Banks come in different shapes and sizes and with different strategies for growth. While analysts and software vendors often focus on selling to a homogeneous market of banks looking for new core banking platforms, there are actually many different heterogeneous needs here:
- Large multinational banks looking for specific domain capabilities: These banks normally take a divide and conquer approach to their business where these domains are segmented by customer type or function. For example, channels are normally considered to be quite distinct from back end processing, and origination platforms are often considered distinct from channels — now from a technology perspective all of these domains are converging and the more seamless the connection between these loosely coupled layers the more agile the bank — but from an operational and strategy perspective these are normally different concerns. This makes it very difficult for an ‘all in one’ package vendor to woo the bank. Even logistically, all of the people concerned couldn’t fit into the same room! For these banks, multi component solutions that work well together but can be implemented in stages over time are a great fit.
- Smaller community banks and credit unions that are looking for a front to back and end to end solution. For this size of financial institution it simply doesn’t make much sense to separate customer servicing from front office activities (it’s often the same people) and solutions in this space need to exude simplicity: from a business operations perspective as well as from a technology footprint perspective. A small community bank doesn’t want to see an 18 wheeler pull up with 80 servers to implement their new core banking platform!
- Mid sized banks have a challenge. They need to select between these approaches and will need to factor in growth and expansion strategies to ensure they don’t pick a ‘dead end platform’
Core banking package vendors need to be careful about how they position themselves. Some vendors are saying to the market “I’m a bank in a box..” which is great for the smaller banks but will not resonate with the larger banks. Other vendors present a different picture to the market, indicating that they are only for the large banks — these firms risk alienating the mid tier growth segment.
Technologically the platforms previously thought of as very flexible but only able to handle the capacity of the smaller institutions are now scaling up and reaching the tens of millions of customers — so there will likely be some blurring of these lines, but vendors will need to realize that each type of bank is looking for something different and make the necessary steps to adjust their architecture and marketing message accordingly. If a core banking software vendor can do this successfully by creating a modular and complete architecture and focusing the message on the specific segments of the market they will be able to have a one size fits all solution.