Rapid consolidation in the banking industry is creating a growing band of regional banks that find themselves stuck in a solution provider market that isn’t fully capable of serving them. In recent years, technology and digital strategy have become integral parts of the bank shareholder value discussion, yet for the 90 or so banks in the $10 billion to $50 billion asset size range, core providers remain ill-equipped to assist regional banks in enabling the execution of their technology strategies.
As banks have consolidated, so have the technology partners serving them. Let’s imagine how concerning and tenuous it must be for a regional bank CIO looking to execute and innovate in today’s vendor market with the following options available to them:
FIS leads, but where’s the client soul?
FIS has captured a dominant share in the regional banking space with its IBS core platform (formerly Metavante). However, this share has been gained more by competitor weaknesses than new FIS strengths. Scalability and feature-rich commercial banking functionality have made FIS safe from a core standpoint despite aging architecture. However, the company’s slew of rollup acquisitions has failed to translate into any meaningful development and innovation. For example, regional banks would gladly take improvements in service level and capability over whatever “benefits” the Sungard deal brought them. “Innovation” to FIS is a multi-year effort to bring core architecture out of the punch card era and open up IBS to where it can integrate with other providers in a simpler, financially less punitive manner—something it should have done years ago.
The lack of execution on internal innovation was further reinforced when FIS dumped its long-terminal road map around its digital and branch platforms for a new partnership with independent developer Zenmonics-branded Digital One. Now, a major portion of the regional and community bank industry must handicap whether FIS can execute on an ambitious strategy with a rapid-fire development road map after believing in a completely different channels story from the company for the past several years. To many clients, it feels like FIS is excessively focused on finance and deals and missing the gritty product and relationship “soul” that was previously evident in acquired companies like Metavante, Sanchez and Systematics.
Bottom line: Regional CIOs want to see FIS get its client and development focus back and build bulletproof credibility executing Digital One while opening up its solution to the best-of-breed world.
Fiserv wants share, but with what platform?
Fiserv executives must be kicking themselves for acquiring dozens of core platforms over the past 25 years but still lacking a flagship product ready for the growing regional bank space. Management seems torn between emphasizing the newer-technology DNA core platform, which lacks the robust commercial functionality needed by regional banks, or pushing the more-established Signature platform, which boasts a solid regional bank client base but appears rudderless when it comes to innovation and product roadmap.
Further muddying Fiserv’s core R&D picture are the Premier and Precision cores now seen in regional banks that acquired their way to beyond $10 billion in assets but bought those platforms at much smaller sizes. Fiserv is simply too large to not mobilize a credible regional bank core strategy and bring forth some passionate product people to give CIOs more confidence about the future.
Bottom line: Regional CIOs want to see Fiserv clarify its flagship product in the regional space and put real teeth into the road map that dictates how Signature or DNA can compete head to head with FIS on new deals. Fiserv also needs to fully execute on its strategy for integration within its own products and third-party solutions.
Jack Henry wants to scale … so bad
In an oligopoly serving the regional banks, Jack Henry & Associates (JHA) comes with great desire but needs an enhanced technical strategy and delivery capability to truly line up with the more complex regional bank technology market. CIOs characterize this company as “strong, sincere folks,” but they are anxious about the overall enterprise technology story via proven core, branch/digital channels and integration at scale to be the regional bank platform of the future.
Make no mistake, JHA is seeing more clients over $10 billion now that its former $3 billion clients have grown through serial acquisitions. Helping the JHA cause, long-term efforts to improve its branch and back-office platforms (Xperience and Enterprise Workflow) as well as its retail and commercial digital platforms have finally come to market.
Yet, to win a new regional bank deal, JHA still struggles to make a case regarding its ability to serve a regional bank and key reasons a CIO should take a risk against the “safer” FIS. If FIS fumbles on Digital One, there will be opportunity for players like JHA, but that credible technical path with proven ability to scale into larger shops better be there when the opportunity comes.
Bottom line: Regional CIOs want to see Jack Henry invest in the talent, technical road map and best-of-breed tools to make its solution well positioned for banks wanting a solid core platform that can be integrated with best-in-class third party products.
Global and Upstart Alternatives
With the tepid strength of solutions being offered by the big three oligopoly, regional CIOs are hoping that better competition and innovation will come from global core entrants or new entrepreneurial upstarts. While there are headlines and initial point application installs going on from Tenemos, Tata and Infosys, these companies are years out from a proven loan and deposit install at a sizable bank. The outcome of Temenos’ implementation at Commerce Bank is eagerly awaited, but without loans it won’t be a “full” install. Same for Tata at Zions Bancorporation, where only loans are live today. These global vendors are likely to make inroads first in regional banks with in-house custom code that gets peeled out one application at a time versus taking out the full-suite players like FIS, Fiserv Signature and JHA Silverlake early on.
Energetic folks like Chip Mahan and Frank Sanchez creating a more open core platform at Finxact inspire the age-old love of cool new technology from regional CIOs, but in a world of compliance, vendor management and best-of-breed, these executives will maintain a low risk appetite when contemplating a core switch. Another upstart, Nymbus, with its SmartCore, will face similar challenges scaling up toward the complexity of regional banks in the near term. Finally, whether merger-created global player Finastra can scale its acquired Phoenix core platform past the community bank space where it plays today is very uncertain.
Bottom line: Regional CIOs want to see new global and upstart players focus less on PowerPoint and architecture and more on using their new development efforts to get real installs. Get gritty on the hard issues of functionality and regulatory compliance and make those early adopters real installs.
Technology has become too important to the future shareholder value equation for regional banks to accept the mediocre ecosystem serving this market segment today. Major core players that have a lot to lose need to fix service and demonstrate a renewed interest in clients and technology as opposed to deals and finance. They need to create pricing and integration strategies that make sense to CIOs where best-of-breed is a non-negotiable reality, and they need to dump any sense of security that this market is safe for them. Without improvement, sooner or later some challenger will start gaining traction, talk among CIO peers will grow, and someone more aligned with market needs will take share. There is a big, gonzo opportunity out there for someone to be the new technology partner of the growing regional banking segment.