Community banks express frustration with what they say is a lack of market competition for enterprise banking technology providers, reports in The Wall Street Journal said Thursday (April 11).
Companies such as Fiserv, Fidelity National Information Services (FIS) and Jack Henry & Associates control the majority of basic banking services market, connecting financial institutions and FinTechs to the infrastructure to manage their own banking operations. But community banks tell reporters that their control of the market is starting to lead to unfavorable contracts with smaller players, and this prevents these small FIs from being able to compete with the big ones.
“Small lenders and some industry groups say onerous service provider contracts and sometimes poor digital offerings have made it more difficult to keep up with large competitors,” the publication said. “The executives of some small banks say they feel like they are becoming franchises of the major vendors because they are so dependent on their technology.”
Fiserv, FIS and Jack Henry have secured 90% of US banks with less than $ 1 billion in revenue as customers, Celent data shows, and continue to secure greater market share because their B2B services extend beyond basic infrastructure and into areas such as helping institutions launch websites and mobile applications.
Community banks say their services are often too expensive and can sometimes be delayed. One bank, New Jersey-based Millington Bank, owes the FIS $ 4 million if it sells, the WSJ said, citing court documents. This equates to almost a year of bank profits.
Some companies have started to take legal action, look to smaller FinTech competitors, or negotiate contracts to fix issues they face, according to reports.
American Bankers Association chief executive Rob Nichols told the outlet that in conversations with thousands of bank executives, the common factor behind their challenges is the struggle with major vendors.
The ABA recently took steps to inject more competition into the primary vendor space by investing in Finxact, a smaller player in the space that offers services on a subscription model, earlier this year.