Community banks rely on technology to connect with and work for their customers. But technology ages quickly. If community banks try to make older systems work or rely on core vendors that have been patching their operation systems for decades, they can become mired in what’s known as technical debt. 

Technical debt is “the accumulation of tasks and work that the engineering team or bank needs to do to address ongoing maintenance or leftover work to optimize systems,” says Joe Davey, partner in the Los Angeles technology practice at West Monroe, a digital services firm. “It’s the backlog of work that you have to do in order to keep your systems going or address critical issues.”

Quick Stats


of technical budgets earmarked for new products is actually going to address tech debt, say 30% of CIOs

20% to 40%

of the value of CIOs’ technology estates accounts for technical debt

Think of technical debt like rust on a bike. You can still probably peddle a rusty bike and ride it a short distance, but it’s going to require more effort to go as far and as fast as a competitor’s newer, pristine model. And if your competitor’s newer model is electrified? They’ll leave you in the dust. 

“Community banks typically struggle to address their technical debt because it takes away from the sources that they need to run business operations,” Davey says. “They’ll have to do something fairly massive in terms of intervention to try to right the ship.”

Technical debt: Paying to maintain old technology

To start, older systems may work, which is why it’s tempting to leave them in place. Starting over from scratch is expensive, but technical debt is expensive, too. In a 2020 survey, McKinsey Digital found that 30% of chief information officers believe that more than 20% of their technical budget earmarked for new products is actually being used to address problems created by technical debt, and that technical debt accounts for 20% to 40% of the value of their technology estate. That’s money that could be spent elsewhere if it weren’t servicing technical debt. 

“System providers are making decisions in real time with short-term horizons that often have trade-offs that pile up.”
–Charles E. Potts, ICBA

Most community banks won’t have technical debt of their own, says Charles Potts, executive vice president and chief innovation officer for ICBA. “But they suffer from it every single day.” 

That’s because community banks typically outsource the bulk of their technology to vendors. “System providers are making decisions in real time with short-term horizons that often have trade-offs that pile up,” Potts adds. If community banks continue contracting with legacy core systems, then they’re paying for the maintenance of that vendor’s piled-up tech debt.

This isn’t just a recent problem, either. Technical debt has compounded over decades. “Some of these core vendors have been around for 50, 60 years at this point,” says Robert Johnston, CEO of Adlumin, a security operations platform. That could mean a community bank is running its software on top of code that no one even knows how to program anymore.

It’s not unlike when governors of individual states begged for programmers who knew Common Business Oriented Language (COBOL), a code first developed in 1959, to raise their hands during the pandemic and help them manage the influx of unemployment claims with the systems they had. 

When carrying a lot of technical debt, as core vendors typically do, “there are portions of their products that no longer have relevant use or can no longer continue to be developed,” says Johnston. And community banks are paying for it.

Tech debt dampers the customer experience

Beyond the cost of paying for the maintenance and upkeep of old technology, technical debt hampers advancement at community banks, says Potts, adding that it’s “usually expressed in lost opportunity.” 

Community banks are under pressure created by the so-called Amazon Effect, says Karl Falk, founder and CEO of Botdoc, a secure file transfer service. Customers expect a seamless, fast, flawless experience, whether they’re ordering shampoo or applying for a mortgage. 

“What Amazon is really selling us is time back in our day,” he says. “This customer base today is craving this convenience.” Despite community banks having a fraction of the revenue of Amazon, customers still expect that kind of service.

The good news is that advances in fintech technology to deliver that kind of service exists, with new vendors still coming online. That said, if a community bank’s operating systems are too outdated, they can’t take advantage of these advances. “They can’t bolt on newer technology,” says Johnston. 

What community banks can do about technical debt 

If a community bank relies fully on tech debt-laden vendors instead of those who create nimble cloud-based applications (see sidebar, page 48), it will be in trouble. 

That’s true even if the bank thinks it’s delivering the right solutions. While 80% of companies believe they deliver “super” experiences, only 8% of customers agree, according to a study from Bain & Company.

Whether community banks outsource their technology to third-party vendors, run the operations on their own or use a mix of both, the weight of tech debt can feel like a crisis with no way out. They might also still rely on a software or platform that was quickly implemented at the time to fix a pressing problem but hasn’t been revisited since, says Davey. “Over time, it accumulates until it almost becomes a bailout situation.” 

Financial resources to require talent, or enough talent, to fix the problem can be costly. “It leaves them in a position where they’re not managing the transformation into digital services,” he says. That includes technologies like AI and machine learning that big banks already have, and their fellow competitor community banks may have, now or shortly.

“They’re just bailing water,” Davey says. And it’s exhausting: According to Forrester Analytics, 18% of IT leaders said that their biggest software challenge is that technical debt takes energy from innovation.

