How community banks are innovating from the core

You’ll never keep up with the competition if you’re not innovating. Here, we look at how your community bank can pick up the pace, whether it’s with your existing core or with a disruptor.

By Cheryl Winokur Munk • Illustrations by Randall Nelson

Core providers have been making strides when it comes to helping community banks stay on the cutting edge. But for many bankers—who are more acutely aware than ever about the need to innovate—change isn’t happening fast enough.

For their part, core provider stalwarts that focus on community banks are actively exploring opportunities to introduce new innovations into banking. This includes buying or partnering with fintechs as well as building out platforms so the banks themselves can more easily collaborate with third parties. These efforts are based, in part, on the recognition by the cores that they can’t be all things to all banks.

Disrupters, too, have emerged in an attempt to siphon away business from traditional cores, putting pressure on them to up their game.

Today, a multitude of innovative technology is available from core processors. In addition to offering their own array of technology offerings, traditional core providers have found ways to collaborate on solutions with banks that want to partner with third-party fintechs.

API advances

FIS, for instance, offers a solution called Code Connect that contains thousands of APIs [application programming interfaces] for banks to pick and choose from, or add their own, with associated usage fees. Fiserv offers Communicator Advantage for banks that want the ability to connect third parties to their core system; and Jack Henry offers jXchange, which connects banks and third-party vendors.

Some banks prefer to tap into third-party vendors because it allows them to pick and choose the most appealing technology, rather than relying solely on the technological solutions the core provider has to offer. Indeed, for those banks whose systems are robust enough to support this type of relationship, it can be a win-win.

Wilson Bank & Trust, a $2.5 billion-asset bank in Lebanon, Tenn., is one example of a bank that likes to pick and choose which technology it adopts. It uses the middleware of Jack Henry, its core provider, to make this happen. If Jack Henry doesn’t offer a solution that matches the bank’s needs, there’s the option to integrate with a third-party vendor using jXchange, says Stephen Jaquish, the community bank’s senior vice president and director of technology.

Somerset Trust Company, a $1.3 billion-asset bank in Somerset, Pa., is another bank that prefers to make its own selection of third-party vendors. Years back, management opted not to use the standard customer-facing apps from its core vendor, Fiserv, and instead hand-pick its own, says John Gill, the bank’s chief operating and risk officer. Because its core is able to connect to third-party fintechs, the bank has multiple options for vendors.

“We want to be able to differentiate our products from other banks on Fiserv’s core,” Gill says, hitting on an issue with which many community banks struggle. “If you’re using everything just from the core, how are you differentiating yourselves?”

“If you’re using everything just from the core, how are you differentiating yourselves?”
—John Gill,
Somerset Trust Company

However, integrating with a third-party vendor is not always so simple. Stacey Zengel, president of Jack Henry Banking and vice president of Jack Henry & Associates, says the back-and-forth process between the core, the bank and the third-party vendor can take days, weeks or months, depending on how complex the integration is. Indeed, banks that want the ability to work with third-party vendors generally need to be aggressive about brokering the necessary connections with their core provider, bankers say.

Making your needs clear

To get the most out of their fintech partnerships, bankers say it’s critical to communicate their desires clearly to the partner as well as the core provider to ensure everyone is on the same page. Broadway Bank, a $3.6 billion-asset bank in San Antonio, Texas, did just that when it was looking for ways to make banking more convenient and accessible to customers, says president and CEO David Bohne.

The community bank worked closely with iLendx (then an independent fintech that has since been acquired by Fiserv) to bring the vision to life. There was a lot of interaction between Fiserv, the bank’s core provider, and iLendx to make it happen. Now, however, bank customers can open up checking and savings accounts online 24/7 in as fast as two minutes. Customers can also be preapproved for auto loans and home equity lines of credit on their mobile devices.

Bohne’s advice to other banks is to have ongoing, open communication with their core providers about what the system they’re on can actually do, as opposed to what they think it can do. Banks need to understand what the system is designed to do and what the limitations may be and share their vision with the core provider.

“A small idea can end up becoming a huge step forward” with vision, communication and partnership, Bohne says.

Bringing new technology to customers faster

Many community banks express frustration about their ability to get their hands on new technology quickly. One option may be for the bank to offer itself as a beta tester for new technology offerings. That’s what River Valley Bank in Wausau, Wis., did several years ago after Jack Henry acquired Banno, a digital banking provider.

“We saw the vision and we understood it and we believed it would help us differentiate and improve the customer experience,” says Kathy Strasser, executive vice president and chief operating officer of River Valley Bank and its online division, IncredibleBank. The bank has since worked closely with Jack Henry to integrate different vendor solutions to meet its desire for customization.

