Even in pandemic, small banks forge ahead with core conversions

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The Peoples Community Bank in Mazomanie, Wis., about 20 miles northwest of Madison, has decided to install a new core system, despite all the challenges of doing so during a pandemic. One of the chief reasons is to support real-time transactions.

During its most recent annual technology review, “we realized that access to current, real-time information was our most glaring gap,” said Quinn Christensen, senior vice president of operations of the $335 million-asset bank.

It seems counterintuitive, given the pandemic and economic uncertainty, but there’s been a small rush of community banks upgrading their core systems recently. By necessity, because of the need for social distancing, they’re doing this with remote, rather than on-site, support from their vendors.

Quinn Christensen, senior vice president of operations at the People's Community Bank in Wisconsin
“We’re trying to streamline the entire experience so the customer doesn't have to repeat themselves when they want to pick up the conversation at a different time,” says Quinn Christensen, senior vice president of operations at the Peoples Community Bank in Wisconsin.

In August, the core software vendor Fiserv reported that within the last five months, more than 20 financial institutions had completed remote core conversions to their systems.

In early September, Rob Lee, executive vice president of global core and channels at another major vendor, FIS, said his company has seen a 25% increase in core conversions so far in 2020, with more lined up for 2021. He declined to share actual numbers.

“The bulk of these mission-critical core conversions have been executed in a remote environment, something none of us could have imagined back in January,” Lee said.

Some small banks have realized during the pandemic that their digital channels were not all that they could be.

“COVID-19 was a push-button event for some fence-sitters with marginal digital business strategies,” said Don Free, research vice president at Gartner.

But such projects are not undertaken lightly or quickly, and some of these decisions were made before the pandemic.

“A lot of the implementations you’re seeing taking place right now are deals that were signed last year,” said David Albertazzi, research director at Aite Group. “A new core implementation takes an average of nine to 12 months to complete for community financial institutions. The total number of new contracts signed remained close to 200 during each year for the last few years."

A look at how Peoples Community is upgrading its core system gives a glimpse of some of the drivers and challenges behind these projects.

If one of its customers tries to open a checking account online, gets stuck and goes to a branch to follow up, the branch staff can’t see the information the customer input online right away, or know where the customer was stymied, Christensen said. If a customer deposits a check through the mobile banking app, it shows up as accepted on the app. However, that new balance does not show up anywhere else in the bank until a few hours later, when the batch file it was part of is processed.

“We’re trying to streamline the entire experience so the customer doesn't have to repeat themselves when they want to pick up the conversation at a different time,” Christensen said.

He was also looking for a more open architecture. Peoples was using third-party apps for digital banking activities like online account opening, online banking and mobile banking, but these were not integrated with one another.

“We were looking to streamline that process for both the customers and our operations here at the bank — that's what initiated the conversation,” Christensen said.

The bank had been using an older Finastra system for 20 years and began talking with the vendor last year about upgrading to its newer Fusion Phoenix program. Peoples also chose some ancillary programs from the vendor, including Fusion Digital Banking (the mobile banking software Finastra acquired with Malauzai) and Fusion LaserPro loan documentation software. It also selected a real-time online bill payment app from Allied Payment Network and Finastra.

All these programs run in real time, according to Mitch Oakland, the relationship manager at Finastra who works with the Peoples team.

“If a customer starts something online and then visits a branch, that teller could see that right away and offer help with the interaction,” Oakland said.

The bank closed its lobbies back on March 16, but it does offer customer visits by appointment only and drive-through service.

“Customers are pretty impressed with what they can actually accomplish these days without stepping into the branch,” Christensen said.

The anticipated go-live date for the new core system is August 2021. The bank’s instance of Fusion Phoenix will live in Microsoft’s Azure cloud environment.

“We'll have a full year to get everything up and going,” Christensen said.

The bank and Finastra will probably run a mock conversion six weeks before that so Christensen and his team can run transactions through the system until they're comfortable with it.

They’ve been doing a gap analysis over the past month to ensure there's nothing the bank uses today that it would lose with the move to Fusion Phoenix.

When the project is completed, Christensen said his biggest goal is to help the bank grow and manage more assets without having to hire additional staff.

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Core conversions Core systems Digital banking Digital Banking 2020 Community banking FIS Fiserv Aite Group Gartner