Breaking the Ball & Chain of Core Banking

It may be time to rethink the core.

Core transactional systems are commonly derided as being outdated and slow, yet they are rock-solid for what they do, such as maintaining an accurate record of how much money is in your account. Oh yeah, that.

At Finovate last week, two vendors discussed plans for a do-over of core banking, but neither was discussing core replacement, an expensive and time-consuming operation that can eat up all available resources and muzzle a bank’s innovation efforts. Banno, now part of Jack Henry & Associates, launched a new platform to allow banks to launch mobile-first platforms, and BancVue, purveyors of the Kasasa brand, said it is building a new system of record to yield deeper insights.

Banno was founded as T8 Webware in 2008, and bought by JHA in March 2014. Founder Wade Arnold still runs the team, which maintains much of its autonomy, but is now an integral part of Jack Henry’s roadmap. Last week at Finovate, Arnold outlined a new platform, called account-as-a-service, that could be used to build a mobile-first layer over an aging core system, or to launch an entirely new direct brand, much like BankMobile or Hello Bank. (Building a parallel bank is a frequently-cited, but seldom-practiced way to handle weakness at the core.)

Small FIs such as Chrome Federal Credit Union and Cross Keys Banks have gotten the Banno treatment, and and their apps and sites certainly don’t look like those of your typical small bank. This informs Arnold’s belief that technology is not what holds banks back — any bank in the country can have a top-shelf mobile app and website, and fairly inexpensively and quickly, too. But the culture, marketing and service of the bank need to support that.

Tech alone may not be the answer, but it’s certainly a good place to start, and it’s refreshing to see it come from a core vendor. “We’re not disrupting anybody,” Arnold told Bank Innovation following his Finovate presentation. “We’re enabling everybody. If we do our job well, no one even knows we exist.”

To compete, Arnold said, banks must be “consumer-first and digital-first.” That is a familiar mantra, but Banno is setting it on its head. “What is a core?” Arnold said. “It’s a vertical future digital channel oriented to the consumer.”

Austin, Texas-based BancVue offers a checking rewards product called Kasasa that is available through hundreds of community banks. If the banks that use Kasasa were combined into one financial institution, it would ranking in the Top 10 in total branches in the nation, said Chief Innovation officer John Waupsh. BancVue has developed the concept of a “consumer system of record,” since the core no longer knows enough about the customer to provide a functional relationship.

SYSTEM OF RECORD

The consumer system of record is simply the enterprise-wide view of the customer, which allows the bank to relate to him effectively. Kasasa has more than 30 different customer touchpoints that it brings together in BancVue’s system, a feat that is impossible for the average core system.

“The relationship belongs to the bank,” Waupsh said. “We just give them the products to deploy, and anchor them on the checking account.”

Customers view their banking relationship as transactional, Waupsh said, but would prefer it to be more relational. “More small business owners would rather meet the president of the bank that gave them a loan than the president of the United States,” Waupsh said, and BancVue has the survey data to back that up. “Customers want more guidance and more advice. Without that, the bank becoming a utility is a risk.”

The trouble is, the customer view of core systems is so limited, bankers have little to offer, which is where BancVue’s “system of record” comes into play. Customers can view a dashboard that shows the spectrum of their relationship with the bank, and which can include relevant marketing messages and rewards. Even logging into the dashboard can trigger a reward — the Kasasa product is all about rewards.

And that will soon extend beyond checking and debit to credit cards. Smaller banks are returning to credit cards after years away, a fact emphasized to Bank Innovation by Jason Gardner of payments platform Marqeta and Matthew Goldman of credit card intelligence tool Wallaby. BancVue will offer Kasasa tied to credit cards later this year, and the customer dashboard in early 2016.

And with that the core will become even less of an excuse for banking innovation.

Get more banking innovation insights at Bank Innovation Israel, Nov. 10-11. Click here for details.