To be sure, being a beta tester requires significant back and forth between the bank and the core. For this to work most effectively, the bank needs staff members who are devoted to testing and validation, which can be a challenge for small banks from a resource perspective. But if banks want to innovate, this may be an area where investing in additional staff is worthwhile, Strasser says.

“We banks need to take innovation in our own hands,” she says. “Can the cores help us? Yes. But you have to get strategic about how you are working with your core.”

What’s more, banks should not be afraid to press their core for more innovative and cost-effective technology, she says. “Banks don’t have to be satisfied with the status quo,” she says. “I don’t think we ever should be.”

Be mindful of limitations

For banks that have been more aggressive in working with core providers on innovation, some of it depends on having the proper mindset—and budget. Without ongoing investment in technology, it’s very hard to compete effectively, they say.

“It has to be a priority,” says Kathy Strasser, executive vice president and chief operating officer of $1.4 billion-asset River Valley Bank, soon to be known as IncredibleBank, in Wausau, Wis. (See page 40 for more on IncredibleBank.)

Before making requests to a core provider, it helps for banks to be especially clear about what they want and why. Always think about the goal behind implementing a particular technology, Strasser says. From there, banks can decide how important something truly is—and pursue it.

“There’s a lot of technology out there, but if it’s not going to drive bottom line to the bank or better the customer experience or help you differentiate, it’s just another bell and whistle,” she says.

“If it’s not going to … help you differentiate, it’s just another bell and whistle.”
—Kathy Strasser, River Valley Bank/IncredibleBank

While cores are creating the opportunity for fintechs to partner with third parties, the cost to use the bank’s middleware can be a sticking point. Costs can range widely depending on factors such as the size of the bank, the relationship with the core and the service itself.

How to get more from your core

Here’s some advice on how community banks can work with their cores to find solutions that fit their business needs.

Don’t be afraid to ask
Stephen Jaquish, senior vice president and director of technology at Wilson Bank & Trust in Lebanon, Tenn., urges banks to speak up for what they want—even if it may seem beyond their reach. “If you don’t ask, you’re not going to get it,” he says. “What can they say—no? Well, that’s where you are today.”

Consider the costs
Community banks need to be prepared to pay more for what they’re looking for. Nothing is free, but the long-term benefits from adding certain technologies may easily outweigh the implementation costs. Make sure you aren’t being penny-wise, pound-foolish, community bankers say.

Maintain continuous open dialogue
You can’t just tell your core you want something and then set it aside, says Jaquish, whose bank hosts onsite quarterly meetings with Jack Henry, its core provider. Rather, banks have to push their cores, through ongoing conversations, to provide the services they desire. “It’s the squeaky wheel,” he says.

Legacy challenges

Some banks are also limited from a technology perspective by their reliance on older core systems. “It is difficult to be running legacy systems that are not being updated regularly and expect integration to happen efficiently,” says Jaquish of Wilson Bank & Trust.

Upgrading or switching cores remains an option, of course, but it can be a major undertaking from a systems, personnel and time perspective. While such a move could be advantageous in the long term, various hurdles have caused some banks to proceed more cautiously, or not at all.

Another sensitive issue is the long wait time that some community banks say they’re experiencing in being able to adopt the newer technologies their cores offer. They’re stuck in limbo, they say, as they wait for their core provider to roll out long-promised enhancements.

Core providers need to get technology into community banks’ hands as quickly as possible, according to John Buhrmaster, president and chief executive of 1st National Bank of Scotia, a $475 million-asset bank in Scotia, N.Y.

Buhrmaster offers the example of his bank’s multiyear process to implement Apple Pay. He also says he found another fintech provider several years ago that he was interested in doing business with, but he is still waiting for the fintech’s product to be available on his bank’s core system.

Indeed, the time it takes for core providers to roll out various technologies to community banks can vary widely—and it’s not always as fast of a process as many banks would like. “That really varies from vendor to vendor and from bank to bank in terms of the enhancements that they are looking for,” says Christine Barry, research director for Aite Group’s Wholesale Banking practice.

Meanwhile, as banks work through these challenges, there are startups looking to divert business from the traditional core providers.

“Added competition in this area is good, as it makes the incumbents have to make solution improvements to do more for community banks,” says Kevin Tweddle, chief operating officer of ICBA Services Network. It forces core providers “to be more responsive and more innovative,” he says.

Free resource for members

Last year, ICBA released its Core Processor Resource Guide and related best practices, which are designed to help community banks understand how to manage the core processor relationship to maximize the return on their technology investments. To read it, visit

Cheryl Winokur Munk is a writer in New Jersey.