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The landscape of core processing within financial services is undergoing a dramatic shift. With a limited number of credible providers globally, and even fewer in the U.S., community banks and credit unions (those under $10 billion in assets) often find their options for crucial core capabilities severely constrained. This market dynamic creates a high barrier to entry and limited choices for institutions.
The Core Conundrum: Why Innovation Stalls
Developing new core systems is fraught with significant challenges that stifle innovation:
- High Stakes, High Risk: Migrating from one core platform to another is arguably one of the most significant risks a financial institution can undertake. Historically, many executives have viewed such a conversion as a potential career-ender due to its complexity and potential for disruption.
- Decades of Incremental Growth: Existing core systems often boast a massive feature set, accumulated over decades of gradual development. This depth, while extensive, can also mean outdated architecture and convoluted processes.
- Prohibitive Costs: The expense associated with building new core systems is astronomical. This reality often leads financial institutions to tolerate antiquated products and declining service levels from their current providers, simply to avoid the massive upheaval and cost of a core conversion.
These underlying issues often drive a specific acquisition pattern in the banking technology sector. Larger core processing companies frequently opt to “buy” rather than “build” new solutions. This strategy sidesteps the immense time and investment required to inject innovation into the legacy core systems they’ve supported for years, often metaphorically “on life support.”
The hope with such acquisitions is that clients will naturally migrate to the newly acquired, more modern core platforms. However, the inherent difficulty and risk of conversion remain just as formidable, even when moving to a vendor’s “latest” offering. Consequently, core providers end up managing and funding multiple distinct core systems from an R&D perspective, which ultimately dilutes investment and handicaps the development of truly groundbreaking capabilities across their entire product portfolio.
The Unavoidable Truth: Core Migration is Coming
The stark reality is that every financial institution will, at some point, face a core migration, whether by choice or by necessity. Recent market events have underscored this inevitability. One of the world’s largest core processing companies faced significant stock market pressure, implicitly confirming what many in the industry already knew: the focus had shifted more towards financial engineering than product innovation benefiting clients.
Furthermore, it was recently revealed that a prominent core processing provider plans significant changes, including the consolidation of many of its core systems. While the rationale behind such a move is understandable and likely necessary for the provider, it represents an incredibly risky turning point for banks and credit unions currently operating on platforms slated for retirement.
The expectation is that most clients will be incentivized to transition to one of the remaining, consolidated core systems. However, financial institutions should prepare for a multitude of challenges, including confusion around pricing (lock-in terms, bundling, and non-coterminous agreements) and complex migration strategies and timelines.
Beyond the Playbook: Uncharted Territory for Negotiations
The current environment is unprecedented. While specialized consultants exist to guide banks through core contract negotiations and conversions, the sheer scale of upcoming migrations means there’s no established playbook or guaranteed approach. Core providers will navigate hundreds of these agreements, while your institution will likely negotiate just one. This imbalance gives the provider a significant advantage. Going it alone risks missing critical options and negotiation dynamics that could profoundly shape your bank’s future for years to come.
This is not a task to delegate entirely to a procurement team. Core contracts can span 15 years or more, making it a decision with long-term repercussions. Technical and commercial considerations demand the close attention of bank and credit union CEOs to ensure a confident and correct outcome.
Five Strategic Steps to Proactive Core Migration
So, what can your institution do to get ahead of this seismic shift?
- Demand Concrete Retirement Dates: While initial answers may be vague, press your core provider for a firm retirement date for your current platform. Leverage this commitment in any upcoming renewals or contract extensions within the next 12-18 months. Insist on modifying agreements for sunset products to month-to-month terms rather than multi-year contracts, preventing long-term lock-in.
- Pilot a Modern Core Processor: Engage with contemporary core providers to stand up instances of their core system, potentially running in a “sidecar” model alongside your existing architecture. This approach offers numerous benefits, from supporting deposit and loan growth strategies to market expansion and brand evolution. Crucially, it allows you to “date” a potential long-term core partner before committing your entire operation.
- Pre-Convert Third-Party Integrations: Identify external product solutions—such as bill pay, card issuing, or credit card platforms—that complicate a full core conversion. Where feasible, convert these components ahead of time and independently of the main core migration. This strategy significantly de-risks the overall conversion by reducing the number of variables core conversion teams must manage simultaneously.
- Strategically Segment Customer Migrations: While not a universal solution, some institutions find it beneficial to migrate customer segments (e.g., retail and business clients) in separate tranches over time. This phased approach can help manage risk but requires careful planning around how long to support multiple back-office processes and systems.
- Balance RFPs with Direct Vendor Engagement: Traditional RFPs will remain vital for structured vendor evaluations, particularly in 2026. However, their standardized nature can inadvertently obscure truly innovative solutions that don’t fit into predetermined categories. Cultivating direct relationships with modern core providers can uncover growth opportunities and operational improvements that might be missed in a standard checklist evaluation. Think beyond finding the fastest horse when a car might be a more effective option.
The Bottom Line: The retirement of your core system isn’t merely a hurdle; it’s a profound opportunity to redefine the foundational infrastructure of your institution. While no core conversion is without its challenges, those who approach it with strategic foresight, robust data, and the right partners can transform a mandatory migration into a powerful competitive advantage. The next generation of core systems promises enhanced flexibility, integration, and scalability – but only for institutions that negotiate astutely, plan meticulously, and proactively seize control of their future.