Community financial institutions are at a crossroads as the industry arrives at a point where digital engagement reigns supreme. With many institutions using very similar products from the leading core banking providers, there is little opportunity to differentiate the digital experience for customers. The digital experience is still one-size-fits-all – from consumer to commercial to small business offerings.

It’s imperative that community FIs provide customers digital access to critical financial services and provide value through differentiated solutions that match what customers really need. Institutions have to break through complexity to succeed. According to Accenture, “Nearly 80% of bank operations leaders say their organization’s existence could be threatened if they don’t update technology to be more flexible and capable of supporting rapid innovation.”

How institutions navigate the simplification and transformation of their banking operations will determine their longevity and success. Though daunting, the results of digital differentiation are two-fold, helping FIs move forward by innovating around their old technology, and offering solutions that meet the needs of customers.

Innovating Around the Core

Advances in technology have not only enabled the modernization of the traditional banking experience, but also altered consumers’ and businesses’ preferences in how they choose to interact with their financial institutions. Although many institutions may have been slow to adopt newer technologies due to limitations of accompanying legacy systems, the shift to digital banking has become essential to fulfilling customer expectations.

Too often, however, with the launch of each new digital banking feature, banks and credit unions have bolted applications onto their existing infrastructure as a “quick fix” to accommodate the growth across channels and consumers’ evolving preferences. While digital solutions and automation may have appeared to streamline banking processes and features, many community financial institutions are still offering a disjointed experience across multiple channels that potentially pushes customers away.

To date, much of the focus has been directed towards innovating across channels to provide a better banking experience to customers. However, the challenges of innovating across channels start with legacy core technology. Institutions must now focus on how to better innovate around the core. By doing so, financial institutions are positioned to derive more value out of their technology investments while ensuring account holders receive a seamless, comprehensive and personalized experience.

The Path to Core Innovation

Community financial institutions want to focus their attention on banking versus managing the complexity of many vendor relationships, but the downside risk is that the pace of innovation is slowed by too much reliance on a single core provider.

As the engine powering most banking functions, core systems are embedded within a financial institution’s operational foundation. The reality today is that many institutions are still operating on 30-year-old legacy technology that was not designed to support innovation by today’s standards. The institutions attempting to forge ahead with their efforts to introduce new banking services can spend months, or even years, until the new services are available to customers and delivering results.

Some institutions may have considered undergoing a core banking replacement, but this can be extremely complex, time-consuming and expensive. According to a report from Accenture, the “‘Rip and replace’ of legacy IT systems is impractical in terms of time, cost and sustainability,” especially when expectations are changing rapidly. As an alternative, Accenture recommends an incremental, component-based approach to digital transformation.

Rather than replacing the entire legacy system, some financial institutions are now innovating around their existing core by layering a bank operating system on top of it. With a modern banking layer in place, financial institutions can insulate their existing legacy solutions to allow for continuous innovation. This is achieved with the help of application programming interfaces (API), which open a financial institution’s infrastructure to third parties to build applications that connect to and work alongside the core technology. Powered by API technology, the modern banking layer atop the core allows various software systems to communicate and exchange data in real time. This helps create a more efficient and unified experience for account holders across all channels.

More importantly, this enables institutions to innovate at fintech speed by quickly choosing and implementing new products and services to provide capabilities beyond existing core system technology.

Financial institutions cannot depend on a single provider to offer every available service, but community banks and credit unions that once relied on legacy technology to dictate the speed at which they innovate can now separate the ability to modernize from the core. Layering a bank operating system atop legacy systems gives institutions an opportunity to leverage the market’s best banking services by partnering with third parties or create their own solutions that integrate with the core to enhance banking capabilities for consumers and businesses alike.

By tapping a banking ecosystem that benefits both institutions and customers with the latest innovations, regardless of the source, banks and credit unions can eliminate waiting on a single provider to deliver the services customers need. Not only does this make it easier on the institution, but it also improves relationships with account holders by offering specialized features specific to their unique needs.

Addressing the path to core innovation is necessary in today’s market in the face of increased competition from larger institutions and a growing number of fintechs and new market entrants. Not every institution can afford to replace their legacy technology, but adding a modern banking layer allows community banks and credit unions with limited budgets to keep up with the latest products and services available while extending the life of their legacy investments.

One Size Does Not Fit All

The days of offering a generic banking experience are long gone. Consumers and businesses are expecting more from the organizations that play a role in their daily lives, and financial institutions have not been spared from this call to action. It is important that financial institutions implement tools and features to create an efficient banking ecosystem and fulfill customer expectations but remember that every customer is on a different journey. Giving account holders the services they need and packaged in a way that makes sense for their specific industry deepens the relationship between the institution and the customer.

To provide their customers with the flexibility they need, community financial institutions must invest in API-driven, modern technology that delivers flexibility to overcome the short comings of legacy technology. Doing so will shift the workload off of legacy systems while helping institutions serve their customers digitally with solutions that are far more engaging and relevant to their customers.

Booshan Rengachari is founder and CEO of Finzly, a fintech provider of modern banking applications for foreign exchange, trade finance, payments and digital banking. For more information, visit

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