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At American Banker’s 2022 Digital Banking Conference last month, Koontz said the transition has come with unexpected benefits, including a simplifying of the bank’s product line and operations, but the main advantage has been blistering speed.
By the time the pandemic hit in 2020,
“Despite being the 40th-largest bank in the country, we were a top-10 PPP lender in terms of the number of loans that we made in the first phase,” Koontz said during a session at the conference.
The pandemic was also a lesson in the importance of agility for Neal Shah, executive vice president and head of enterprise operations and IT strategy for Regions. Shah said Regions, of Birmingham, Alabama, came to realize the risk of not transitioning its business and technology architecture to enable that agility was greater than the risks of doing a core system overhaul.
“We said that if we wanted to set a new trajectory for the bank, we would have to modernize a lot of the core, and it's not just around the core systems,” Shah said. “It's the processes that surround it as well.”
The results Zions has achieved thanks to its core transition have attracted others to it for advice and guidance, including Regions. Since Regions started putting out requests for proposals for its new core two years ago, that guidance from Koontz and others has been vital for Shah.
“It is highly important that you get an objective perspective from an existing customer,” Shah said to bank executives considering a core transition, hence the need to “talk to your peer banks and customers of the vendors you’re looking at.”
Four companies dominate the market for core banking software packages: FIS, Fiserv, Finastra and Jack Henry. Those companies have a proven track record in terms of operation and compliance, but banks — especially community banks — sometimes opt for different solutions anyway, Zions included.
Koontz recommended banks considering a core transformation browse the American Bankers Association’s
Going with a big-four banking core is not the only way to assuage compliance risks. In fact, Koontz said Zions Bank’s regulators “were quite pleased that we were addressing the issue of our core.” That might be in part because of the attention the bank has paid to compliance amid the transition.
“We’ve taken our compliance partners and embedded them directly in our agile teams,” Koontz said, referring to the set of software development practices. “Every feature that we create has compliance acceptance criteria. It’s been an incredible way to show our regulators that we’re taking this very seriously.”
The bank is building its plane as it’s flying, so to speak, so it is also intentional about testing systems before staging or deploying them.
“We’ll run over 100,000 test cases to make sure that deposit functionality is really going to work across our 1.5 million customers,” Koontz said. Zions’s deposits operation is the remaining holdout on its sunsetting core in large part because it is such a large part of the business.
“As a consultant, I probably would have advised to do deposits first, because that’s where the value is,” Koontz said, referencing her previous work. “What I learned is that as a company, we didn’t have the maturity that we needed in terms of delivery capabilities and understanding how our technology ecosystem operated to pull off something as complex as deposits.”
That’s not the only challenge Zions has faced since 2012, when it started vetting the market in search of a new core vendor.
“One of the things that we really struggled with, and I think why it's taken us 10 years, is we couldn't make decisions quickly enough,” Koontz said. She warned banks considering a core transformation, “sometimes you’ll make thousands of decisions every single week. You have to have a really robust decision-making framework to be able to do that.”
What that entails, she said, is “empowering your teams in their agile work” to make decisions without elevating them to executives, and having an effective process for the bigger questions that do go up the chain.
Shah said one of his big wishes for Regions’ core transformation is that it will help the bank “create the architecture, both technology and business, to respond to whatever market conditions there are at the time.” He said doing that for most banks right now is a “somewhat heavy lift,” and switching cores he hopes will help that.
Shah is also realistic about what switching cores can do for his business. Rather than solving everything, the core will address pieces of the bank’s technological aspirations — chiefly, a “significant API strategy” and support for real-time payments and transfers.
“It's what we do around the core — what we can pull from it, and integrate it in different channels, different products — that's where we're going to see the benefit,” Shah said.
