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Hard Core: A Lack of Options for Processing Systems Continues to Frustrate

By Alaina Webster, Managing Editor

By far, the most interesting session I attended at the recent American Bankers Association conference in San Diego was “Addressing Core System Challenges.” During the hour-long session, a panel of five bankers, moderated by ABA’s Senior Vice President Christopher McClinton, discussed the intent of a newly convened ABA committee to address core system frustrations faced by community and mid-sized banks.

All panel members agreed that innovations in IT and data processing are critical for community and mid-sized banks to keep pace with the competition, but it’s hard for an individual bank to move the needle on its own.

Each time a bank tries to introduce a new technology or solution, “Invariably, the core becomes an issue in our implementation of that,” said panel participant Howard Jaffe, president and chief operating officer of Inland Bank and Trust, Oak Brook, Ill.

Panelist Bryan Bruns, president and CEO of Annandale, Minn.-based Lake Central Bank, is of the opinion that it’s not so much about convincing core processors to change their business models but helping providers understand that banks’ business models have changed.

“If we don’t change the business model, we as an industry are not going to survive,” he said. “Netflix did make a change — Blockbuster did not.”

Attempting to start a dialogue, ABA has issued meeting invitations to three of the major players in the core processing space, a move that panelist Trey Maust, CEO of Sheltered Harbor and executive vice chairman of Lewis & Clark Bank, Oregon City, Ore., called “a shot across the bow.”

McClinton said the committee hopes to impress upon the companies that, “Our industry is changing, and we want you to change with us.”

The idea of an ABA standard contract for all member-banks was floated, as again, a larger group of banks gives the banking industry more clout. Others wondered aloud if the ABA shouldn’t partner with state associations or other interest groups to affect change, while still others suggested moving away from the usual suspects and partnering with some of the new core providers arriving on the scene.

Once the room was opened up to a town-hall style format, however, the audience mood remained fairly pessimistic and frustrated, with one attendee characterizing discussion with providers as “… lots of words, but no quantification.” Bankers didn’t seem confident that they had enough leverage to force core providers to listen to them or make any major changes to their platforms.

One gentleman seated at my table was particularly outspoken on the subject. Addressing the room, he said core providers have no incentive to innovate. Smaller banks are no longer their main revenue stream, so community and mid-sized financial institutions have no room to negotiate.

And as for new core providers entering the space? He didn’t see much hope in that direction either. A “messiah core [his term],” one that could take the majority of community and mid-sized banks, doesn’t exist right now and won’t for at least another five years, he said. Moreover, any new start-up cores will lack the capital to help banks buy themselves out of existing contracts.

For now, it seems bankers will have to take comfort in the fact that the doors of communication are open, and the standard core providers should at least be feeling some pressure, both from the ABA and from new companies trying to disrupt the status quo. 

Alaina Webster is Managing Editor, BankNews, awebster@banknews.com.

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