September 16, 2021
TABLE OF CONTENTS
In this new video series from Levvel, our industry experts discuss why and how core modernization is a logical and manageable next step toward digital transformation for FIs. With payments as an ever-changing landscape, FIs need to rethink their relationships with technology and embrace innovation. While it may seem like an overwhelming—and costly—undertaking, these episodes will break down the core modernization roadmap in a consumable way. We’ll share relevant insights and stories on how we’ve helped FIs overcome their biggest technological challenges.
Over the coming weeks, new episodes will be released on how to best implement a core modernization into your digital efforts to future proof your business and improve speed-to-market, promote potential partnerships, and meet customer demand.
Fred Fuller: Core Modernization is important for a couple of reasons. The obvious one is that it helps you to maintain your competitive advantage in the marketplace and that competitive advantage is what allows you to serve your customers and make sure that their needs are met.
If you don’t do it, some other organization in the Fintech world is going to come in and provide that service or product to your customers. And it’s going to impact your business and your ability to serve your customers and be that one-stop shop that a financial institution wants to be for all of your customers’ financial needs.
Now what’s interesting about Core Modernization is that it will require a complete reset of how it is that everyone within a financial institution thinks about banking. It requires a reconsideration of so many things from top to bottom.
Core Modernization all too often is thought of as a pure technical play, and the technology is obviously critical to Core Modernization. You can’t do it without technology. But the bigger point is that it is a cultural shift. It requires a complete cultural mind shift from the top to the bottom of the organization and from technology, from business, from product, et cetera.
Everybody within the organization is required to reconsider the way that they think about the products and services that a financial institution can offer their customers and how they go to market with those products and services. It is a very, very important opportunity for financial institutions to embrace the evolution of technology within the world of finance and what that means to your customers.
John Dickerson: Why should banks care about it? It’s critical to everything that they do, specifically around customer-centricity and the way that they’re going to service their customers, in ways that their customers want to be served. So my point here is, there are a number of disparate channels that customers are contacting banks today.
They’re going through mobile. They’re going through the web. They’re in line at the branches. They’re on hard, main telephone lines. The banks that are going to win today are the ones that are able to deliver a consistent experience regardless of what channel the customer chooses, and that may be multiple channels for the same thing.
We’re seeing instances where call centers are packed, 25 minute call times. Those customers are typically on that call center line. They’re dialing up their private banker. They’re trying to get into a chat room. They’re basically taking the race to whoever answers first, and the banks that are going to win are the ones that will be able to deliver that same customer experience, time and time again, regardless of the channel that the customer chooses.
Fred Fuller: Who should be thinking about Core Modernization? What banks qualify? That’s an interesting question. And I think the answer is, everybody qualifies. All banks are qualified. Core Modernization is something that should be considered regardless of the size of the organization, geography, and products and services that you think you may or may not be limited to. Everybody should be considering Core Modernization because it is the single most critical way to make sure that your customers’ needs are met.
Oftentimes when we think about innovation, if you will, that innovation quickly becomes something that is for the other guys, right? That’s for large financial institutions, or that’s only for credit unions, and Core Modernization really breaks down all those barriers and says that it is for everybody.
It is something that all financial institutions should be exploring and considering because the threat of innovation coming from the Fintechs of the world is what you really want to guard against. And in order to make sure that your customers have the right experience and have the products and services they need, Core Modernization is the path to get there.
John Dickerson: Which banks should be thinking about this challenge? Really all of them. The top banks today have armies of people already dedicated to this. The ones that are really going to have to step up to the challenge here are the regionals. We’re seeing it in the community bank level and credit unions. It’s really all banks that service customers. What’s happening today is there are fintechs that if you do not develop a way to modernize your technologies, a Fintech is going to do it.
It’s either let somebody else in the door to service your customers or figure out how you’re going to take that on. And this helps you take advantage of solutions that are out in the marketplace, that you don’t have to build and won’t be as expensive, and they’re not a competitive differentiator. There’s really no reason for you to do that.
Taking a look at what you should build yourself, what you should buy and where you partner are critical. And those assessments aren’t easy assessments to do. There are gaps and trade-offs as you make those decisions, and you want to go with somebody that has the experience that can help you think beyond the initial scope of your solution to future proof the decisions that you’re making today so you have a flexible architecture to take advantage of solutions that aren’t in the market in the future.
Fred Fuller: Core Modernization is something that should be considered as a complete, holistic, cultural change. And when you put it in those terms, it becomes very big, very overwhelming, and all encompassing. And the reality is, Core Modernization is something that when done in small bite sized chunks is very manageable for any financial institution of any size. And it has to be broken down in that way, very slow, very methodical for the original core modernization, if you will.
The important thing is to identify and isolate a minimum viable product. What products do you want to go to market with on the new core? Establishing what those products are, and then sticking with it. And if you stick with it, you can get to market quickly, and then you can iterate quickly, and you can add new products, and you can grow on that new foundation.
