Taking Stock of Your Core Processor Relationship

By Cary Whaley

For many community banks, “conversion” can create some internal angst, and it’s not too difficult to understand why. Outside of personnel, a bank’s core processor system is its single largest expense and serves as the digital cornerstone of the bank’s relationship with its customers.

“I read somewhere that undergoing a core conversion is like doing a heart transplant on a person running a marathon,” says Kathy Underwood, president and CEO of Ledyard National Bank in Hanover, N.H. Underwood admits to being “nervous” about going through the conversion process.

So, when she learned that ICBA was developing a Core Processor Resource Guide to help community bankers manage this complex, critical and expensive technology investment, Underwood says she “breathed a sigh of relief.”

“One of the things the resource did was reinforce our belief that we needed a true strategic partner,” says Underwood. “If we had the [ICBA Core Processor Resource] Guide, we probably would have undertaken it years earlier,” she says.

Building Upon a Solid Foundation

ICBA’s goal in releasing the guide was to assist community banks in maximizing their core processor relationships. Feedback from community banks that have applied the principles outlined in the guide furthers validates the importance of managing this critical relationship and supports ICBA’s efforts to maintain a constructive dialogue between banks and core processors to ensure community banks’ unique business needs are being addressed.

Download a copy of the “Core Processor Resource Guide,” or “ICBA Community Bank Best Practices for Managing Core Processor Relationships” and “ICBA Best Practices for Community Bank Core Processors.”

Evaluating the Options

Just 16 percent of community banks changed their core processor upon contract expiration, citing concerns about staff time constraints, customer impact, and the price of the platform, according to the 2016 ICBA Core Processor Survey. Despite these hurdles, banks should reassess their core processor and the market well before their contract expires to ensure it supports the bank’s long-term strategic objectives. Community banks may need to allocate additional resources to conduct a thorough analysis as well. At a minimum, knowing a core processor’s weaknesses can provide negotiating leverage.

Before undergoing a system conversion, Carlinville, Ill.-based CNB Bank & Trust’s vendor relationship was also thoroughly vetted, explains president and CEO Shawn Davis.

“Everything’s negotiable. That’s what the document drives home,” says Davis, who also notes the importance of having fees clearly defined and a reasonable time frame to conduct the evaluation. “If you’re unsuccessful in negotiating the contract, you still have to negotiate the conversion,” says Davis explains. “Six months is not enough time, and this document spells out why.”

For Coulee Bank, bringing in outside help to manage its core processor evaluations process and hammer out favorable terms was paramount, explains Mike Gargaro, chief operating officer at the La Crosse, Wis.-based bank. While the process was extensive, the contract was signed a year to the day after they hired the consultant, “It was time and money well spent,” Gargaro says.

With the conversion behind him, Gargaro says he has no regrets, and bank employees and customers are beginning to reap benefits. “As part of the conversion, we also converted debit cards into a more streamlined process,” he says. “So now we can add cards at a single-entry point.” The bank also added enhanced fraud alert features to its mobile banking offering and a Secure Swipe feature that provides customers with the ability to remotely activate or deactivate their cards. “We have customers using it already, which we are pretty excited about.”

Cary Whaley is ICBA’s first vice president of payments and technology policy.