A look at the core processor relationship

Once the dialogue starts between community banks and core providers, bankers may be surprised to learn to what extent core providers can help them grasp strategic opportunities.

In today’s dynamic, technology-centric marketplace, a community bank’s relationship with its core provider should be a strategic partnership that supports the bank’s long-term business objectives. Based on feedback from both banks and core providers, ICBA has created guidelines to help you make the most of your working relationships.

By Susan Thomas Springer

With banking technology changing more rapidly than ever before, and fintech companies encroaching on their markets, community banks are looking at their core processor through a new lens: one that can support the new services their customers are demanding—or soon will be.

“As technology further changes banking and commerce, community banks want to have the flexibility to use technology to further distinguish their institutions,” says Viveca Ware, ICBA’s group executive vice president, regulatory policy.

To read the full best practices guidelines from the community bank perspective, visit icba.org.

Traditionally, core processors were primarily responsible for customer and bank recordkeeping, but today’s systems must support multiple customer-facing channels and real-time banking, too. This key vendor relationship therefore has the potential to evolve into a more strategic partnership—but this potential

isn’t always being realized. “We began hearing from our members that they weren’t sure the systems they currently had could adapt to or be as slick as all the new technology out in the marketplace,” says Chris Lorence, ICBA’s group executive vice president, member engagement and strategy.

So, last year, ICBA conducted a survey to learn more about the community bank-core processor relationship and to learn how the relationship could be optimized. The outcome is a best-practices publication, the ICBA Core Processor Resource Guide, which will be distributed to members this month (see “Statement of intent,” page 46).

The member-driven survey unearthed a wealth of opportunity to deepen the connection between community banks and their core processors, turning a transactional relationship into more of a collaborative partnership.

The community bank perspective

The ICBA survey found that the core processor market is highly concentrated. The three largest vendors account for nearly 70 percent of the market; adding the two next biggest vendors brings that figure to 83 percent.

It also found that community banks are increasingly moving from in-house operations to an outsourced model. Almost two-thirds (63 percent) outsource their core operations, mainly due to a lack of dedicated staff to oversee the complexity of cyber-risk management. “The driver is keeping systems safe and secure—that’s daunting—and most community banks don’t have that in-house capability 24 hours a day, seven days a week,” says Ware.

The survey’s final major finding was that bank–core processor relationships are long-term ones. “We learned that the vast majority of community banks had contracts that were between four and eight years,” Lorence says. “Over half of the community banks that were surveyed, or 63 percent, had contracts that were over five years, which is a really long time when you think about being connected to any kind of technology.”

“If the core processor doesn’t know what you need, they can’t be there to provide it for you.”
—Chris Lorence, ICBA

Impingement on staff time is the main reason, at 72 percent, that community banks do not change cores very often. The next most cited reason was impact to the customer, at 63 percent. Perhaps surprisingly, price was third.

Cost is a factor, but “in reality it has to do with not having enough time to evaluate all of the other contenders and then perhaps do an apples-to-apples comparison,” says Lorence.
Larger community banks like longer terms. Those with more than $500 million in assets were more likely to seek terms of four to eight years, while those with less than $500 million in assets went for terms of less than five years, Lorence says.

A best practice would be not to wait until just six months remain on your community bank’s core processor contract, but start evaluating options 18 to 24 months before contract renewal and view the core processor “as a true partner in the long-term objectives of what the bank is working towards,” says Lorence.

Core providers’ side of the equation
The feedback from core processors is that they are eager to develop more of an advisory relationship with community banks, adding that most community banks are not fully aware of many of the products and services they offer. Ware agrees banks may be unaware of the value that core processors can bring when it comes to keeping them abreast of technology.

“Given the numerous demands on community bankers’ time, it is quite common for bankers not to be up to speed on the functionalities and product offerings available to them through their core processors,” says Ware. “Because core processors are viewed as legacy technology providers, community banks do not view them as innovators.” Community banks should engage in regular discussions with their core processors, according to Lorence, to change this paradigm for the benefit of both parties. Looking beyond day-to-day operations also brings bigger goals and objectives within reach.

“We discovered lots of room at the table for both parties to communicate with each other and focus on what their long-term objectives are,” he says.

The core processors realize that community banks are busy serving their customers and probably only think about their core systems when there is a problem, when contract renegotiation time looms or when customers request a service the bank isn’t offering. Regular dialogue with core processors about medium- and long-term goals could save community banks headaches down the line.


Percentage of community banks that outsource their core operations

“If the core processor doesn’t know what you need, they can’t be there to provide it for you,” notes Lorence.

“Bankers need to ask core processors specific questions and participate in core processor conferences and other outreach initiatives so they can stay apprised and make more strategic decisions,” adds Ware.

For example, a community bank could share its goals with its provider, which could then detail its technological offerings that could help the bank realize its defined goals. “Everyone needs to work together to fulfill the end result, which is great technology that serves both the end user of the community bank and the community bank itself,” says Lorence.

While IT staff need to be at the head of the table when community banks meet with core providers, the bank as a whole must be represented. This includes people from the operations, lending, marketing and accounting teams. A C-level executive should also be on hand to “help lead more from a strategic goals perspective,” says Lorence.

“Make sure that everyone who would touch this system has an opportunity to voice what they need or how things are currently working.”

Once the dialogue starts between community banks and core providers, bankers may be surprised to learn to what extent core providers can help them grasp strategic opportunities.

“Core processors are technology enablers with a tremendous amount of information available to their end users,” says Lorence. “Community banks should make more time to learn more about the technology they currently have versus viewing technology as a limiter to progress.”

Susan Thomas Springer
is a writer in Oregon.

Statement of intent

What does a good working relationship look like? Here’s a sample of some of ICBA’s best practices guidelines for core processors in their relationships with community banks.


Core processors should:

  • offer new products and/or upgrades to existing products
  • provide R&D resources and platforms dedicated to community bank innovation
  • respond to requests for product enhancements within a reasonable time frame
  • provide support for third-party integrations at a reasonable cost and support open-source applications
  • offer best-in-class products and services that help community banks compete with large banks and nonbanks.
  • Support

    Core processors should:

  • help community banks maximize products to stay competitive, agile and relevant
  • provide products that are easy to learn and use
  • provide opportunities for community banks to beta test new products and updates before mass introduction
  • Voice

    Core processors should:

  • provide opportunities such as focus groups, user groups and one-on-one interactions for community banks to provide feedback
  • allow community banks to negotiate contract terms and service level agreements.
  • Access to information

    Core processors should:

  • provide user-friendly data to help community banks identify customer activity, profitability and predictive behavior
  • provide timely and informative aggregate industry trend data and analysis to help keep community banks aware of changes in the marketplace.