhea is quick to add, "It is important to continue to enhance the CIF model and provide banks a quick and easy way to access a holistic view of their customers."
Impact of the Web
Core processing systems today are continually growing in terms of feature and functionality. Modifications are typically regulatory and customer-driven. But, according to Wormington, "The trend is toward technology-oriented changes that will create new, more efficient ways of delivering the same type of data or allow products to integrate better to the core systems out there." He continues, "There is certainly a movement in the industry to re-vamp some of the core data processing solutions to take greater advantage of a web-based technology."
Wormington predicts more core processing solutions will incorporate a browser-based technology with multi-tiered architecture to allow a much thinner client for all end users. Not only is this cost-effective, but the technology takes all the intelligence off the workstation. The desktop is hooked up to the server. Bringing up the browser drives the application, which lifts the burden of managing all the desktops.
Staying Strong Amid Growing Competition
Competition among banks for wallet share is increasingly fierce - and it's coming from everywhere now that the Charles Schwabs and State Farms of the world are offering financial services. Rhea suggests an important role that solution providers can play in helping banks achieve their goal of asset retention. "Vendors must work to develop new software from a core and complementary perspective so that financial institutions can offer new products and services to their customers," he says. "That's the key." Wormington agrees, "The significant differentiators in the industry are the complementary products that surround the core."
The message, then, is that the core must be strong. It's the heart of the bank. Keep it beating.
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