How often do you ask yourself, “Why can’t our FI keep pace with the product offerings of our larger competitors?” Multiple factors are at play when it comes to speed to market for new products. However, the “elephant in the room” for the majority of community FIs is the dependency on one important vendor…
The CORE.
Let’s explore the two (spoiler alert: there are actually three) approaches to financial services integration (Best of Suite and Best of Breed), the pros and cons of each, and the secret model that has helped so many FIs take back control of their customer data and capacity to innovate.
The FI’s dilemma: Best of Suite vs. Best of Breed
We recently conducted a survey of bankers in which we asked integration strategy-related questions. Over 70% of responses indicated that their core vendor limited their ability to innovate. FIs are either too busy trying to keep pace with the market or have been sold on an old-fashioned integration strategy that doesn’t live up to the hype.
Best of Suite
The best-of-suite model offers an integrated (probably) set of software solutions from a single core vendor that covers a wide array of functionalities. This approach was (and still is) attractive to community FIs for its low-friction-low-cost model. However, it’s inherent vendor dependency limits innovation, offers primitive form and functionality, and the model may not have the long-term price saving effect that was originally promised.
There’s an underlying reason why core vendors offer their products at a lower price point. It’s a strategic move to encourage deeper product adoption and bolster their upselling potential. However, the issue arises because the core is not primarily focused on being an integration company. Despite the initially attractive promise, the end result often leads to a subpar consumer experience and burdensome long-term maintenance costs. The promise of seamless integration and ease of use turns out to be just that – only a promise.
Thankfully, FIs are starting to realize that this utter and complete dependence on one vendor doesn’t work these days. The COVID pandemic made it abundantly clear that community FIs needed to significantly upgrade their ability to interact with customers outside of their physical branch offices. A few use cases, such as distributing PPP loans (remember when Mark Cuban and Jill Castilla created a site for Community FIs?), digital banking, and opening an online account have highlighted the core’s lack of functionality in the best-of-suite model. Most ancillary products offered by the cores (even those that tout seamless integration) still fall short of the industry’s quality standards for UI/UX.
Best of Breed
Have you ever come back from an amazing tech conference (I’m looking at you, Money20/20) only to have your digital transformation hopes and dreams dashed when IT reminds you of the cost and complexity of connecting with your legacy core? But you must revamp your existing, underwhelming digital banking product or risk losing customers. So, you’re stuck!
Well, there are signs of hope in the industry. Prominent core vendors have started to embrace open banking in meaningful ways. While the concept of a ‘headless core‘ solution might not be appealing to the average community FI, banks and credit unions can potentially benefit from strategically abstracting their core connection. Moving processes and direct connections away from your core can significantly decrease your dependence on that vendor, which is particularly important if you’re considering a core conversion in the future.
We are seeing that many FIs that want to grow and compete are turning to a true best-of-breed approach – selecting the best technology for each function or use case, regardless of who their core vendor is. This methodology allows FIs to leverage the most advanced, specialized solutions available on the market. However, this model has its downside as well. The best-of-breed approach can lead to increased complexity in the form of managing integrations with multiple vendors. And even the most reputable integration partners lack the customization and support needed for embedded finance, BaaS, payments, and data management strategies. Surprise! That incredible new digital banking provider isn’t an expert at connecting to your legacy core solution built circa 1997.
The Solution: Embracing Connectivity as a Service
So, FIs face a critical decision: The best-of-breed approach offers the opportunity to handpick flexible tools and partners but can increase tech stack complexity. The best-of-suite model is “potentially” less expensive but increases your dependence on a core to deliver a (probable) second-rate experience to your clients.
Enter Connectivity as a Service (CaaS). The question of whether to go with a best-of-suite or best-of-breed is a trick question. Thank goodness, right!? This “hybrid” approach empowers FIs to reap the benefits of best-of-breed technologies while minimizing the hassle of managing multiple service providers.
Even smaller FIs can now match the capabilities of larger banks with unimpeded access to their core data and accelerated go-to-market for innovative products by implementing a flexible integration platform that’s backed by a team of financial integration experts.
Learn more about CaaS and how PortX evolved from general-purpose integration to building the iPaaS for financial services in this blog: Community FIs Need to go Beyond Banking Core Integration to “CICaaS”
The Time for Change is Now
Your FI can’t wait another 12 months (which, in “core time,” probably means 24-30 months) to innovate and launch the products your customers need. Why delay when you can seamlessly connect best-of-breed technologies while maintaining the simplicity of a best-of-suite approach?
PortX, our “Fintech Hub” middleware layer, offers pre-built connectivity to over 30 (and growing) bank and credit union core products, multiple fintech partnerships, and an abundance of other embedded finance solutions and connectors. Since newer companies are writing API-first, we can readily connect with them. The potential benefits of CaaS extend beyond the present, helping prepare your FI for the future in numerous ways. This adaptability is precisely what community FIs need to remain strong and independent.
It’s all about being able to innovate quickly and pivot. In another 30 months, who knows what you’ll need? One thing is guaranteed, when you do need it, you can’t afford to wait another 12 months to get that thing delivered and connected. And do not even get us started on how this can help prepare your FI for the future in other ways. Acquisitions, core conversions, core renewal contract negotiations… The list is long, friends.
So, if you have your eye on a sexy new online account opening solution or a new digital banking stack, and when you ask the sales rep about connecting with your core vendor, she mumbles something and looks sad, come talk to us.
