5 things to keep in mind when choosing a core banking system

This is probably the top reason banks switch cores today, said Smith.

Previously, "the general rule of thumb was that small banks preferred to have one throat to choke, or a 'best of suite' model," said Smith. "With the explosion of digital transformation, pre-COVID and certainly during and post-COVID, being first to market and creating new products has advantages. Now a lot of CEOs will say, my core is my back office system and I'm tired of my back office system limiting what I can sell and who I can partner with. They don't want their destiny to be controlled by a 40-year-old core vendor."

Locality Bank, which launched in January 2022, serves businesses in south Florida. The Fort Lauderdale bank chose Nymbus as its core, largely because of its open API system.

"It was foundationally key for what we were trying to do," said Locality's chief technology officer Corey LeBlanc. "We get to pick the partnerships and contracts we want to work with."

So far, that has included integrating capabilities from Hurdlr, a business expense, invoicing and accounting API for entrepreneurs, and recruiting third-party vendors for data warehousing. Locality, which has $122 million of assets, has collaborated with Nymbus to extract data from the core system and develop APIs and data streams.

"At my previous organization, we struggled to get a conversation with our core provider about some of these topics," said LeBlanc.

Arvest Bank in Bentonville, Arkansas, is gradually migrating its loans and deposits to Thought Machine, a London-based company the bank chose in 2021.

"We wanted something thin and lightweight where we could build an ecosystem of applications to have best-in-class service," said Laura Merling, chief transformation and operations officer at the $27 billion-asset Arvest. The bank was also drawn to Thought Machine's smart contracts feature, which lets it design products more nimbly. For instance, in Arvest's legacy environment, a banker would have to visit four or five different screens to change a loan payment date. The smart contracts feature lets Arvest turn it into one transaction.

Bank of Burlington had a novel way of ensuring its core system played nicely with its desired technology partners. The $115 million-asset community bank, which launched in South Burlington, Vermont, in August 2022, specializes in commercial lending. It asked nCino, its pick for loan origination, and Q2, its choice for customer-facing online banking and treasury management, which core they preferred. Both touted Jack Henry, because of its open APIs and ease of integration.

"Overall, when banks are thinking about making a change, I stress flexibility," said Brooke Ybarra, senior vice president, innovation and strategy at the American Bankers Association. "We don't know what we don't know, or what technology will be available in five to 10 years."

A modern core that can handle real-time payments is increasingly important as banks attempt to integrate with The Clearing House's RTP network and the Federal Reserve's real-time-payment processing system FedNow. But many U.S. banks rely on legacy core systems that conduct transactions in overnight batches. Both JPMorgan and Bank of America experienced outages in 2023 that disrupted Zelle transactions — glitches that often occur when digital payments flow through older core banking platforms.

The need to support real-time transactions is one of the reasons that JPMorgan Chase is transitioning to the cloud-based Thought Machine core for its retail bank, a decision it announced in September 2021.

"Everything is moving to real-time," said Rohan Amin, the chief product officer at Chase, in a 2021 interview. "Customer expectation is around real time, meaning if I make a transaction, I see my balances updated immediately, or if I cash out some rewards, I see that change immediately."

Merling also mentioned real-time capabilities as a top reason that Arvest selected Thought Machine. 

Zions Bancorp's yearslong core replacement paid off during the Paycheck Protection Program. By the time the pandemic hit in 2020, Zions, which is based in Salt Lake City, had transitioned much of its lending operations onto TCS Bancs, a product of Tata Consulting Services in Mumbai, India. Zions subsequently stood up its automated PPP lending product in three days.

The $89 billion-asset bank chose TCS back in 2013 because it felt that none of the major U.S. providers were sufficiently modern. It completed its consumer and commercial loan conversions in 2017 and 2019 respectively. It is now replacing its deposit banking system through multiple affiliate bank conversions, which it expects to wrap up in 2024.

There is some comfort in turning to one vendor instead of cobbling together multiple partners.

Kim Kirk weighed the advantages of a one-stop-shop heavily when considering her options for Queensborough National Bank and Trust Co.'s next core system. Her shortlist of options for when the Louisville, Georgia, bank's existing contract expires in 2024 included the Big Three and Smiley Technologies, a lesser-known company based in Little Rock, Arkansas.

"Particularly for a community bank, if the product fit is right, a smaller company will be more focused on you as a client," she said in a 2022 interview.

Kirk, the chief operations officer for the $2 billion-asset Queensborough, has since eliminated Smiley from contention. She was drawn to the company's willingness to collaborate and can-do attitude. But her current vendor provides all aspects of managed IT, from circuitry to file storage to telephone infrastructure. The third-party managed IT vendors she explored were not a fit.

"The challenge you wind up with when you are working with multiple vendors is that when you have a problem, they will point at one another saying, 'we're functioning fine,'" she said in a recent interview. Kirk has since narrowed her choices down to two of the Big Three core vendors.

Integrity Bank for Business in Virginia Beach, Virginia, had a similar line of thinking when it chose Fiserv for its core before launching in May 2021. Fiserv's Sentry even acts as the $101 million-asset Integrity's information technology department, managing its network and workstations and taking care of virus and malware protection.

"If something breaks, we don't have to crawl on the ground and figure out what's broken," said Nancy McManuels, then the BSA/OFAC officer, information security officer and compliance officer at Integrity, in 2022. She has since retired. "We knew we didn't have the expertise on hand to be the PC guys.