B2B Payments

Community Banks Voice Frustration With Core Tech Providers

Community banks are voicing their frustration with what they say is a lack of competition in the market for corporate bank technology providers, reports in The Wall Street Journal said Thursday (April 11).

Companies including Fiserv, Fidelity National Information Services (FIS) and Jack Henry & Associates control the majority of the core banking services market, linking financial institutions and FinTechs to infrastructure to run their own banking operations. But community banks are telling reporters that their market control is beginning to lead to unfavorable contracts with smaller players, and it's preventing those smaller FIs from being able to compete with the big ones.

"Smaller lenders and some industry groups say the service providers' onerous contracts and sometimes mediocre digital offerings have made it harder to keep up with big competitors," the publication said. "Executives at some small banks say they feel like they are becoming franchises of the core providers because they are so reliant on their technology."

Fiserv, FIS and Jack Henry have secured 90 percent of U.S. banks with less than $1 billion in revenues as customers, Celent data shows, and continue to secure greater market share as their B2B services stretch beyond core infrastructure and into areas like helping institutions launch websites and mobile apps.

Community banks say their services are often too expensive and can sometimes be delayed. One bank, New Jersey-based Millington Bank, would owe $4 million to FIS if it sold itself, the WSJ said, citing court documents. That equates to nearly one year's worth of the bank's profits.

Some companies have begun to initiate legal action, turn to smaller FinTech competitors, or contract negotiations to address the issues they're facing, reports noted.

American Bankers Association Chief Executive Rob Nichols told the news outlet that in conversations with thousands of bank executives, the common factor behind their challenges is the struggle with core providers.

The ABA recently took action to inject more competition into the core provider space by investing in Finxact, a smaller player in the space that offers services on a subscription model, earlier this year.



The How We Shop Report, a PYMNTS collaboration with PayPal, aims to understand how consumers of all ages and incomes are shifting to shopping and paying online in the midst of the COVID-19 pandemic. Our research builds on a series of studies conducted since March, surveying more than 16,000 consumers on how their shopping habits and payments preferences are changing as the crisis continues. This report focuses on our latest survey of 2,163 respondents and examines how their increased appetite for online commerce and digital touchless methods, such as QR codes, contactless cards and digital wallets, is poised to shape the post-pandemic economy.