2022: A 30,000-foot View of the Banking Landscape From a Core System Perspective

In 1984, the US had more bank charters than at any time in the country’s history with just over 14,000 charters. Since that time, on average, the number of banks has contracted by 3.3 percent per year. In 2020, the number of bank charters were less than a third of what they were at the peak. 

In that time, the industry has changed in many other ways. Regulatory oversight has increased significantly as well as disintermediation from non-bank competition. In the past 15 years, customer demand for new technology-based services has skyrocketed. 

“Collectively, these trends continue to present challenges to community banks,” said Mike Neale, technology consultant at Profit Resources, Inc. “One that is often overlooked is that core and ancillary vendors have fewer prospects over which to spread an ever-increasing number of costs.”

While it’s true that total assets and deposits continue to grow within the collection of chartered banks, the top tier financial institutions don’t consume the same products as community banks. As a result, expenses associated with core and ancillary applications targeted in the community banking space will have to be carried by a fewer number of customers.

Traditional core and ancillary vendors will focus on broadening offerings to manage delivery costs of existing solutions. There is also evidence to indicate that, in some cases, they will attempt to expand beyond the financial institution customer base.

“In more than one case, we have witnessed this result in a core vendor going in direct competition with financial institutions and disintermediating them from transactional channels,” Neale said.

The upshot is that this will be an additional headwind for financial institutions.  The most successful ones will leverage resources that will limit their costs in ways that continue to maximize efficiency and net profits. One means to this end is to engage with organizations such as PRI that are versed in system evaluation and contract negotiation to outperform the competition.

Profit Resources specializes in identifying profitability improvement areas for financial institutions through revenue growth, cost control, streamlining processes, and effective use of technology. Contact us to learn more about our personalized approach to propel growth and improve profitability.