Paladin Blog

The Writing's on the Wall - In Disappearing Ink

Attention, community bankers! The tectonic plates of banking technology are shifting, and if you're not paying attention, you might just find yourself doing an impromptu dance on the San Andreas Fault of financial services. The latest tremor? Our friends at the Big Three - Fiserv, FIS, and Jack Henry - are starting to play a high-stakes game of Jenga with their services, and guess who's left holding their breath as the tower teeters? That's right, it's you, the community banks and credit unions.

Fiserv has decided to kick off this party by beginning to ask their clients to ride into the sunset without Retail Online Banking (ROB) and Business Online Banking (BOB) services after December 2026. If you think that's a problem for future-you, think again. In the glacial world of core banking systems, 2026 is practically next Tuesday.

We've worked with banks of all sizes ranging from $150M to $30B over the last 15 years and with all legacy core IT suppliers and all of their services.  Unremarkably, none of the "big three" have excellent reputations when it comes to service and support and most bankers agree that dumping one core for another to gain greater functionality, innovation or deeper love and attention is a losing proposition.  None of them do anything particularly great...but when you have unchallenged control of the market as they do - "adequate" service levels are good enough by their standard because they are no longer competing for customers. 

Consumers set high standards for businesses, especially financial institutions. Money is a sensitive topic with little, if any, margin for error — people expect transfers, transactions, account management, or whatever other services to be timely and precise. 

In turn, you have to hold your core IT provider and fintech suppliers to an equally high standard. Otherwise, your business could be at risk. 

To do so, your vendor contracts’ Service Level Agreements (SLAs) must be tight, relevant, and enforceable. But there’s a common problem plaguing the financial services industry: most contracts don’t have real SLAs. Instead, they have Service Level Objectives (SLOs).

How much am I overpaying for core, IT, and fintech services? 

It’s the most frequent question we’ve received since we started helping community banks and credit unions fight back against unfair vendor agreements over fourteen years ago. 

Naturally, it’s a fair question to ask, but it’s impossible to provide a simple answer to such a complex financial question. Core banking agreements and fintech vendor contracts have so many nuances that it’s impossible to pinpoint the “right” price to pay for these services without hiring an expert armed with market intelligence to analyze your contract — there are just too many factors at play.

Many banks and credit unions face a growing dilemma: their core banking systems are outdated, complex, and inefficient. 

When your core banking system predates the commercialization of the internet (circa 1992) — that’s a problem, don’t you think?

If you’re a community financial institution, there’s a good chance that you’ve overpaid for banking system services at one point or another. For decades, the core legacy providers — Jack Henry, FIS, and Fiserv — gamed the system, strongarming community banks and credit unions into unfavorable deals with lofty prices, predatory terms, and limitations on technological access. In turn, smaller financial institutions have trouble competing with the bigger players. 

Legacy core providers and fintech vendors know what they’re doing. They know how to manipulate contract negotiations and renewals to their advantage. Historically, smaller institutions haven’t had the resources to combat their tactics. That’s changing. 

Paladin fs recently moderated 2 peer discussion sessions with American Bankers Association’s CFO Peer Exchange virtual event. We moderated various breakout rooms and discussed questions around the topics of innovation, risk assessment, and the impact COVID19 had on bank technology with 100 community bankers from around the country.

Read below to find out the key takeaways from these bankers on these topics.

Your Core IT vendor knows their stuff — and they should, it’s what you pay them for. However, when core banking providers exploit that knowledge during contract negotiations, it’s a problem.

Historically, Core IT vendors have nickeled and dimed community banks and credit unions with an arsenal of hidden fees and unfair terms. Unlike the major banks, these institutions don’t have the staffing or resources to counter vendors’ legal teams and IT expertise. The result: costly, one-sided contracts that heavily favor the vendors. 

To combat unbalanced contracts and predatory terms, you have to outsmart your Core IT vendor, which isn’t as challenging as it may sound. How can you keep the experts honest? It starts with understanding your vendor and negotiation counter party.

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.