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Core conversion: Are your hands really tied?

Banks begin reexamining assumption that it’s too messy to tackle

Obvious and mediocre won’t be found here—but “Why didn’t I think of that?” will! Challenging the banking status quo is Dan Fisher’s personal mission. Obvious and mediocre won’t be found here—but “Why didn’t I think of that?” will! Challenging the banking status quo is Dan Fisher’s personal mission.

In the past, when it came to renewing a core application contract, institutions would either negotiate with the vendor themselves or engage a consultant.

Truth is, more often than not, they would pass on the consultant and go it alone. Their thinking was to save the consulting fee and get a better deal by going direct.

Why? The motivation was to avoid a core conversion at all costs and squeeze out a better deal with the incumbent vendor. It was done all at the last minute, with little time to bargain and a limited scope. The outcome relatively nominal in gain, but over fast.

“Ah … we don’t have to worry about that for another five years. Great! Let’s move on. Done!”

Technologically speaking, here’s the rub

It wasn’t until bankers began networking with their peers that the institutions negotiating directly with the vendor found out not only did they not receive a better deal, but they quickly found themselves with technology that was hard to change.

Sadly, they were falling farther and farther behind competition.

And it would be five years before they could do anything about it.

Furthermore, when they read the contract more thoroughly, they realized that it was full of “Gotcha Clauses.” Too late!

They now have to wait to make any real changes.

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If this happened to you, you think to yourself, if you only knew before you executed that contract! Dang! but that is for another blog!

For core, times are changing

When we started our consulting firm, 80% of our core review business was just re-negotiating with the incumbent core vendor and 20 were de novo banks (new core application) or true core conversion. Today, for a number of reasons that trend has changed and in a very big way.

No longer do institutions fear a conversion.

And the dread has begun to fade.

Some even look forward to the challenge, with the main focus to significantly upgrade their technology at a reasonable price.

Let’s not forget that the Federal Financial Institutions Examination Council has promulgated guidance specifically requiring bank management teams to perform a due diligence review on all major vendor decisions and it must be documented.

Over the last three years, our core review business has really grown. Institutions want to make a more informed decision. At the start of a review, the institution clearly defines the expectations. Most include the objectives of improving customer internet facing technology, operational efficiently, and pricing performance.

When it comes to the incumbent vendor, all bets are off and anything goes. Nothing is sacred!

“Hasta la vista, vendor!”

Here’s the big change … three out of five of our clients who engage us to help with a core review leave the incumbent vendor. The decision is easy and that number is moving higher. Contrasting the differences from all of the vendors that participate in the review, the gaps are so significant between the vendors. This alone serves as the motivation to change.

Institutions quickly realize that when they do their homework, and conduct an unbiased, fair, and competitive review, the answer is obvious to the most casual observer.

Increasingly, banks see conversion as no big deal. The change is easy to justify.

Maybe it’s time for your bank to move on.

—The Wombat!

Dan Fisher

Dan Fisher is president and CEO of The Copper River Group, a consulting firm headquartered in Fargo, N. D., that focuses on technology and payment systems research and consulting for community financial institutions. For nearly 30 years, Fisher has worked in the financial industry using technology to improve the bottom line. He was CIO of Community First Bankshares (now part of Bank of the West), has served as a director of the Federal Reserve Board of Minneapolis, the chairman of the American Bankers Association Payment Systems Committee, and was a member of the Independent Community Bankers of America Payments Committee. Fisher has written numerous articles on banking technology and the payments system. He has authored or co-authored six books and recently published a book titled, "Capturing Your Customer! The New Technology of Remote Deposit." You can contact Fisher at dan@copperrivergroup.com or at 701-293-6222.
P.S. To understand Dan's nickname, check out "About the Wombat" on his website.       

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