Intel Report Core Replacement - Flipbook - Page 18
tions using a fintech, like Blend, and integrate it within the system within weeks, as opposed to
many months.
2. Cheaper. Since such core systems don’t require the upfront costs that a full core modernization does, the price to hire a core vendor and implement the shift isn’t as restrictive. But the
costs will vary, depending on the scope of the new core and size of the bank.
3. Limited Scope. It doesn’t require an organization-wide approach to evaluate, integrate and
replace an entire core, which means both planning and execution become far less burdensome.
Some banks use this split-core design within their bank’s current service offerings. Live Oak
Bancshares, an $8 billion banking company based out of Wilmington, N.C., moved 60,000 customer and commercial deposit accounts to the Finxact core, which it first used in processing
and managing Paycheck Protection Program (PPP) loans. It has done so without marketing
a new line at the bank. Instead, it will operate with a split-core design, retaining much of its
additional loan portfolio on its legacy core. While Live Oak says it will eventually shift the loan
portfolio to the Finxact core, there’s no timetable yet set for such a move.
By going the split-core route, a bank can watch and learn from the positives and negatives of
the new core. “As VirtualBank expands capabilities over time, at the very least it will tell us how
[new cores] can be used broadly at [First Horizon],” says Craft. First Horizon can also seek
“lessons learned that can be applied somewhere else,” he adds.
In First Horizon’s case, there’s no plan or expectations to move the main bank’s core to the
VirtualBank. Banks can, however, use the split replacement to slowly move parts of the bank
over to a new core. This becomes particularly valuable in situations where banks aren’t sure if
the new core can handle the full number of services that the bank processes or offers. Through
this greenfield approach, the bank slowly navigates more tools over time.
Such a process drags on the core replacement for a significant number of years. But for CEOs
fearing the idea of a core replacement, it eases some of the trepidation.
Prepare for the Split-Core Downsides
The growth of alternative core providers has expanded, yet few have more than a handful of
institutions hosting the entire core on their servers. Why? Because banks have hesitated to fully
commit to the new core providers, especially for non-consumer focused business lines.
While organizations often view the alternative core solution as a viable option, they usually turn
to them for simpler solutions, like managing consumer deposits or providing simple consumer features. For VirtualBank, the ability to transition mostly consumer data made the test run appealing. This data, like checking and savings, are “not high transacting accounts,” says Craft. This
eases the complexity of the items moving to the new core, which reduces the risk in doing so.
16 | FINXTECH INTELLIGENCE REPORT
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