Community Banks vs. Bank Core Processors: Searching for Empowerment

Bank teller at a community bank working with a client on out-of-date systems due to lack of accessibility to new softwares.

The relationship between community banks and bank core processors, also referred to as core providers, has been fraying over the course of the past few years. Will they be able to resolve the issues surrounding them?

The relationship between community banks and bank core processors, also referred to as core providers, has been fraying over the course of the past few years. Keeping pace with technology demands has always been a concern for small players in the financial industry, and earlier this year arguments over whether core providers were moving fast enough to meet consumers’ expectation began to boil. Community banks are growing continuously more frustrated with core providers over unfavorable, expensive contracts, and mediocre digital offerings that make it increasingly more challenging to compete with larger banks.

Lack of Competition in the Market

The lack of competition in the market for corporate bank technology providers is creating an even greater strain on the relationship between banks and the core providers. According to financial-services research firm Celent, the three biggest core providers today do business with 90% of U.S. banks with less than $1 billion in assets. With rapid consolidation in the banking industry creating a growing band of regional banks stuck in a solution provider market that isn’t capable of adequately serving them, each core provider comes with their own downfalls. Downfalls such as loss of client and development focus while trying to execute internal innovation strategies, failure to clarify a forerunner product, and lack of technical strategy and delivery capability. Community banks have grown to rely on these providers and their technologies for the newest tools, such as open-data platforms and on-demand services. But with ever-growing fees and longer-term contracts that have hefty cancellation costs, smaller players are unable to afford the expensive services.

Bank Core Processors Failing Community Banks, Regional Banks, and Credit Unions

As far back as the 1960s, core providers have sold systems that helped banks computerize paperwork. More recently, smaller banks have turned to these companies for other services such as websites and banking apps. With digital banking on the rise, having the right technology offerings can make or break a community bank. Large banks offer their clients flashy apps to make banking “easier,” and the lack of these offerings can make a difference in whether a bank gains or loses a customer. Community banks find that these services tend to be too expensive and often are delayed. For example, Lead Bank in Kansas City, MO, wanted to offer its customers the payments app Zelle but was told by its core provider they would be unable to for a few months—while the big U.S. banks had rolled out the service nearly two years prior. The slower release of “new” technology offerings can hurt smaller banks’ ability to maintain their current customer base, as well as attract customers looking for bank alternatives.

Is There an Answer?

Technology plays too large of a role in today’s banking market for community banks to accept the mediocre systems currently offered to them. Major core providers have a lot to lose by not demonstrating a renewed interest in customers and fixing their service. Without improvement, frustration amongst community banks will continue to grow, challengers will start gaining traction, and someone more aligned with the market needs will take charge. Some companies have already begun to launch legal action, turn to smaller FinTech companies, or arrange negotiations to address the issues at hand. As community banks continue to strive to meet the high expectations of their customer base, core providers need to work with community banks to empower them by providing timely solutions to the industry’s call for modernization.

Top Solutions and Personalized Services for Financial Institutions

The banking industry is continuously evolving, and your financial toolkit must adapt quickly to keep up. Ellsworth Systems works with you to create innovative solutions to fit your financial institution’s needs. From security systems to branch design to the latest in financial technology, we’ll work together to elevate your consumer’s experience and enhance your service offerings. Contact Ellsworth Systems today by calling 615-778-9100 or online to learn more!