But trying to get too much out too fast will become overwhelming, and it can be deflating for an organization. I think the critical thing is to make sure that you break it down into very small pieces that are manageable and stick with that plan. And if you can do that, then you will find that it’s not nearly as overwhelming or imposing as is often thought.
John Dickerson: Well, how banks should be thinking about this is really in the views of their customers and how they want to serve their customers. Today, many banks are looking at this in product silos. They really have to look at this across the whole banking company for the ability to cross sell products. A great example of this is open banking.
So open banking, a bunch of APIs that will be out there that will allow, not only banks, but Fintechs and others to share data. And if you’re not thinking about this, somebody else is going to determine what data they get and how they share it. The banks that will win will be the ones that are out front, that control their financial customers’ data and how that would be shared.
Again, getting back to the open banking framework, unless you have a flexible core, a modernized core, it’s going to be harder to take advantage of these things. But if you have that, then it’s much easier to get into the typical API sets that lower the burden on your IT team to come up with an API strategy. And that’s one part of it. And then the second is, how are you going to continue to maintain and build those APIs so you’re not only making it easy for your customers to get the data that they’re choosing to share with someone else, but that it’s accurate and up to date?
Fred Fuller: Another consideration for how you think about Core Modernization is picking the right partners. I know that organizations of all sizes want to embark on a journey like this on their own. They want to go do it alone. They want to prove that they can do it, that they’re smart and that they’re capable. And these organizations are. They’re all smart and all capable. But what is really going to be the foundation for success is to have the right partners.
If you have the right partners, you pick the right solutions, and you have the right system integration team, you have all the right project management tools, and you make those cultural shifts, if you get the right partners up front, the rest becomes much easier.
Those partners will guide you into how to break this endeavor down into small manageable pieces, they will help you find the discipline to stay with those small manageable pieces, and then they can help you find the path to quickly iterate and grow on those pieces and the foundation that you build. So pick the right partners, start small, and stay true to your core. If you can do those things, that will be the key to success.
John Dickerson: What can banks do today to be ready for tomorrow’s ever-changing payment demands? Again, it comes down to strategy, how you want to service your customers in the future. So it could be potential payment methods that aren’t available today. We’re seeing things that are hot in the space and buy now, pay later. We see it in open banking and sharing financial data with others and many other applications. The main thing that you want to do is take a look at how you want to service these customers and bring in a partner that has the experience and understands the landscape.
It’s essential to get an outside perspective of where the industry is going. Even if it’s just a validation of what you’re doing today, you must obtain that outside perspective to ensure that you’re on the right track. And that you understand the gaps and trade-offs for the decisions you’re making today and figure out the best practices in the industry.
Fred Fuller: How can financial institutions prepare today for tomorrow’s payment demands? The single most significant thing that you can do is figure out a way to make sure that you create a flexible platform. So one of the things that we’ve seen is our partners, our clients move forward with creating an API gateway, for example. With that API gateway, as new payment opportunities, technologies, and products come along, you can quickly adopt those versus a less flexible and dynamic platform that will require a considerable amount of heavy lifting every time you want to make a change or onboard a new product.
Thinking about what you want the future to look like and planning for options that don’t exist today, creating the foundation and technology that you need to adopt those products and technology quickly will be the key. I would start not by adopting a particular discipline or product when it comes to payments; I would start with the foundation necessary to add that first product but be prepared to add more, knowing that the landscape will continue to evolve.
The way FIs can best future proof for additional products and needs and evolutions in the payment space is to make sure that you build the right foundation so you can adopt additional technologies, but having a mind towards what technologies will be relevant for your customer base. A financial institution that does a tremendous amount of mortgage lending might have a different need or a different approach than a financial institution that is very, very heavy on the debit or treasury side.
You need to look at your landscape, you need to look at your customer base, your secret sauce, if you will, and understand what payment methodologies, products and disciplines will be best suited for your customer base. As you build out the foundation, you are building that out in a way that will be most relevant to you and your customer.
John Dickerson: Some of the common roadblocks and pitfalls that we think banks, and that we see that banks need to be aware of, one of the common things is where to start. In innovation or ideation, tons of ideas that are out there get piled up. Then the question is, okay, how do you focus? How do you prioritize? How do you figure out what’s going to be what you can deliver in the near term that will have the most significant impact? These are some of the things that we help you think through.
Some of the other challenges are the change management parts. It’s how do you go from the strategy to doing it? That’s the change management part. It’s easy to put a lot of theories and ideas out there. The hard part is getting to the implementation stages of that. Then finally, the common pitfall that we see is that it’s not a one-and-done process. This is a very iterative process that continues on and on. You have to continue to measure and analyze your results and potentially change or pivot your strategies, depending on the market’s direction.
