It’s no secret community banks experience frequent frustration with core providers; some have even banded together to seek solutions. Neocova is a St. Louis-based fintech startup that has dropped in to the core provider market for community banks. BankBeat spoke with its founder and CEO, Sultan Meghji, about how a bank’s core can be improved.
What was lacking in the core platform space that you believe Neocova might fill?
Sultan Meghji: Right now, three core providers — FIS, Fiserv and Jack Henry — serve more than 80 percent of banks in the United States, and the technology these providers use is largely pre-2010 and very expensive. These providers also lock banks into hundred-page, five- to seven-year contracts with massive termination fees. You don’t see this kind of contract anywhere else in technology.
Neocova was founded because we saw a gap in the market. Our platform is cloud-native, AI-first and API-based, so banks can quickly develop the products consumers are coming to expect. We can serve as a bank’s entire core system, or we can work with existing partners, because most banks have multiple providers.
What are the advantages of having a core entirely in a cloud service?
S.M.: In addition to offering significantly better cybersecurity platforms, processes and governance mechanisms, native cloud-based systems are designed to modern technology specification. Organizations don’t need to spend massive amounts on the installation and customization of systems (in the vein of legacy SAP systems, for example). Now they can launch and scale in near real time with updates automatically applied.
In what ways does AI make a service niche stronger?
S.M.: AI goes hand in hand with automation: By alleviating the simple human tasks, AI can hand off the more complex situations to humans, in many cases removing half or more of the time traditionally needed to perform rote tasks. As an example, AI technology can simplify historically manual operations like fraud detection, anti-money laundering and Know Your Customer efforts. Beyond that, AI is a force multiplier in analytic situations.
What is the base level of security a bank should expect from a platform?
S.M.: Any core platform should provide 24/7/365 availability, end-to-end encryption, multi-factor authentication (both for staff and for customers) and intra-day security patch management. Any banking core or fintech provider that doesn’t provide those as “table stakes” should not be used and, frankly, should not be trusted.
You mention banks being locked into agreements. How do you see this field evolving as banks age out of contracts?
S.M.: There is a widespread frustration across the industry with legacy core providers, whose contracts are long and come with massive termination fees, as well as fees for working with third-party providers. As banks are finally aging out of these contracts, I think we’ll see more and more of them turn to an option that is cloud-native and API-first, capable of quickly launching new products that consumers want.
In the last few years alone we’ve seen huge changes in the banking landscape, as banks face greater competition from mass consolidation to the rise of challenger banks. Being able to provide the digital offerings consumers want is no longer a plus — it’s a necessity for banks’ survival. Bankers need to find partners capable of helping them evolve, and we should expect to see this urgency manifest in some serious shake-ups in the core banking space.
How might a bank employ tech going forward?
S.M.: Only a few banks seem to realize that they are in an amazing position to offer banking services to other companies that work with the same customers. Probably fewer than 20 banks in the country currently offer banking services to non-depository financial institutions, fintechs, retail and other markets. This is a massive untapped market and one that I expect many more banks to launch into. Imagine if every e-commerce player had a built-in depository account, instead of just the Amazons of the world. But banks need much better technology to do this. The current core platforms make this very difficult.