Seattle Bank, a single branch boutique bank with $650 million in assets, is dumping its Fiserv core banking system and moving to a new modern core from Finastra, a company formed by the combination of D+H and Misys. The core will run on Azure, the Microsoft cloud.
For John Blizzard, the bank’s president and CEO, the changeover can’t come soon enough — he can’t stand the Big Three core banking vendors — Fiserv, FIS and Jack Henry — which impose long-term contracts that lock in banks.
Seattle skyline. Image courtesy Morgan Yang Photography. (Photo via Smith Collection/Gado/Getty ... [+]
“Community banks have almost no control over that aspect (core technology) of their business, and your core provider doesn’t give a crap about you. You are locked in forever and you aren’t going to switch.”
It is important for community banks to control the environment, he explained, because today technology is how a bank interacts with its customers.
Banks need innovation
“For most banks 10 years ago the core really wouldn’t matter because it didn’t affect customers. Fast forward 10 years and we are in a digital world where so many of those transactions are done on your phone and not in the branch, but community banks have almost no control over that aspect of their business.”
Changing core systems has been compared — take your pick — to swapping jet engines while flying along at 30,000 feet or changing tires on a race car speeding around the track. It is rarely done other than as the result of a merger or acquisition. The tech challenge and the dominance of the Big Three, have given the core providers great power in the marketplace.
“They don’t treat you like anything that resembles a customer,” Blizzard said. “Banks should have SLAs like any other contract, but the core companies are masters in their contracts and banks have no leverage. Their SLAs are almost nothing; they give up no economics, all they owe you is a phone call. You would not find that in any other industry.”
Core providers as cash cows
Core system contracts typically have punitive early termination fees, he added, ”Fees that will represent almost 100% of the future of the contract, not just their profit. They are in their cash cow phases and their stocks have done really well, they have made a lot of money and they aren’t interested in innovation,” he said.
“We don’t take Fiserv as a tech company.”
Ouch!
The Golden Contract Coalition has been formed to help banks write better contracts and and get (slightly) better terms although, Blizzard said, the group meets with the Big Three and hasn’t done much to encourage bankers to look at other options. The situation is so bad that the American Bankers Association and the Independent Community Bankers of America (ICBA) have both sponsored development of new core banking systems.
The technology and behavior of the Big Three is a constant complaint, leaders of both associations said. Blizzard said Seattle Bank looked at several alternatives to the Big Three but they didn’t have all that the bank, which works primarily with commercial businesses and high net worth individuals, needed on the loan side.
“We needed a core system that could support our need for innovation and digital banking. We have been working on this for a couple of years and would have converted earlier if we could have.” The bank’s contract with Fiserv runs out this summer.
Fortunately Finastra had recently acquired a digital banking specialist, Malauzai, a provider of mobile and Internet banking solutions for community financial institutions.
“We needed a core system and a digital banking provider, and now Finastra has both. You need really good synch between them.”
And, of course, it helps that Finastra runs on the Seattle home town cloud hero, Microsoft’s Azure. Although I guess Amazon’s AWS would have been just as local.
“I will trust them a whole lot more than Fiserv,” said Blizzard.
The bank, which admittedly is relatively small and a single branch, is doing the transformation largely with internal resources
“We have amazing employees,” Blizzard said. “You can’t just outsource something like this. Our employees are putting in tons of work, learning the new system; the training is enormous. But they are finding the new system is a major upgrade for our basic core functions, so that is really good. The changeover is a very big deal culturally. You announce it and worry about losing employees because it means a lot of hours, weekends and nights.”
Larger retail banks like Zions and Regions are working in multi-year projects while Seattle Bank is aiming to make the change in nine months.
Back to the future
He expects the new system will bring big advantages in a digital world, although in some ways it simply gets the bank back to where it was when bankers knew customers personally.
“Ten years ago community banks were very innovative, but that was a lot easier when the people in your branch knew your customers inside out and people stayed with the bank for 20 years. Then you could be flexible and do different things. When those interactions are digital, you have to work really hard to get to the point where you can do things that are unique for your customers.”
Blizzard is excited, calling this the biggest change in his banking career. “I am excited, but I have to bribe my employee and treat them well, keep their spirits up facing this humongous challenge. But it’s very exciting — in my career this is the biggest problem I have ever seen because up to this point you couldn’t spend the manpower or money since there was nothing to spend it on because Fiserv wouldn’t let us do what we wanted.”
