I have recently been enjoying this classic TV show with my 10-year-old son. 151 more episodes to go! He is enjoying a classic show his grandparents watched at the same age, but he does not bank with a financial institution running COBOL (Common Business-Oriented Language). Some things stand the test of time. Your core processor running COBOL will not.
The pent up demand for an alternative, modern, competitive core to the out-dated legacy stack saddling the community financial industry today led by Fiserv, FIS, Jack Henry and their cousins at Finastra and CSI is incredible. Bankers are not only thirsty for a platform that is easy to use and easy to train their staff, they need platforms that are flexible and can be integrated easily with any number of other systems. This isn't much to ask for in the 21st century, but unfortunately the options are slim pickings and will remain that way for some time. I predict that it will be another 3-5 years (circa 2024 - 2025) before any of the new fintech cores are mature enough and exhibit the appropriate risk profile palatable for bankers to jump in. What I mean is that a rank-and-file banker is going to need to see and understand many reference-able accounts that have operated for many years successfully before they will risk their franchise. Community bank CEOs (many older and nearing retirement) are going to be risk averse even though they know a technology transformation is the key to long-term success. Regardless of their tenure, very few bankers are interested in being the 5th, 15th or 25th bank on a new, unproven core platform.
The pandemic of 2020 has been a major business disruption and distraction to the community banking industry - and all industries globally for that matter. Albert Einstein was famously quoted, "In the midst of every crisis lies great opportunity." This fact is not lost on the legacy Core & IT suppliers Fiserv, FIS and Jack Henry as they have recently blanketed their current clients with pre-emptive and unsolicited contract renewals years ahead of their maturity dates. These "Pandemic Deals" as they are being referred to, are finding bankers flat-footed and making many to feel cornered into a long-term, multi-million dollar decision at a great time of uncertainty and when their collective minds are on so many other pressing matters. Bankers that have contacted Paladin feel these offers are intimidating as some vendors tease "take -it-now-or-leave-it" deals that feel more like a strong-arm tactic than a partnership hug.
Three sales reps from Fiserv, FIS and Jack Henry walk into a bar one night and belly up to the counter. The bartender says, "What would you three gentlemen like?" In unison they all answered, "A banker with less than 12 months on his contract willing to negotiate alone!"
Earlier this year FIS announced the groundbreaking innovation of a "Simple Contract" (now renamed FIS ClearEdge) that delivers a, "...simplified pricing and contracting model for qualifying U.S. community banks and credit unions that [enables them] to bring innovative new products and services to market more quickly, control expenses, and maximize the efficiency and resiliency of their operations – better positioning them for success as the economy recovers from the current health crisis."
Bankers News published an article featuring Paladin President, Aaron Silva, discussing frustrations by banks with their core providers.
"Gather a group of community bankers and you'll quickly find their common ground: A bad experience with a core processor. Their complaints might focus on lack of responsiveness, steep conversion or deconversion fees, or brutal terms to terminate a contract early; whatever the problem, the result is frustration."
Our President, Aaron Silva, weighed in on the topic.
Expert Insights from Aaron Silva, President & CEO of Paladin fs
Moderated by Timothy Chiodo, Payments, Processors, & FinTech Analyst at Credit Suisse
The following is a republication of a report by Credit Suisse.
Insights & Discussion with Core Banking Expert
We [Credit Suisse] hosted an expert call with the President & CEO of Paladin fs, a national research & consultancy firm that specializes in bank & credit union contracting for core banking & ancillary technology services via the likes of FIS, Fiserv, Jack Henry, etc. (with this expense often the second largest cost for many banks behind payroll). Our expert started the firm in 2007, and began negotiating fees on behalf of banking customers in 2009, with an emphasis on financial institutions under $25b in assets. Paladin fs is approaching ~200 transactions and has assessed hundreds of additional US financial institutions. Our expert also founded the Golden Contract Coalition with an aim toward organizing hundreds of institutions & ~$1b in core IT contract revenue.
Buried deep in the fine print of your Core IT agreement is something called an “Exclusivity Clause”. Most bankers don’t know it exists. Most again don’t know what it means until they bring a competitive solution from a newer fintech to the relationship. Bankers are surprised to find out that a vendor armed with the Exclusivity Clause (EC) has near total control over your destiny – at least for the next 5, 7 or 10 years. Unless, of course. you are prepared to cough up 50%, 80% or even 100% of the remaining contract value to exit the service for greener pastures. This is completely unreasonable but it’s important to understand how we got here before we chart a course of freedom.
After 12 years of running a company that is 100% focused on negotiating on behalf of community banks against the Big Three Core IT oligopoly of Fiserv, FIS and Jack Henry, it’s not getting easier. In fact, it’s getting more difficult and more complex each year as these very intelligent suppliers maneuver, juke and jive to maintain market dominance over community banks whom, when doing it alone in a contract renewal negotiation, have little chance of getting a fair deal. The deck remains stacked against the industry even as many organizations finally begin to cry foul. Following the launch of the Golden Contract Coalition in 2016, ABA launched the “Core Platform Committee” in late 2018 turning up the heat publicly against core suppliers and calling out their unfair trade practices.
It continues to escape any common or practical business sense as to why a community bank would agree to voluntarily be locked into a 10-year technology contract. More so, the fact that a 10-year contract even exists (is offered at all) questions the ethical standards of technology suppliers and their commitment to selling services that fairly meet the needs of community banks in exchange for a reasonable profit. 10-year technology contracts are neither reasonable nor assist Banks in meeting any of their business needs. In fact, these contracts are predatory, outrageous and exorbitantly profitable to vendors and not their client “partners”. While all legacy Core IT suppliers would love to handcuff their clients to 10, 15 and 25-year contracts (yes, we’ve seen 25-year deals) one supplier - CSI of Paducah, Kentucky (www.csiweb.com) - appears to lead the charge on lacing their customer base within these contract shackles.