Academic journal article ABA Banking Journal

Does Core Really Matter? Some See It as a Commodity. A 30-Year Veteran of the Core Banking Software Business Shows How Banks Can Extract Maximum Competitive Advantage from Their "Core"

Academic journal article ABA Banking Journal

Does Core Really Matter? Some See It as a Commodity. A 30-Year Veteran of the Core Banking Software Business Shows How Banks Can Extract Maximum Competitive Advantage from Their "Core"

Article excerpt

In May of 2003, Nicholas Cart broke convention with most technology experts and wrote an article for the Harvard Business Review entitled, "IT Doesn't Matter." His theme was that information technology had become a commodity. He further stated that it was scarcity, not ubiquity, that makes a business resource truly strategic.


Needless to say, Mr. Carr's article was met with an outcry from the technology community that has always touted IT as being critical to creating competitive advantage. After all, that IT has deep value was and still is very much the "sacred cow" of the technology industry.

For years, almost every core banking software vendor has made a similar claim-that their core software solution provides a financial institution with a competitive edge. On the other hand, consultants have often argued that the core systems available to banks today have become a commodity. Being that I spent most of my career selling core banking software systems, I always cringed at this notion. One can, however, see where this thinking has come from.

Other than the client/server systems that broke into the marketplace in the early Nineties, no single core banking software provider has introduced anything close to what one might call "revolutionary innovation." There were graphical user interface (GUI) front ends, open architecture, middleware, service oriented architecture, and to name a few advances. But, in the absence of any earth-shattering news on the core banking front, one can see how the commodity label has stuck.

The argument that core systems create a true competitive advantage for a bank stems back to the late seventies and early eighties. It was then that small, more affordable mini-computers became available and community banking systems which ran on these systems came into vogue. It was a new alternative that let a community bank "control its own destiny" and have what they believed was true competitive advantage over those institutions who chose to remain with their service bureaus and correspondent processors. But that was then, where are we today? Does Core really matter?

Answering that question makes for an interesting debate among bankers, vendors, and the consulting community; but let's get some facts out on the table.

First, no single vendor organization or core software product can lay claim to the fact their product will deliver better results when it comes to ROA, ROE, or efficiency ratios than any other core product. Surveying the top performing 25 or 50 community banks in each of those categories will leave you with a list of progressive, well-managed banks, all having great success and yes, running on a variety of different core systems. No single vendor or product is clearly dominant in these measurement categories.

Second, if one digs deep enough into any vendor's user base, you will typically find a wide range of client satisfaction and success with the product. You have users that are ecstatic (typically the vendor references), some that are reasonably satisfied, and those that are totally dissatisfied and looking to make a change.

It's a puzzling phenomenon: The same core software from the same vendor organization, implemented using the same methodology, supported by the same customer service organization produces totally different degrees of satisfaction.

Understanding these two points and acknowledging that every core vendor has challenges to some degree integrating third party products with their core, one can see how consultants may have adopted their position that core systems are a commodity. So where does the hype end and the logic start?

Why new runs like old

Community bank consultant Art Gillis once said when speaking on the subject of core systems (and I am paraphrasing), it is important that you find the right system for your bank, not necessarily the best system. …

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