Conversions, third-party integration, access to data, and contracts were on the agenda for a key session during the Mutual Community Bank Forum at the American Bankers Association Washington Summit two weeks ago. Themes the program kept coming back to included choices for modernization, the navigation of often-challenging relationships with core system vendors, and the value of independent strategic decision-making.

Here are four things we heard:

1.  Banks lean too much on their core provider.

A problem, the session noted, is when bankers “treat their technology decisions as product-driven, rather than strategy-driven.” They should flip that approach on its head. It’s important first to set a strategy, then to identify and implement tools that fulfill that strategy. Rather than let a vendor’s roadmap dictate theirs, bankers should ask if their core is compatible with their strategy and if their strategy demands other tools.

2.  Bankers often feel a tense relationship with their core system vendor.

According to data from the American Bankers Association, 42% of banks are “somewhat dissatisfied” or “extremely dissatisfied” with their core provider. But there’s a good chance they’ll hang onto the relationship anyway — 61% of said they were “somewhat likely” or “extremely likely” to stick with their existing core system at the next contract renewal. The dynamic inevitably stresses a relationship.

3.  To be nimble, banks need to look beyond their core system.

Product development problems, according to the session, include the wait to get a proposal back from a core vendor and the slow pace of integration for new products. The general feeling seemed to be that a large majority of banks are stuck — they often can’t use solutions besides those offered by their core provider. (As we have written, it’s crucial that banks evaluate a best of breed strategy, understand what is available outside their core providers’ product lines, and what infrastructure they need to implement it.)

4.  Middleware is a popular choice for modernization.

Given the demand from customers for new products and services; competition from banks, credit unions, and fintechs; and available fintech services; banks should have infrastructure that at minimum allows them to connect quickly to outside services. (Data from CCG Catalyst’s 2023 US Bank Study supports this anecdote — 75% of FIs prefer a limited or phased migration, including 28% who prefer middleware.) As we have illustrated in past research, some cores date back to as early as the late 1960s. The users of legacy systems are often in dire need of updates and enhancements to their core processing systems, starting with business strategy.

It ultimately may not be practical or feasible to go outside a core provider’s ecosystem. But for banks renegotiating contracts with their core provider or considering a migration, according to the session, part of the bank’s strategic planning should be to understand the core provider’s plan to modernize its own product line to an application programming interface (API)-native, cloud-based solution.