Tech Tips: Maintaining a “Core” Advantage

by CDW Financial Services|Sep 22, 2016

Core systems must run efficiently for financial services firms to remain competitive in today’s marketplace. We spoke with CDW Business Development Manager Dan Hansen to learn how to keep your core in top condition.

Q. What should financial services organizations do to maintain a robust, efficient, secure and agile core infrastructure?

A. To maintain a healthy core infrastructure, financial services organizations need to do the basics right. They need to ensure that their storage and network infrastructures are up to date and ready to scale with flexible storage and network solutions. This prepares them for unexpected bursts of growth. Banks and credit unions also need to be sure that their Windows platforms are robust. This is very important because some core providers are adding new capabilities to the Windows platform, not to the core system.

They also need to be running server virtualization software, such as VMware or Hyper-V, which gives them the capability to quickly add servers, typically in minutes. Hyperconvergence is the latest and greatest technology infrastructure system with a software-centric architecture that tightly integrates computing, storage, networking virtualization and other technologies in a single box. Efficiency is greatly increased with this solution.

Business continuity and disaster recovery capability systems also need to be modernized along with the production network. Surprisingly, tape is still being used in some financial institutions as primary backup. Customers, members and clients are expecting very quick disaster recovery times and recent recovery data (RTO/RPO), and you cannot get a rapid recovery time with tape. Of course, long-term archiving is still a viable use for tape for any financial institution.TechTips_CoreAdvantage_504

48% of bankers surveyed said legacy issues are their biggest challenge — one preventing them from realizing the potential benefits of their data.

Q. How can they modernize/augment their core systems to keep up with the demands of digitalization?

A. Mobile is a “must have” for staying competitive in today’s financial services marketplace. In the U.S., the regulatory safeguards are limiting financial institutions’ development of mobile capabilities beyond basics. However, the exploration continues. For example, an Eastern Bank commercial customer recently applied for a $100,000 loan via a mobile app in less than 10 minutes. When will that begin to happen on a wider scale?

Data management and analytics are essential to building an advantage. Capital markets firms and larger financial firms require greater speed. More and faster data dictates that you have better data management capabilities, and more data requires better storage.

Cloud solutions can help with storage. Many financial institutions trust their core providers to do that for them, but it is important to note that the core provider doesn’t have any better or different safeguards, security or third-party audits of their systems than other cloud providers. Understanding this allows you the freedom to build a cloud solution to fit your unique business requirements.

Q. What are the advantages and disadvantages of augmenting core systems versus replacing them? When is it time to replace a core system?

A. Core systems aren’t going away anytime soon because core providers are putting practically all of their ancillary and complementary product applications on Windows servers. That puts financial services organizations into the augmentation business. The main disadvantage to augmenting core systems instead of improving them is that core providers set a maintenance fee if the bank has its core system in house, or they charge a fee for the use of the outsource capabilities of the core system. So, you’re not getting more capabilities, but you’re still paying the same fee — along with paying for every ancillary product software and the infrastructure to support it. That means you’re losing money.

What many financial services firms don’t realize is that you don’t have to go with your core provider to get infrastructure services. This is an area where a third-party expert like CDW can help out. We know the trusted sources that will work well with your core provider and that can provide the best and most secure products, at the best prices, to meet your unique needs.

You should replace your core system when your customers/clients/members are demanding real-time processing versus end-of-day processing and/or when your core system can no longer provide the types of services your institution needs to grow. A limited number of the top core providers are now offering real-time processing.

 Q. How does core infrastructure relate to regulatory compliance?

A. Data is a key area. Regulations require that you maintain the confidentiality, integrity and availability of data — which all ties into core systems. So you must ensure that your routers, switches and firewalls are all up to date, configured properly and patched. Make sure your active directory is correctly configured and data access authority is properly managed. Have an external penetration test every year, and have an internal penetration test (often called a vulnerability assessment) about every other year. If you make any system changes, make sure to have your internal system penetration tested. Some financial institutions have “ongoing” testing of all these components, which is better yet.

Also, there’s one more very important consideration before you take action. All decisions surrounding the topics discussed above need to be based upon a robust risk assessment of your entire infrastructure, and the solutions should be based on protecting your data and growing your institution.

This article first appeared in the Summer 2016 issue of FINTALK Report.