BOSTON — The buzz surrounding core processing the past several years has been all about integration, about mixing and matching processes and products across and through platforms, including base functionality and extensions such as mobile banking.
And while integration does result in more efficient consumer relationship management and tighter business processes, a new report says, it also can be an IT nightmare: systems that don't speak to each other, changing hardware requirements, and the demand for tech support, to name a few.
The report from Aite Group's Christine Barry argues that while integration among core processes is a reality that must be addressed sooner rather later, "it is not the end-all, be-all to success in this market."
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In fact, she says, her analysis of six of the major vendors in the credit union and bank core processing space finds that diversity of product offerings trumps integration across the board.
For her report, Barry studied Fidelity National Information Services (FIS), Fiserv, Harland, Jack Henry & Associates, Metavante and Open Solutions.
In a kind of numbers game, Barry argues, the financial services technology sector is powered by a mergers & acquisitions strategy. This strategy, in turn, leads to vendors having a diversity of diffuse organizations and processes to support–dozens of satellites, in some instances.
The best bang for the buck, Barry argues, is to parlay these individual acquisitions as unique product offerings to existing solutions, not engage in complete core system overhauls.
"Offering a full product suite beyond a core solution has become an increasingly important factor in core vendor success," she says.
The report offers number to support Barry's arguments, including slow core system replacement over the past three years. Moreover, nearly all of these replacements — 90% — were by small banks and credit unions, not international mega-banks. (There were 516 core system conversions in 2006, for example, among the 15,000 or so banks and credit unions in the United States.)
"The slowly growing core system replacement market has added to [product suite] importance by requiring vendors to depend less on that product area than in the past," Barry says.
While their product suites differ, the six vendors each offer a wide diversity of product expansions to existing core solutions. Examples include:
-Vendor payment processing (ATM debit and credit card processing, EFT switching, open and closed loop, prepaid processing);
-Online banking and bill payment processing (online cash management, small business and consumer banking, online account opening and funds transfer, electronic and expedited bill pay); and
-Lending (mortgage processing, loan servicing and processing, risk management/compliance).
Several vendors, however, have struggled with the transition from core process to product suite emphasis, Barry says. Four out of the six vendors analyzed watched their market share decline with this transition, she says.
Full-blown process overhaul or subtle product add-on, the best IT solution — of course – will be one that has the client credit union in mind. Scalability and compatibility should always trump technology; a vendor must be able to prove it can support both small and large organizations, Barry says.
"While the ability to deliver and clear and integrated marketing strategy and product portfolio are… essential to success," the Aite Group analyst argues, "the drive for greater integration should not be at the expense of other attributes. Integration alone will not pay."
For more information on the report — titled "Core Vendors: Will Integration Pay?" — go to www.AiteGroup.com.
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