Recap
Banks loathe Fiserv (their words, summarized). And there is no love lost with other core providers. Fiserv has a third of the market for community bank cores, and Premier is the dominant core. A few years ago at the American Bankers Association Policy Summit, I heard an executive from a mutual community bank with a delightful Appalachian drawl dryly joke-not-joked about bankers’ love for their core provider.
Featured Asset
The Core Provider Hate Index, adapted from American Bankers Association data.
The graphic: Core market share among the American Bankers Association membership (bubble size); satisfaction is from left to right and likeliness to renew from top bottom to top. The chart is labeled perversely as dissatisfaction and unlikeliness to renew, which are metrics that that ABA measures. Upper right is good. Lower left is bad. Dig into the data further and customer service, or lack thereof, turns up as a crucial factor.
Deep Dive
Decades ago, in-house data-processing units at several banks merged; the merged vendors kept buying other vendors. Now Fiserv supports 16 cores. (The last time I interviewed Dudley White, he barely suppressed a wry grin).
Big incumbents consolidated the market, competition vanished, and small banks were stuck with brittle technology and terrible contracts under the thumb of a B2B oligolopy.
Big banks more or less did what they wanted; Small banks and credit unions got leftovers and terrible contract terms.
Or that’s the story told in 300 pages’ worth of public venting.
Responses to an OCC request for information, in summary:
Politely: “Core providers are horrible and regulators are complicit” (American Bankers Association)
Blandly: “We are important; we are also a mess. $3 billion over five years will fix that, but until then you can have a new account manager” (Fiserv)
Quietly: “The cores work hard to waste everyone’s time; our heartthrob at the CFPB is gone, and our policy team needs something to do” (MX)
Obviously: “Thanks for the free ad campaign. If you made it this far, please buy our vendor data” (FedFis).
Among community banks, the top four core vendors have 79.9% market share. (Source: FedFis.) ABA data also surfaces COCC and Finastra with a different methodology.
FedFis
Free data. Please download. An academic concept that sticks out is “primary tech stack” (core, online banking, mobile) and “core strategic,” the banks that have the same vendor for the primary tech stack. I would add that buying the bundle is cheap and easy, not necessarily a strategy. And for a tiny community bank, it’s probably the only choice.
Vendor concentration in key parts of the tech stack is high. About 75% of banks buy a bundled solution. Organic churn is 2-3%. (Source: FedFis.)
“We feel that critical bank vendors […] have been labeled as scapegoats for lack of bank innovation for too long.”
Trade Associations & Banks
Words dripping with acid. The dominant core providers abuse their dominance and regulators are complicit (their words, in short): Sales teams make the next solution sound like a masterpiece; it is not. Features that are sold don’t exist; after go-live, support trails off. The big-four oligopoly means that incumbents have no incentive to change.
“Core providers should not “act as gatekeepers that restrict modernization. However, when core service providers position themselves as the control point for bank innovation initiatives [...] they create obstacles that undermine bank competitiveness.”
Most [core service providers] do not offer a comprehensive, single-source solution…While CSP add-on products may offer certain efficiencies or enhanced functionality, they may not always meet all operational requirements, which can require supplemental third-party solutions to remain competitive.
Fiserv
Absolving oneself of sins. Community banks depend on the evolution of core platforms to support digitization, and the ability to outsource operations to vendors has meant that smaller institutions compete with larger banks (or what once was the benchmark). Fiserv is investing billions of dollars in technology; at the same time, its sales organization has been disorganized and the out for customers is to hope for a better account manager.
“...the evolution of core platforms has allowed smaller institutions to operate with levels of sophistication once reserved for larger banks [...] community banks have been able to scale operations, streamline back-office processes, and support delivery of digital products...”
“In recent years, we have experienced staff turnover and organizational changes in the relationship and account management division…”
From the notebook
Resources:
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