Reimagining Legacy Core Banking Technology
09 November 2021
by Kelly Hund, Inside Sales, North America
The following is Part Two of a three-part series highlighting key results from a Volante Technologies survey report of 160 mid-tier banks and credit unions in the U.S.
U.S. banks and credit unions spend over $70 billion per year on technology, much of it going to maintaining legacy core banking systems. With pandemic-driven digital payments volumes growing fast, and the number of real time payments poised to triple by next year, many financial institutions are re-assessing the relationship between their core and payment systems.
“If it aint broke, don’t fix it.”
Traditionally, legacy core banking systems, and their payments components, have been both reliable and successful. Failures of service are few and far between, with many banks not experiencing outages for lengthy periods of time. In addition, with payment services having been limited to check, ACH, and wire, core systems did not need frequent updates to accommodate new payment types.
However, the advent of digital banking, real-time payments, cloud, and APIs is starting to expose weaknesses in the approach. Volumes are rising rapidly, and the number of payment types that consumers and businesses use regularly have doubled in the last decade. Banks are experiencing a new wave in the way banking products and core/payments partnerships are constructed.
To examine this more closely, Volante Technologies recently surveyed a large group of mid-tier banks (defined as having $2bn to roughly $30bn in assets) to understand their payments modernization priorities and their view of the relationship between core banking and payments. (To learn more about the trends behind the acceleration in RTP adoption, and the mid-tier banking payments landscape in general, download your complimentary copy of Volante’s 2021 Mid-Tier Banking Payments Modernization Survey Report here.)
The survey found that in sharp contrast to community lenders, most midtier banks have already made the shift to separating their payments products and processing services from their legacy cores.
According to the survey, “among the respondents, a surprisingly low 22% say they used their core processor for payment services. While using a core processor for all payment services brings simplicity, accountability, and usually a cost advantage, it often does not provide best-of-breed service. Clearly most banks (78%) believe that a best of-breed approach is a preferred path.”1
Reimagining banking technology starts at the core. When banks separate payments processing from their core they gain more control over their operations, and greater agility to quickly meet changing market dynamics and customer demand. Banks can modernize their payments capabilities faster, without upgrading or extending their core system.
Benefits from modernizing payments capabilities:
- Faster time to market for new products and services
- Reduction in upfront costs
- API-based applications
The industry is already investing in modern approaches such as cloud-based payment systems and Payments as a Service (PaaS) platforms. 62% of survey respondents plan to upgrade one or more payment systems over the next 6-12 months, with PaaS being the #1 modernization initiative to maximize resiliency, cost efficiency, and adaptability.
1 Source: Volante Mid-tier Bank Survey 2021