Oligarchies of Banking Technology

About 96% of today’s market is controlled by only four core banking vendors: FIS, Fiserv, Jack Henry, and D+H. The remaining 4% of the market is comprised of small, niche, and foreign vendors.

Core banking software is the glue that holds banks together, “processing all deposits, payments, loans, most bank transactions and customer data.” The four large core banking vendors have dominated the market due to their history of performance, delivery and numbers. They have become masters of their customers’ business. Art Gillis, who has been tracking the market for decades, says, “They know the business of banking better than bankers and they just happen to have a tool bag of technology products.”

Could second or third tier core banking vendors break into the top tier? Probably not. The second tier of core banking vendors has been shrinking every year due to the herd-like behavior of the industry. Bankers follow the leader, leaving the smaller vendors behind. Banks that go with small core vendors are taking a chance on a company that possibly won’t be around in ten years.

Larger vendors are also benefiting from a recent trend in which banks are looking to reduce the amount of vendors they work with. This trend is partly motivated by recent regulations in the market. Scott Hanson, executive vice president at D+H says, “There are so many requirements in terms of vendor management programs now that it’s easier to have a smaller number.” This trend is also driven by the fact that supplementary technologies like mobile banking and internet were once considered a luxury, but now have become more essential than the core engine itself. People are looking for these technologies to be fully integrated. Hanson adds, The ability to open and originate new accounts or handle deposits, bill payments, person-to-person payments, consumer loans or mortgage loans in a self-service model were considered novelties a few years ago, but now these tasks need to be so tightly integrated with the core offering that you can’t tell the difference when it comes to moving data back and forth.”

Banks that choose to work with one large vendor for various products can be comforted by the fact that their platforms will work and communicate with each other. It is hectic for banks to buy software from different companies because they are forced to manage it all. Bank regulators are keeping large vendors responsible for management and to make responsible decisions for their clients, which helps companies like Fiserv that have a strong financial position and cash reserves.

The remaining small vendors sell themselves to larger core vendors. Earlier this year, Fiserv bough Open Solutions for their acclaimed real-time technology but accumulated their debt.

Global vendors like Accenture, Infosys, TCS, IBM, SAP, CSC and Oracle are trying to make their way into the U.S. core banking market, but haven’t been successful. They are faced with the challenges of meeting American consumer needs as well as following U.S. regulations. Also, banks are scared to partner with global vendors from an incident that occurred a few years ago where a foreign vendor collapsed in a partnership with a large regional bank.

One company that did break into top tier core banking is D+H because of its purchase of Harland Financial Solutions. Bill Neville, president of D+H USA, says “the acquisition of Harland will bring ‘revenue synergies,’ through cross-selling between the 1,700 U.S. community bank and credit union clients D+H acquired through its purchases of MortgageBot and Compushare and Harland’s 5,400 core banking clients.”

What does this mean for FinTech?

Fintech companies can compete with large core vendors because they offer software to market niches that most large vendors don’t sell. Nearly all large core vendors do not publish an API, and even if their current versions did, most banks are running an out-of-date version. Fintech companies that have an API based platform that can be easily integrated into an existing core system stand a chance against large vendors. Additionally, most core system implementations are batch-posting systems, which means that real-time data isn’t available. Fintech companies have an advantage if they offer systems where banks and customers can get their information in real-time.

Graham Seel says, “the key for Fintech companies is to focus on areas around the periphery of the core banking systems.” With the integration of Fintech systems, banks can reduce their dependency on their core vendor. Fintech companies should target small banks that want a boost in their software without having to do a pricey and complicated core conversion.

 Today, most millennials are online bank customers, inspiring the banking industry to rethink the future of their services. TD Bank released the results of a survey on millennial banking habits and found that 90% of respondents said they bank online or use mobile devices for bank services more often than going into their local bank. Fintech companies can help banks build their future in online banking with efficient applications that move their banking services online. Fintech is creating the future of the banking industry as they cater to the tech-savvy needs of millennials, which is something top tier vendors will need to adopt if they want to remain on top.

 Zikher is leading the banking industry into the future.

 Author: Whitney Besser


 Rouse, Justin. “Bank to the Future: Millennials Are Driving Trends in Banking Services.” Blog post. VOX Global. VOX Global, n.d. Web. 24 Jan. 2017.

 Seel, Graham. “Can FinTech Companies Thrive in Community Banking?” Finextra. Finextra, 2 July 2016. Web. 24 Jan. 2017.

 Yurcan, Bryan. “Can Big Four Core Banking Vendors’ Oligopoly Be Broken?” American Banker. N.p., 07 Oct. 2013. Web. 24 Jan. 2017.

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