The announcement that BB&T will make a $28.2 billion all-stock acquisition of SunTrust Bank — which, when it closes, will be the largest bank merger in a decade — has led to the resurfacing of a common refrain: how should a bank overhaul its legacy core banking system.

“This is a massive project,” Ed Page, managing director at Protiviti, a technology consulting firm for FIs, told Bank Innovation in regards to transitioning to a new core banking system. “But there are different ways of approaching it based on the specific needs of an FI. And that’s exactly what you’re seeing out there right now with different banks taking different routes to get to the same destination.”

Overall, there are five main core-overhauling methods, he explained: 1) greenfield core system development; 2) preserve and protect; 3) simplify and rationalize; 4) rip and replace; or 5) phased migration.

In the case of BB&T and SunTrust, the method likely to be deployed is simplify and rationalize. This approach focuses on taking the complexity out of the surrounding layers of the legacy environment, but leaves the central core in place.

“Usually in the case of M&A, it’s like merging technology of two different banks,” Page said. “And usually it’s the acquiring bank that has a platform, which could create a scale of advantage. This approach is based on eliminating redundant platforms like lending, payments etc., and getting them on a single front. In a well-done merger, technology synergies can be achieved by taking one bank’s infrastructure and collapsing into the other.”

Another step in the simplify-and-rationalize method of core changes is reducing the number of vendors and data centers.

He declined to say if BB&T and SunTrust will adopt this method, but it “makes sense for them to,” he said.

Bank Innovation has reached out to BB&T-SunTrust and is awaiting a response.

Another option for BB&T and SunTrust is to “rip and replace” the existing cores, also known as the Big Bang method. This approach is a complete overhaul of the aging core, replacing it with the more modern of the two. In this case, there is a transition from the legacy platforms to the newer platforms. The two banks that are merging will have to move all their accounts to another platform. 

“It’s a high-risk proposition because you are migrating big chunks of all your customers to a new platform,” he explained. The risk is not tied to security or data conversion, “but more functionality glitches,” Page said.  

It seems unlikely that BB&T and SunTrust will opt for this method. 

Also Read: BB&T-SunTrust Faces Daunting Tech Integration After $66 Billion Merger

The other core-overhauling methods are also visible in the current banking ecosystem. The greenfield approach, for instance, was used by Goldman Sachs & Co. in creating Marcus. In such a case, the core system is generally built from scratch, usually reserved for a narrow offering and then slowly expanded. Marcus started out as a consumer lender in the U.S. in 2016 and then added different types of loan offerings. Last fall, it launched an online savings account in the U.K.

JPMorgan Chase‘s standalone neobank Finn is another example of the greenfield approach.

The phased-migration method was used by Capital One to create Capital One 360. In this method, a new platform is set up in parallel with an existing core. Capital One started offering new products and services on its new platform, without migrating from the old platform.

“This is a less drastic approach,” Protiviti’s Page explained. “It doesn’t have the big risk of the ‘Big Bang’ approach, but the downside is that you still have to move customers to the new platform, eventually.” 

U.K.’s Lloyds Bank is also using the phased migration approach in its core-overhaul project. In December, Lloyds announced plans to deploy a new core as part of a project to lower its risk and increase innovation potential. Bank Innovation previously reported that Lloyds will begin the development and deployment phase of this massive core-revamping plan early this year. For this lofty project, the bank tapped its London neighbor Thought Machine, a cloud-based core platform. Lloyds invested £11 million ($14.6 million) in Thought Machine for a 10% stake in the company.

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