If You're a Small Credit Union, a De Novo, or a Tardy Commercial Bank You Might be in the Market for a New Core System This Year

If history were to repeat itself, and it often does in the pattern of behavior regarding bank tech activities, there will be 409 conversions to new core systems in 2008. Not one of them will make the news, because small financial institutions (FIs) are not usually noticed by the news media. On the other hand, if one of the 137 large FIs in the U.S. (over $8 billion in assets) were to convert its entire core system, you'd hear about it even if you were on sabbatical at the island of Tristan da Cu

1. 87 percent of all FIs: Most bankers love the fact that they are done. It's as if they have had root canal work on every tooth, installed brilliantly white crowns, and have no feeling in their choppers even when they crunch down on a popsicle. They're done with pain.

2. Vendors: The core vendors are showing a stiff upper lip, but deep down they're saying, "What are we gonna do now?"

3. The 409: Although I don't know all of them, I will volunteer the reasons why they are in the "mall."

• Do I have to explain the motivation for a de novo? I think not. • In the past 10 years, credit unions realized they are no longer just a club. They can do anything a bank does, as long as they have the systems. • When a new CEO arrives at an FI he or she usually likes to shake up the status quo. • The resistance to change has finally kicked in because tech-dependent employees are about to walk out, and the old-school management has caved. Forget healthcare, decent wages, and equal rights: "We want a system that does the work for us." • Banks that have been tolerating their dead-end vendor with "good enough" technology have finally discovered, unlike politics, that all banking is not local, and they're ready to compete with the best of them. • Banks in 21 states have discovered that a bank customer in Idaho is every bit as savvy as one in California. You'll never hear this from Gartner, Forrester, TowerGroup, Aite, Financial Insights or Celent, but all bank tech innovation occurs in 29 states. I discovered that by chance, but once I found it, I tracked it on all new events, and for the past 20 years, it has been validated. Now the laid-back banks in the 21 states are ready to act. • FIs want access to anything that might appear on the horizon without reinventing the system's infrastructure. • FIs want reasonable integration so that all apps know how to work harmoniously. • FIs want to be mainstream players. Once, NCR was mainstream. Not anymore. When prime vendors make faces and roll their eyes about your present environment, you're not mainstream. • All FIs want tons of functionality. When some vendors ask you why you want to do it that way, they are really saying we can't do it your way. The prime vendors cover all the bases. • Most FIs want to say "YES" to customers that express sophisticated, yet legitimate, needs in the way they use the 132 pieces of the technology pie. • Some banks grow out of their core system. In my opinion, that says their first choice was short sighted. The right core systems can go from de novo to several billion. • In the past three years, protection has been the name of the game in banking, and technology has risen to the occasion. Good systems offer compliance, security, risk management, fraud detection, business intelligence and warnings that examine every suspicious transaction in last night's posting run. However, making bad loans is still an art form that only bankers know how to paint. Find a solution to that problem and thousands of banks will be at your doorstep.

Several years ago, I thought I had found a reasonably thorough tech method to detect risk in lending. It never got off the drawing board because my focus group advisers had a biological technique that they trusted. 1) I look them straight in the eyes and know if they will payoff or default. 2) I use seat-of-the-pants judgment. Is it any wonder banks are currently adding considerably to their reserve for loan losses?

Prime core systems can't do everything, but it sure doesn't make sense to be stuck with an impotent core system when there are at least a dozen good ones ready to serve today's needs and can continue to grow for the future.