You’re not going to be able to make all the predictions, and you’re not going to be a hundred percent right all the time. This innovation process keeps measuring what’s out in the marketplace, what your competitors are doing, what fintechs are out there that are building solutions because banks are not providing those products today. All things to take a look at. But again, those common pitfalls are not a snapshot in time. You have to continue to look at the technology roadmaps, specifically where innovation is taking place.
Fred Fuller: One of the common roadblocks and pitfalls that we see as financial institutions and organizations prepare for future demands is twofold. The first is don’t try to plan for everything on day one. That’s not going to happen, and it’s going to put you in the spin cycle, and you are going to get into analysis paralysis, and you’ll never be able to create a solution today that will solve your needs five to ten years from now. Try to contain what you’re trying to solve for would be the first piece of advice.
The second piece would be to make sure that you are enlisting the help of experts. There are many folks, organizations, and people that bring a lot of knowledge and background and history and information to the table. Make sure you leverage those. Make sure you understand the nuances within everything that you pursue to plan for those accordingly, but more importantly, know what you need to prepare for and what you don’t need to plan for.
The pitfall is trying to do too much in one move. You need to give yourself time. You need to be strategic. But I wouldn’t get into that five to ten-year range, simply because technology will advance and change so much by then that you don’t know necessarily what you need to plan for. Don’t allow yourself to get stuck in the planning stage of trying to solve things you don’t even know you need to solve.
Fred Fuller: Open Banking, API management, and system integration play into payments and Core Modernization in a very, very direct way. When we talk about a Core Modernization, that is a foundation built on the technology or the opportunity to leverage API technology. And so, API technology is what empowers Core Modernization. When we talk about Core Modernization, and we talk about being able to iterate quickly and get products out to market, you can quickly spin up a new environment. For example, in a matter of hours versus days, you can release a second product, a third product, a version two; you can do these things quickly and iteratively through Core Modernization. And one of the things that makes that possible is API management, if you will, API technology. And it’s the same thing with payments technology and products.
I spoke earlier and mentioned that if you are preparing for the future state of your payments platforms or payments products, then APIs become critical to that. An API gateway might be a consideration or should be a consideration if you’re thinking about not adding just a single product today but tomorrow. Also, when we talk about Core Modernization, we talk about removing the threat from FinTech innovation. Or at least, that’s one of the things to counter all that innovation and evolution that’s taking place in the market.
And Open Banking is a way to leverage that. Open Banking is a way to provide more services, more value to your customer base. And your customers are going to go where they see can see and acquire value. They can get that value through an API play, but also Open Banking. And these terms are all somewhat interchangeable as well as tied together. And so, when you think about Core Modernization, payments, and the ability to have advanced technology that allows you to serve your customer base, Open Banking, API management, these are things that are tools that enable you to do that. They are an integral part of the entire conversation if you will.
John Dickerson: Open Banking and systems integrations are critical. We’re seeing it in Europe today. It’s not being addressed on the federal level or the regulation level in the US. But we’re seeing more and more requirements, where we have FinTechs that are building their products today. If you’re not building APIs and working with them, they’re screen scraping your data. And what that means to you is you’re not controlling what data is shared. Is it up to date? Is it accurate? Is it being shown in the right way?
So, it’s imperative with Open Banking and data sharing that you have a robust API strategy. And you can have the arguments, is it financial institution data, or is it the customer data? It all comes down to how do you want to serve your customer best? And a lot of these customers will demand that you’re sharing this to make it easier for them to manage their financial wellbeing. And as a bank or a financial institution, I want to be the one, if I were in their shoes, making the best decisions for my customers and my company.
Fred Fuller: How do banks start creating a more flexible and dynamic environment that allows them to adopt products, move quickly, and maintain relevance? That is the million-dollar question. I think it starts with partners. It begins with acquiring the proper knowledge and then understanding that you need to break this down into bite-sized chunks.
The people say, “Hey, that’s interesting, and that’s all high theory and philosophy, and that’s great. But what do I need to do?” And from a tactical perspective, I think it is acquiring the knowledge and the information. I would say step one, analyze your current architecture, analyze your existing tech stack, and analyze what you have today. And then, figure out where it is that you need to be for a future state. And therein lies the gap.
That’s what you want to do is you want to bridge that gap to create the foundation you need so you can do those things tomorrow. Again, that will be best to accomplish by having the right partners, making sure you have the correct information, and knowing what that future state looks like, what that future tech stack should be so that it can accommodate all your needs.
And that is not something that typically is readily available within a lot of organizations. You need to partner with organizations and people who do this all the time so they know where to look, what to think about, and what to consider as you go down a path of this nature.
