Exhale, GonzoBankers, I won’t be doing a comparative retrospective on REO Speedwagon lyrics this week. For the record and for the sake of my stellar reputation – REO Speedwagon blows and is highly overrated, but it just so happens that they have a couple tunes that fit the bill for this week. So save your emails on that front, Chachi.
I was talking with one of my many amigos in the vendor sales community the other day, and he was commenting about the many articles from the ivory tower, clean-fingernailed research houses predicting the mass migration off of today’s dominant core platforms onto “new technology” products. We both got a good belly laugh out of that one. “Scott,” he said, “our pipeline is great, but the churn has nothing to do with bankers looking for new technology. I don’t really know why they’re looking, but we’re looking great this quarter.”
I had to agree with him that, despite budget cuts and countless other regulatory and technology projects on our clients’ plates, bank core system selections have significantly picked up in the past 12 months. Like my vendor friend’s pipeline, Cornerstone’s core replacement projects have had next to nothing to do with upgrades for the sake of newer technology. What we are often seeing is banks facing one of two “Oh, Crap!” moments, as we say in the bidness:
To be clear, our advice to our clients is to Always fear and respect the calamity of a conversion. Avoid it like you avoid picking an SEC team to win a game in March Madness this year. Too much risk, cost and lost productivity are at stake to take a conversion lightly. If you can’t clear the Compelling Business Need hurdle, you probably don’t have any business running the conversion race.
Sometimes, the problem really is not core. You might find yourself knowing that your core system is meeting your needs, but your expected growth in retail necessitates more specialized front end products. You can go out and purchase a high end Internet banking product and spend some effort and money on integration. You can also find more functional, tightly integrated loan origination systems. In some cases, you can even hook yourself up with new and improved teller and branch platform systems that work just fine with your core system. If your core is truly meeting your current needs and is poised to meet future needs, going high end on some ancillaries to get you over a functional hump is not just putting a Band-Aid on the problem. It’s the right decision.
I’ve been thinking lately of what I’m missing in the city.
And I’m not missing a thing…
The wind outside is frightening,
but it’s kinder than the lightning life in the city.
–REO Speedwagon, Ridin’ the Storm Out
On the other hand, if you do find a compelling business reason to convert, get it over with sooner rather than later. Waiting is only going to inflate the problem.
Say you have a longtime girlfriend – maybe you’re living with her. One day, you wake up and know there’s not a long term fit. She used to be cool; now she’s a serious Neg-Bomb. It happens. You know when you drop the news that it’s over, there is going to be pain. Loud, searing, vindictive pain. Thrown stoneware and maybe even some gunplay. But, better to face it now than after you spend another five years together, get married, own a house, pop out a couple of kids and wrap your entire life around her. So I’m told.
What’s right for them
May be wrong for you
So come out of the jungle
Of another man’s dreams
And if you come to a clearing
As lonely as it seems
It’s never too late to breakaway
–REO Speedwagon, Breakaway
Think of this dilemma in which far too many of our clients find themselves. A bank is $5 billion in assets and making a dramatic play to grow small business and commercial loans/deposits. The bank knows – Knows – that its core system was designed for vanilla community banks or maybe even for thrifts. In any event, the incumbent core simply does not have the commercial horsepower to meet the bank’s needs. At the same time, earnings are sucking wind, the bank is still digesting a few newly opened branches, and the management team is generally not in any kind of mood to go through a bloody core conversion. The decision is made to hunker down and make due despite knowing that the bank really Needs to bite the bullet and convert. It’s the easy short term decision.
To keep the commercial managers happy, the bank starts to tweak and develop core functionality on its own. Some customized commercial relationship management code here. A homegrown reporting package there. A Business Objects contractor here; a couple DBA staff-adds there. Add third party packages to meet the bank’s growing needs for account analysis, cash management, ACH origination, wires, etc. And throw in homespun middleware to help the modern ancillaries communicate with each other and the core.The next thing you know, the bank has spent untold millions on development and testing. Even more time and money has been spent integrating countless third party ancillary systems to the flawed core. The bank is always – hauntingly – one release away from the spaghetti strangling the chef. It is spending two to three times what peers spend on technology to avoid what would have been a relatively simple core conversion just a few short years ago. The environment is fragile, highly combustible. And the core STILL does not meet the bank’s needs.
Finally, after five years and multi-millions spent tweaking, developing and adding complexity, the Voice of Reason speaks, and the bank is now forced to switch core systems in order to extricate itself from its expensive, byzantine, chaotic, and Functionally Inadequate technology environment.
The mandated conversion is taking place at a now-$10 billion institution that is twice the size and infinitely more complex than it was when the sub-par core system was first identified. The current conversion risk is off the charts due to the need to unravel the complexity created over the past half-decade to avoid a conversion!
Welcome to the life of many, many of our clients who rationalize keeping an ill-fitting core system around too long. Have the nards to convert – now – if it is clear that an eventual breakup with your core provider is on the way. The pain gets exponentially worse over time, and millions of dollars are wasted along the way.
Another day lost in livin
And another same old beginning
And knowing where and why we went wrong
Someone says I’ve changed
And someone says that I’ve remained
In the same place
For maybe just a little too long
–REO Speedwagon, Breakaway
Next time, you GonzoFreaks! –smh