Smaller banks recognize the merits of delivering the digital payment services, but core technology providers are struggling with the pace of change, and the traditional annual upgrade cycle is no longer appropriate, even for the smallest of banks.
This has created a mismatch between the needs of smaller financial institutions and the technology available from their suppliers as mobile and other digital payments accelerate.
Small banks may be pushing back against vendors who prioritize large clients and force smaller organizations to wait too long for new technology.
These banks feel that not only are they waiting too long to get access to advances in banking technology — they are also paying too much for the solutions when they are eventually implemented, leaving them at a significant disadvantage to their larger rivals.
In many cases they say they cannot justify the cost of their supplier contracts but are unable to exit these agreements early because of penalty clauses.
These concerns are encouraging smaller banks to look to fintechs for solutions that enable them to reduce their reliance on core banking systems and complement existing infrastructure while being easier to maintain and upgrade. However, a number of factors can hold them back.
In some cases, they will struggle to make the business case for investing large amounts in digitalization at a time when they might be struggling to maintain profitability in an increasingly competitive market. We already know that smaller banks have limited R&D and innovation budgets.
In other cases, the bank will have experienced, or be aware of, projects that promised much but failed to deliver the expected benefits. Additionally, the implementation process can be lengthy and onerous and may distract from day-to-day business.
Cloud and as-a-service models of technology provision offer one promising solution to this problem. By wrapping core legacy systems with digital services, they enable speed and agility without requiring core replacements or upgrades. Many smaller banks are already in the vanguard of this trend, increasing their chances of remaining viable by offering superior digital services more efficiently.
Small banks recognize the importance of modernizing their systems. The challenge for the technology community is to match this commitment by delivering relevant products and services on schedules that meet their needs.