There’s still plenty of opportunity for community banks to pull themselves out of technical debt. To start, they can figure out where their debt is, whether it’s with systems they still run themselves or with their vendors. 

For in-house technical debt, this will require mapping out an operations system, which will help banks understand how that operating system works. This process can show them everything they’re paying for, such as outdated software, obsolete patches, security flaws and gaps in customer experience. 

The benefits of partnership

With a robust IT staff, directed by a leadership team that understands the urgency of addressing technical staff, community banks could do this on their own. More likely, though, they’ll want to partner with a consultant that specializes in this kind of digital transformation. They could also get involved with the ICBA ThinkTECH Accelerator program, which connects community banks with debtless financial technology vendors. 

Through this program, Potts says, community banks benefit from having access to leaders of companies creating these cutting-edge technologies that don’t have the same baggage of technical debt as core vendors. They can also help these companies shape their offerings specifically for community bank needs.

“These new players can come in and move faster and more efficiently, and we sought to figure out how to find solution providers that can address these new needs,” Potts says. The result is a “lot of really good, innovative solutions that bankers can adopt and put in place to move more quickly.” 

ThinkTECH is “bringing what’s available in technology to the community banks,” says Falk, whose company is a 2019 alum of the program. “There’s been a lot more discussion from the community bank side of ‘here’s the kind of things we’re seeing and here’s what we’re looking for.’” 

These kinds of partnerships and relationships proved essential at the start of the pandemic, especially when it came to the Paycheck Protection Program (PPP). According to ICBA, community banks made 60% of PPP loans.

PPP helped highlight the need for faster, more nimble technology that wasn’t mired in technical debt, Potts says. “Community banks were asking, ‘How do I find a solution that can do these kinds of things in a very quick period of time?’” he says. 

“We had some banks call us and say that they started to go back to normal but had customers say, ‘I could do it during COVID, why can’t I do it now?’ They realized the world has changed. There’s a new standard.”
—Karl Falk, Botdoc

The pandemic was “an inflection point and accelerant that many banks used to leapfrog two to three years ahead of their strategy road maps,” he adds. 

“It was really a shock to the system,” says Falk, and those changes haven’t gone away. “We had some banks call us and say that they started to go back to normal but had customers say, ‘I could do it during COVID, why can’t I do it now?’ They realized the world has changed. There’s a new standard.” 

The experience also showed that community banks can make these kinds of changes, Potts says, adding that some banks didn’t believe they could move this fast until they did it. “A lot of banks have continued to embrace that mindset, and kept the momentum going with their digital transformation,” he says.

The success of newer fintech vendors, and the demands of both community bankers and their customers for cutting-edge services and experiences has even pushed core vendors to “respond with their own banking API platforms to help mitigate or bypass their own spaghetti of technical debt restrictions,” Potts says.

What exactly a community bank needs to do to shed its technical debt, and how much of it, depends on the bank, says Falk. 

A community bank in rural North Dakota that serves mostly farmers who prefer to do their banking in person may not need to revamp its software to support a mobile app where customers can remotely deposit a check and apply for a car loan in one sitting. But that won’t be the case for a community bank based in New York City.

How the cloud can help cut tech debt

Cloud computing harnesses the power of the internet to give companies on-demand software and storage solutions. Enterprises (including community banks and fintech vendors) can use the cloud’s speed and tools to deploy nimbler, faster and often cheaper applications, software and data storage. It’s the go-to operation model for startups, especially those in the fintech space.  

The cloud can do this because it works with a network of servers, which are operated and maintained by the cloud owner. That takes a weight of cost and time off a vendor’s or bank’s IT staff, which can free them up to do other things, like innovate new applications and solutions. 

Fintech startups are taking advantage of cloud-based offerings like Software as a Service (SaaS), where software is licensed and maintained as a subscription; and cloud computing, which uses the power and speed of the internet to deliver services instead of relying on-premises servers that can be expensive and slow. 

“Everything is brand new,” says Charles E. Potts, executive vice president and chief innovation officer for ICBA. “An innovator can move at light speed.”

Even industry leaders have tech debt 

Community banks shouldn’t feel ashamed of technical debt, because it’s a global business problem—including for megabanks. At $14 billion, JP Morgan Chase’s research and development (R&D) budget is one of the largest in the world. (Amazon’s is the biggest, at $42.7 billion.) 

But not all of that is going to actual R&D, says Charles E. Potts, executive vice president and chief innovation officer for ICBA. “If you dig into the numbers, what you find is 75%, 80%, 85% of that is spent in care and feeding of the beast,” he says. “They have to deal with that every day just to keep the lights on and the Death Star operating.”