At the core of banking: 4 trends core providers should know in 2022

March 17, 2022 Windstream Enterprise 4 min
The banking industry is undergoing massive digital disruption, with mobile apps, open banking and crypto becoming more the norm. What are the trends driving this transformation, and how are core providers responding?

By 2025, 66% of banking executives believe that new technologies like blockchain, artificial intelligence (AI) and the Internet of Things (IoT) will have the single largest impact on banking. 

Digitalization is responsible for changing how people interact and do business on a day-to-day basis. For financial institutions, advancements in banking technology are continuing to influence the future of financial services around the world, giving hope to new strategies that can help streamline processes and cut expenditures. The topic remains a major focus for the American Bankers Association (ABA); the group communicated their commitment to ensuring community and midsized banks can deploy the modern, innovative tools they need to compete effectively in today’s marketplace at their 2022 Conference for Community Bankers.

An audience of 1,100 bankers gathered at the conference’s general assembly event, CoreConnection, to glean insights into new strategies of multiple core providers and look for ways to improve relationships and open more opportunities for innovation. Here, the nation’s top core processing providers participated in live discussions about community banking and answered questions around important banking areas such as R&D, cybersecurity, open banking and Banking as a Service (BaaS).

For bankers who were unable to attend, here are the top four trends and actionable takeaways that are worth watching out for in regard to your financial services institution. 

1. Bank and core provider relationships need improvement. Back in 2019, the ABA Core Committee published a document of principles and presented them to all core software providers. The principles are a set of rational standards to which member banks were asking core providers to adhere. Today, all core providers stated they are responding to the ABA Core Committee’s recommendations to reduce punitive fees for third-party integration and deconversion fees and are beginning to spell out conversion fees upfront in their contracts. In addition, all providers are designating a healthy portion of their revenue to research and development (R&D) to enhance their legacy offerings to meet customer demands as well as develop cloud-native solutions.

2. Cryptocurrency is on minds and in wallets. Throughout the conference, several executives mentioned their recent work on the integration of a crypto platform to offer bank customers in-demand features (e.g., the ability to buy and sell, and display balances through their digital banking on mobile and online platforms). This effort enables customers to aggregate their deposits and investments enhancing the customer experience (CX), and it allows banks to capture customer behavior for use in data analytics. 

A recent Cornerstone Advisors survey found that 17% of consumers planned to invest in cryptocurrency last year, and among those who already hold cryptocurrencies, 60% of would use their bank to invest it. As interest in digital currencies continues to rise, it’s important for banking institutions to stay open minded and aware of consumer demand for them, especially if bank executives consider their organizations to be “customer-centric.” Because if that claim is true, banks should be falling over each other trying to launch crypto-related services. 

3. The banking market is now open. Open banking APIs, or application program interfaces, facilitate open banking and enable financial institutions to share financial data with one another, typically through a third-party-developed application.

It’s no wonder that banking-technology executives are significantly increasing their use of APIs. This concept allows FinTech companies and collaborators to create third-party-developed applications to improve traditional banking systems and make the digital banking industry better for everyone. According to a McKinsey global survey on APIs in banking, these financial institutions also rely on APIs internally to reduce costs and complexity associated with IT integration, freeing up change capacity by as much as 30%. It was clear from the conference that leading core providers are embracing this trend by more efficiently enabling API implementation, and a few touted creating their own API library of the most common third-party connections.

4. The future is cloud-based. The core banking providers at the conference believe the future of core technology is undeniably cloud-native. The biggest three companies—Fiserv, FIS, and Jack Henry—have either developed or acquired a cloud-based core software and recognize that banks are beginning to warm up to non-legacy solutions.

While financial institutions still show hints of hesitancy toward the cloud—due to security concerns and costs associated with changing core solutions or providers—cloud migration is crucial to improve an organization’s ability to adapt to rapidly changing IT environments. According to IBM, there are significant benefits to developing a sophisticated cloud strategy, including its reduction of costs, making banks more efficient and safer, and sparking innovation. Institutions that are tentative can start by exploring what trusted industry analysts, experts and managed service providers have to say. From there, institutions can receive knowledgeable and actionable advice around how to create personalized solutions for reliable, secure solutions to support the foundation of their IT infrastructure.

For banks that see a cloud-based future filled with APIs, open banking and crypto currencies, the time to get your network prepared is now. SASE and SD-WAN network structures offer cloud connectivity and security that enable the implementation of the newest core software offerings. Even if your bank will be a slow adopter of this cutting-edge bank technology, Windstream Enterprise can help you develop the right network and security architecture for when the time is right.

Key Takeaway
If bankers could leave with one clear message from ABA's conference, it's that financial institutions can no longer plan for the future by looking at the past. As they evaluate the outlook for 2022 and beyond, these emerging trends on their radar should be the ability to innovate quickly and at scale to address the future needs and demands of customers.

Fintechs won't replace traditional banking