Scaling your community bank's core as you grow

If community banks want to grow fast, they should make sure their core banking platform can scale quickly and appropriately with them. That includes being more flexible for other vendors that offer access to top solutions.

A solid strategy begins with determining how best to grow, says Charles Potts, ICBA’s executive vice president and chief innovation officer.

Does the bank want to acquire other banks with similar models and scale its asset size? Does it want to expand into more lines of business? Does it want to get into embedded finance or provide other services via banking-as-a-service (BaaS)? Or all of the above?

“Layering on top of the growth strategy should be an evaluation of core banking partners and also fintech partners, so an institution can have the right combination of solutions to achieve its growth goals efficiently and effectively,” Potts says.

Ideally, a community bank would choose a core provider that has built its own open-banking API layer to make it easier for fintechs to integrate their best-of-breed solutions on behalf of the bank, he adds. That way, the bank has the choice whether to pick fintech solutions for ancillary solutions or use the core vendor’s ancillary offerings.

“Banks need to be certain that their core vendor can support their plans or get out of their way,” Potts says.

Meeting clients’ needs

Fintech and regtech provider Computer Services, Inc. (CSI) in Paducah, Ky., has more than 400 industry-standard APIs and growing that roughly 25% of CSI clients use today, says Tara Schultz, vice president of open banking for CSI. 

“Although we offer an integrated and holistic approach to those who wish to minimize vendors and maximize their core strategic partnership, CSI fully supports and encourages our customers’ choice of fintech partners through open banking and real-time API capabilities,” Schultz says. “We encourage our customers to choose the solutions that are in alignment with their institutional strategy and meet their customer experience expectations and goals.”

One of CSI’s clients, $704 million-asset Axiom Bank in Maitland, Fla., is on a growth spree after transitioning to a commercial bank, says Mike Coyne, its chief information officer. But the community bank is also expanding its retail operations nationwide by leveraging CSI’s open banking APIs to integrate solutions by fintechs, such as a digital account opening solution and an onboarding solution. These enabled Axiom Bank to move into different markets under its national charter.

The community bank is also using the open banking APIs to partner with other fintechs as well as independent sales organizations (ISOs), with the intent to offer both embedded finance and fintech solutions.

“The days of the core provider owning all parts of the business doesn’t make sense anymore. You need to find a core provider that understands the importance of bringing new technology into its ecosystem,” Coyne says.

In addition to CSI, Axiom Bank works with multiple partners that provide basic banking solutions, as well as providers that offer payments, equipment finance and factoring solutions.

Expanding geographically and technologically

ChoiceOne Bank in Sparta, Mich., is on a different type of growth spree—one that also required advanced planning for its core and other technologies, says Kelly Potes, CEO of the $2.4 billion-asset community bank.

For 125 years, the institution’s footprint remained in western Michigan, but in 2019 it roughly doubled in size through a merger-of-equals with Lakestone Bank in the eastern Michigan city of Lapeer, Potes says.

A year later, ChoiceOne Bank acquired a smaller bank, Community Shores Bank in Muskegon, Mich., adding roughly 20% in assets, he says. Since then, the community bank has grown another 25% organically with three new loan production offices.

To prepare for rapid growth through acquisitions and organically, in 2015 ChoiceOne Bank moved from an in-house processor to outsourced processing via the Silverlake core platform offered by Jack Henry, says Adom Greenland, CFO.

“That made scaling up significantly easier,” he says. “To be honest, we really didn’t have to do a whole lot to take on Lakestone and Community Shores, leveraging the functionality of Silverlake that Jack Henry built for larger banks.”

As ChoiceOne Bank’s assets increased, it was also able to attract larger and more sophisticated commercial customers, in part by offering treasury services via Jack Henry’s upgraded treasury platform within its online banking solution, Greenland says. Having the Silverlake core enabled ChoiceOne to add the treasury package.

The community bank is also taking advantage of Jack Henry’s opening banking APIs by integrating the solutions of three fintechs into the online banking platform: Autobooks’ invoicing and accounting solutions for small businesses; Econocheck’s identity theft protection and credit report services; and Plinqit’s goal-based savings and financial literacy app.

“We continue to expand our services to larger commercial clients using the functionality we have available in Silverlake,” Greenland says. “We’re a growth engine now that we’re in an outsourced model. Jack Henry’s data center allows us to scale, adding capital for our core back office.”

Jack Henry, based in Monett, Mo., has been offering open banking for years at the core level, digital level and payment level. “Everything [digital] is API-based for fintechs to get access,” says president and COO Greg Adelson.

“We are comfortable with the best-of-breed approach, instead of holding institutions ransom,” Adelson says.

Jack Henry is also trying to ensure banks “stay at the center of their customers’ lives” by enabling fintechs and ISOs to come into the core and on the digital platform and offer services like data aggregation so customers can have “a single pane of glass” of their finances, Adelson says. 

“Decoupling our cloud components and taking a cloud-first microservices approach gives institutions the opportunity to provide more choices and more flexibility.”