The task at hand
Once the FoBTF was in place, the group set out to focus on customer needs and expectations and the real-time movement of money. To help this select group of bankers reimagine community banking in Texas and focus on economic resilience across the state, speakers versed in all areas of technology, cybersecurity, government relations and marketing were invited to the meetings to lend insight on the challenges and opportunities facing the industry.
In May 2019, the FoBTF delivered its first product: a “Summary of Initial Findings and Recommendations,” which reflected the work of the task force to identify key challenges from October 2018 to May 2019. The report provides suggestions and action items for both banks and TBA in the areas of fintech and the customer experience, bank IT and marketing coordination, core providers, cybersecurity maturity and succession planning.
The cores
Building on the May 2019 report, the task force then chose to dig deeper. They decided to focus on the core providers and community bank concerns about speed-to-innovation, fees and pricing and contract inflexibility.
Specific concerns included:
- Questions about who owns the bank’s data
- Growing cybersecurity concerns and surprise mid-contract fees
- Reluctance from core providers to allow Open APIs (application programming interfaces) that provide an integrated experience for customers
- The creation of legacy systems pieced together based on evolving needs and specific requests from bankers and customers
- The speed of obsolescence
In fall 2019, TBA sent a letter to the largest core processors sharing the industry’s concerns and requesting a positive and collaborative dialogue. As a result of the letter, the core providers agreed to attend a FoBTF meeting.
This meeting sparked the creation of the 2020 TBA Core Provider Survey, facilitated by an independent third party, Weaver.
The survey, which captured responses from nearly a quarter of TBA members this summer, included large and small, rural and urban community banks. The results confirmed the long-standing relationship and partnership between community banks and their core processors, but it also indicated a growing impatience by small community banks with the larger cores and pointed to areas for improvement. It confirmed the feeling FoBTF members had that the core providers “listened but did not hear” banker concerns.
Banks have always been tasked with gathering data that tracks the movement of money, recording both transactions and customer data, evolving from handwritten ledgers to sophisticated core processing systems. It’s not surprising, then, that one of the FoBTF’s first tasks has been examining the relationship between banking and core processors.
The current core processing companies have evolved with banker input as they’ve learned to master the business of banking. These companies have partnered with banks, forming collectives, creating efficient technological products and acquiring innovations to meet the needs of savvy community bankers — all with the ultimate goal of meeting customer needs.
For bankers, staying abreast of technology is a huge challenge and expense because, for most bankers, technology is not their primary job. For core providers, staying abreast of banking and its rules is a challenge because, for most core provider teams, banking is not their primary job.
Lately, however, the friendly partnerships and trusted relationships between banks and core processing companies are being shaken. Questions have arisen over who owns the bank’s data. The core processors and their “best-in-breed” products have themselves become legacy systems, pieced together based on evolving needs and specific requests from bankers and customers.
Growing cybersecurity concerns have added new levels of complexity and expense, making core processors reluctant to allow Open APIs (application programming interfaces), add-ons or plug-ins that provide an integrated experience for customers. If allowed by a core provider, these add-ons come at a cost of time and money. If not allowed, bankers begin seeking newer core processors that are nimbler and more flexible.
There’s also the concern with obsolescence, where systems become outdated and are no longer used. Computers, as well as cell phones and smart televisions, are infamous for their rapid obsolescence. Any technology built five years ago is nearing obsolescence.
Likewise, there is concern about the obsolescence and complexity of contracts. It is challenging for small community banks when asked to negotiate and sign a five, seven or 15-year core processing contract in this rapidly evolving tech-driven world, particularly when small community banks may not have in-house counsel like larger core providers.
Acting Comptroller of the Currency Brian Brooks addressed core contract concerns during his innovation comments at TBA’s Texas Economic Resilience Summit in September.
“Most of your members are contracted in these lengthy contract periods with onerous penalty clauses if you want to re-negotiate or exit,” Brooks said. He added that the OCC has launched an initiative to review core contracts as a potential threat to community bank safety and soundness. “Banks need to have termination rights within a reasonable period.”
As of press time, core survey data is being shared with the participating TBA member banks. The survey revealed that banks in the $500M-$10B asset size experience the greatest pain points, chafing against long contract terms, unexplained new fees and restricted flexibility in open API access to meet customer expectations. This valuable information will be used by the task force to inform additional action as well as advocacy efforts.
Today’s projects
The core processor project led to another deliverable, the “Community Banker Strategic Roadmap.” Many banks recognize that they must deploy technologies that meet the needs of a diverse customer base, but many are uncertain about where to start and how to plan for developing a strategic roadmap.
To help Texas community bank leaders with these questions, the FoBTF designed a flexible questionnaire tool for bankers to use with their boards and staff as they plan for the future. The resource allows bank boards and management to ask questions, assess their current position and think about the future. It is designed to be practical and lead to action.
“The task force was clear that the Community Bank Strategic Roadmap was intended for bank executives and the board—not just IT staff,” said TBA Member Relations Vice President Mary Lange, liaison to the FoBTF. “Tech innovations will not be effective if they do not map to the bank’s customer needs and strategic objectives.”
Bank leaders can leverage the flexible template to develop and deliver leading technological offerings by:
- Asking the right questions to understand their bank, customer and market needs.
- Evaluating a range of both opportunities and challenges.
- Staffing, planning and budgeting effectively for these efforts.
- Supporting successful implementation and deployment.
The document even includes a sample case study that bankers can use as an example for developing their own roadmap. This and other projects of TBA’s Future of Banking Task Force could not be timelier. The pandemic has only quickened banking’s digital transformation, even as Texas banks have led the charge in providing Paycheck Protection Program loans, shifted lobbies to “by appointment” visits and utilized technology to keep customers and staff safe.
The TBA Future of Banking Task Force has now identified several new topics for upcoming review: Blockchain, artificial intelligence, cryptocurrencies and the future of regulation as we seek ways to “right-size” regulation for community banking. Your participation is critical to this work. If you would like to participate in the task force or would like to recommend topics for future consideration, contact Mary Lange ([email protected]) or Ashlee Bennett ([email protected]).