Having spent the last 40 years in the marketing industry, I’ve always wondered why when I log into my Farmers and Merchants Bank account, the name Jack Henry Associates, Inc. shows up. Fortunately, I know who Jack Henry is, but for most people, that has to raise a red flag. Who the heck is Jack Henry and how did he get unto my account? Why did Farmers and Merchants Bank send me to him?

Who is Jack Henry?

Turns out, the company, as well as its competitors – like Fidelity National Information Services (FIS) and Fiserv, Inc. – is a big deal in the banking world, providing what The Wall Street Journal recently described as “much of the modern banking system’s financial plumbing, especially for smaller banks.”

But here’s the deal: Just as Congress dropped an oversized hammer on community banks when it enacted reforms after the 2008 financial crisis, some small-town bankers and their organizations contend that core providers aren’t playing fairly with them, giving big banks access to their leading-edge technology while making smaller banks delay implementation of their latest software.

For example, the Journal reported in its April 11 edition that Lead Bank, a community institution in Kansas City, Mo., wanted to offer Zelle, the payments app, to its customers. They were told by Fiserv, one of its technology providers that it would have to wait until June at the earliest to launch.

Big banks, however, began offering the service two years ago, the Journal reported.

Therein lies a problem.

Fiserv, FIS, Jack Henry and their competitors are known as “core providers” whose pitch to small banks is that the core providers can give Main Street banks access to the same tech as the Wall Street institutions.

But with a nod to the musical “Oklahoma,” when it comes to this promised technological access, everything isn’t up to date in Kansas City, or at other community banks, putting them at a competitive disadvantage.

But community banks aren’t going to let this pass without a fight. In fact, some are filing lawsuits, looking to startups and taking a strength in numbers approach, negotiating as a group for a better deal, the WSJ reported.

American Bankers Association CEO Rob Nichols speaks out

This alleged failure to deal fairly isn’t isolated, American Bankers Association CEO Rob Nichols told the Journal.

“I’ve met with over 3,000 bank CEOs and this came up time and time again; the challenges and constraints they face with their core provider,” Nichols told the WSJ. As you know the ABA represents banks big and small.

But the problem is about more than equal, timely access, according to the story. Community banks and industry organizations say that unfair contracts and sometimes-mediocre offerings make it hard to compete with their bigger rivals.

“Executives at some small banks say they feel they are becoming franchises of the core providers because they are so reliant on their technology,” the Journal reported.

Community banks and core providers began working together in the 1990’s, as the banks sought to computerize paper work. But now, the small institutions turn to core providers for everything from websites to apps.

Ask community bankers, and dollars to doughnuts they’ll tell you that while eye-to-eye relationships are critical to keeping customers, flashy, user-friendly tech is often the difference between gaining and keeping – or losing -- a new client.  Especially with younger customers, tech is critical.

The WSJ cited numbers from the consulting firm J.T. Kearney:

“Midsize and local banks hold 13 percent of primary banking relationships but capture only 7 percent of the customers who switch banks,” the WSJ reported.  Cutting-edge tech is more often than not the deciding factor in the banking choice for customers who switch institutions. Banks with less than $100 million in assets hold only 6.42 percent of industry assets.

Community Banks are putting up a fight

Given the significance of all this to the future of community banking, small institutions are putting up their dukes.

An examples from the WSJ:

• Millington Bank in New Jersey found that if it sold itself, it would owe FIS more than $4 million, according to court records cited by the paper, an amount equal to a year’s profits. Millington sued FIS and the case is awaiting arbitration.

Aaron Silva’s firm Paladin fs negotiates contracts with core providers on the banks’ behalf.

“They’re not building highways to the banks’ data,” Silva told the Journal, “they’re building toll roads”.

For its part, Fiserv said it has updated its processes and plans a widespread roll out of Zelle to many banks at once. But in this spring of small banks’ discontent with core providers, Lead Bank CEO Josh Rowland and other community banks are growing impatient. He compared their battle with the fight between big box stores and mom-and-pop retailers.

Community banks, he told the Journal, “are fighting a Walmart-sized battle.”

“We’re not going to wait around,” Rowland told the paper. “But it’s harder than it feels like it should be.”

In an earlier article posted HERE, we discussed the importance of reliability and technology for community banks. In light of these recent developments in the relationship between core providers and small institutions, some points bear repeating:

• “Invest intelligently in technology. Community banks know their markets well, better than one of the big Wall Street players. As a result, your bank should know specifically what technology works best for your customers. Tailor your tech investment to those specific needs.
• Face Facts. The bottom line is that in 2019, it’s short sighted to rest on the laurels of community relationships and ignore technology. If you want to attract new, younger customers who will one day want mortgages, car loans, or investment services, community banks must adapt to changing times. And remember, your older, established customers may be more tech-savvy than you think.

Too, remember the fate of print newspapers, which failed to adjust to the tech boom and as a result, failed to monetize digital content. As a result, the morning Daily Bugle that used to be part of your morning routine is no more. Without adapting to technology, your bank could go the same way. Consider this chilling number from Finextra.com: In 1985, there were nearly 16,000 community banks. By the end of 2015, there were 5,874.

• You’re not too small to have a mobile app. With an app, you can maintain relationships, while at the same time maintaining expectations about customer convenience. Maintaining a reliable app boosts customer loyalty.

While the WSJ article, as well as the reality of the declining numbers of community banks may send chills through our sector of the industry, as long as your bank’s doors are open, it’s not too late to change.”

Read the entire Wall Street Journal article here:

https://wsj.com/articles/small-banks-rebel-against-the-most-important-tech-firms-you-have-never-heard-of-11554975000?mod=diem10point

What’s been your community bank’s experience with core providers? Send me your story at nreynolds@bankmarketingcenter.com