The reasons for buying a new core system are different for each type of FI, so let's take the easy ones first.De novos accounted for 29 percent. They were first-time buyers so they had to acquire a system. Credit unions accounted for 29 percent also. They were playing catch-up.
The 156 commercial banks that acquired a new system had a variety of reasons, and therefore were more representative of what's been going on during the past 35 years. Here are the reasons they switched:
• A vendor decided to sunset one of its core systems. With 64 core systems supplied by 24 companies in a worldwide market, it doesn't appear that we'll miss one.
• A thrift had been using a system designed originally for thrifts, but as the institution was shifting its strategy towards commercial banking, it needed a core system that provided a better fit for its development as a commercial bank.
• A mid-tier bank realized in recent years that its previous decision to acquire a core system based on architecture did not provide the rich functionality of a mature legacy system, and it therefore converted to a system better suited for banking complexities.
• More personalized support from a new vendor that the incumbent vendor was not providing.
• Conversion from one top core system to another top core system based on "change." Change relates to many things depending on the bank-new bank management, strategic direction, competition, customer focus, acquisitions, new internal IT strengths, corporate decisions of a vendor that are not in line with a bank's preferences, one vendor's performance in recent years as opposed to the incumbent's, and redefinition of IT support (internal vs. vendor-supplied).
• For the stragglers, it's hundreds of nagging little deficiencies over the years that individually don't irritate enough, but all together, enough is enough. Let's go shopping.
• Vendor not keeping up with new developments, and running out of steam (aka R&D investment funds).
• Among very small FIs (less than $100 million in assets) the cost issue is a popular reason to change, and there are 9,800 FIs in that category that buy everything based on the lowest price. For FIs that don't have to keep up with "industrial strength" banking, there are systems a couple of steps up from posting machines that will do the accounting job at el cheapo prices.
• Age 65-for the CEO, that is, not the core system.
The switch to a better core system has been going on for decades. Today, however, most banks have reached a comfortable position. That means there have to be very strong reasons to make a change, and that's why fewer banks are doing it. When a banker considers the hardships, cost, risks, training requirements and disruption of making a change, he usually becomes satisfied with "good enough" and continues with the present system.