John Dickerson: You want to start with your API strategy or your connection strategy. Who were the partners that you wanted to play with? You have to focus. You can’t be all things to all people. You can’t customize to every solution that’s out there. So, a lot depends on your products, your customer set. And that’s going to be different for a retail bank versus a commercial or treasury bank. So, you want to take into consideration who are those FinTech partners? Where will that data play? What type of data? How do you want to govern the access of which information that you’ll share?
And again, that’s really by focusing on your customers who are the top solutions out there. Are there solutions that you want to build yourself? What are you seeing that is potentially a competitive advantage that you could be letting go of? Is it one you think you’re better at, that you could partner with the best-in-class and figure out who best-in-class are out there? So, it’s doing that assessment of the marketplace, prioritizing by your customers’ set, which solutions, and how you’re going to interact with them.
Fred Fuller: Decision-making is the most critical part of Core Modernization, of Open Banking, of your payment strategy. And those decisions range. Those decisions range from build versus buy. Who do I partner with? What products are important to me and are important to my customer base, to my success, to my market? What are the things that I need to think about? And how do I feel about making those decisions?
Those decisions can only be properly made when you have all of the correct information. And that information is readily available. There’s a lot of resources out there in terms of partners, in terms of research online. It’s all at your fingertips, but it’s also big and complex.
And so, I think you start with a decision tree, if you will, or a pyramid of, what is the very first decision that I have to make? To do it or not to do it. That’s the first decision. Well, I’m going to do it. Okay, fine. Then if you’re going to do it, are you going to buy or are you going to build? Well, but what are the nuances contained therein? And you need somebody to help you gather that information.
Some organizations can go out and get it on their own, but most are probably best served to make sure they have the right partners in play. And then, you continue down that path. Okay, I’m going to buy it. So, if I’m going to buy it, now, how do I select my partners? Well, you’re going to choose the partners based on the architecture you have in place today and the architecture you would need tomorrow to make this successful.
I would start very slow and methodically with what are the decisions that need to be made? And once you understand what those are, you can figure out what information you need to make those decisions and the best way to get that information. So, there are a lot of very critical decisions that will need to be made. And I think you’re best served to slow down, take a step back, and understand holistically what you’re trying to achieve. And then, think through those decision points, which will prepare you to move forward and move forward with confidence.
John Dickerson: And there are a lot of other considerations out there. Before, in the past, it used to be banks wanted to build their solutions because they wanted them to be proprietary. It was a competitive advantage for them to do so. We see today with Core Modernization that frees up that flexibility where you can pick and play what parts if you want a proprietary solution. There may be better applications that are best in breed in the industry. So, those decisions sets, you have to analyze whether you should build it yourself and continue on a proprietary way? Should you buy from somebody else, have them buy it for you? Or should you partner?
And we see more and more of the times, the latter. Partnering is a great way to do it. Many payment solutions are out there, they’re very complex, but they don’t give a lot of competitive advantage. Customers don’t care when they come to you, and I want money to go from X to Y. They don’t care how it gets there. They’re going to ask about the cost. They’re going to ask about timing. They’re the things that they’re going to care about. They don’t care about what payment route it runs.
There are many opportunities where you can partner with somebody who has already written and developed a solution that’s out there, keeping it up to date. And it keeps you out of that maintenance mode of keeping up with ACH rules or RTP rules by using a solution that will do that for you.
So, a great place to start is to bring somebody in that understands the market, that has been through these decision sets before, and can accurately layout for you not only the gaps between the decisions that you need to make but the trade-offs of potential decisions, and how to future proof, not only your tech stack, or your marketing tech stack, for the future.
The last thing you want to do is build a proprietary solution and have to rip and replace it. That’s very painful, very costly, and you want to avoid that.
SVP, Retail Banking, Levvel
Senior Director, FS&P, Levvel
Meet our Experts
SVP, Retail Banking, Levvel
Fred Fuller has nearly 20 years of corporate finance experience with a focus on data analytics, process improvements, and strategic decision making. Prior to joining Levvel, Fred has held several senior leadership positions within the financial services industry at companies such as Cardlytics, Inc. and S1 Corporation. He currently manages a team responsible for all client engagements for the Financial Services & Payments team at Levvel, while supporting sales efforts with deep expertise in banking and payments. In his free time, Fred likes running, hiking, golfing, and spending time with his three boys in the Atlanta area.
Senior Director, FS&P, Levvel
John Dickerson is a Senior Director at Levvel where he is responsible for business development and strategic client relationships. John is an experienced 25+ years business development executive with an extensive background in Financial Services. Prior to joining Levvel, John managed a broad variety of responsibilities for Epsilon, Bank of America, and MBNA Corp. including enterprise sales, marketing, operations, and administration. John was directly responsible for the portfolio performance, marketing strategy and execution, and client relationship management for several multi-billion dollar portfolios. John graduated Summa Cum Laude, Bachelor of Science, from Drexel University and currently resides in the Wilmington, Delaware area with his wife and two children.
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