As Flagstar planned its shift from two core systems to one, executives spent about a year determining the best option for the Hicksville, New York-based regional lender.
A group of 12 candidates was eventually whittled to one: Fiserv’s Finxact, a modern, cloud-native core banking platform. That tie-up was announced Monday.
The bank’s existing core systems are through Fiserv – the firm’s DNA core – and Fidelity National Information Services, said Chris Higgins, Flagstar’s chief information and operations officer.
The lender has been left with a patchwork of systems through New York Community Bank’s 2021 acquisition of Troy, Michigan-based Flagstar and the acquisition of a large portion of failed Signature Bank in 2023.
Higgins said Flagstar and Fiserv went through about three months of contract negotiations, although he declined to detail aspects of that. The $87.7 billion-asset bank plans to do two migrations: one in summer 2027 and the second in summer 2028. Within those, specific products and customer segments will be moved in groups.
Core consolidation is expected to generate $40 million to $45 million in annualized cost savings for the bank, Flagstar CFO Lee Smith said during a May investor conference.
As the bank evaluated potential partners, Higgins said not all 12 companies had ready-made core platforms.
“That did surprise me a bit, because the industry’s been talking about cloud, modern, [application programming interface]-driven core ledger for quite some time,” he said in a recent interview.
The three largest core providers are Fiserv, FIS and Jack Henry & Associates, although nearly 20 other companies provide such services in the U.S.
Core systems handle essential back-end functions like account management and deposit and loan processing.
There’s strong interest in modern cloud and API-powered capabilities, but when looking behind the scenes and inspecting code to understand how components were built, “you saw a lot of variation,” Higgins said.
Real-time posting, product configuration not requiring coding, “clean” API access to data and the ability to scale as the bank grows were essential capabilities, said Chief Technology Officer Jason Pope.
Real-time transaction processing eliminates end-of-day batch reconciliations that most banks are beholden to, so it offers a competitive advantage, Pope noted.
“Getting rid of that batch window is not a technical footnote. When your system of record is real-time and there's a single, authoritative version of that truth, everything downstream can change,” Pope said.
That includes better fraud decisions and artificial intelligence capabilities, and closer to real-time liquidity and risk reporting, due to more current data.
The core platform only delivers on its potential if those in the bank’s front office can take advantage of it, from an experience perspective, Pope said. That inspired the bank to change its technology operating model, to have desired experience drive tech decisions.
“Core conversions most often fail not because of the technical architecture, but from a change management layer,” Pope said. “We very deliberately made this a people program more than it was a technical program.”
Pope said he would encourage those in the industry to think of core modernization not as a one-time event, but as gaining the ability to build things more quickly and easily.
“The measure of success isn’t just, we finished a core conversion,” Pope said. “It’s also looking three years down the line that now we can launch a new product that would normally take months or quarters, in weeks.”
Flagstar’s phased approach with core migration is sequenced by portfolio, which means the bank will be running multiple environments for a period of time as it moves groups of products and customer segments onto Finxact, Pope said.
The advantage being, “if something surprises us in wave one, it doesn’t affect the entire ecosystem or the entire population,” and can be fixed before a secondary wave, Pope said.
“The trade-off is that you carry the cost of those environments, and we think that’s the right trade-off for a bank of our size,” he said.
Flagstar executives credit the bank’s broader efforts to modernize its technology infrastructure, including closing six legacy data centers and opening two new ones, in making the core transition “survivable,” Pope said.
“This is a business transformation that’s enabled through technology and data. This is not a technology transformation,” Higgins said. “That mantra is really key to the success of any company going through this level of change.”