How Community Banks Can Better Evaluate, Scale, and Support Provider Solutions
Core service providers (CSPs) and third-party vendors are skilled at selling the future, polished demos, innovation roadmaps, and feature lists that check every box. The reality that follows implementation is often a different story. Community banks routinely find themselves locked into solutions that underperform, cannot scale, and come with support that fails to meet operational demands. In this fourth installment of our series on the OCC’s Request for Information (RFI), I address three tightly connected challenges the RFI raises:
These may seem like standard vendor management issues, but in the concentrated CSP market, where three providers serve over 70% of depository institutions, the stakes are uniquely high. A bad selection can mean years of underperformance with no practical exit, conversion costs are not cheap and a widening gap between competitors who choose better solution impacts your institution’s bottom line. Banks need sharper tools for evaluation, stronger contractual protection, and a regulatory environment that supports informed decision-making.
Verification is a challenge; separating hype from reality is crucial. Community banks struggle with information gaps when assessing providers. Marketing often exaggerates true capabilities, and NDAs block price and performance sharing. Most banks lack sandbox testing or independent benchmarks before making decisions.
In our advisory work, we see this play out repeatedly. A provider demonstrates a sleek digital lending platform in a controlled environment, but post-contract, the bank discovers that integrating it with its legacy core requires months of custom coding and unanticipated expense. Features that appeared turnkey in the demo turn out to require costly add-ons or configuration. The bank is left managing a gap between what was sold and what was delivered with limited contractual recourse.
The root causes are structural. Providers face little competitive pressure to be transparent in a concentrated market. Smaller banks lack the technical staff to conduct rigorous evaluations independently. And regulatory guidance, while emphasizing due diligence, does not give banks practical tools for conducting it effectively against well-resourced provider sales teams.
If verification is the first gap, post-implementation support is the second. Community banks consistently report that provider support degrades after the contract is signed. Response times lag, support teams lack specialized knowledge, and smaller banks are deprioritized relative to larger clients. In a 24/7 digital banking environment where a system outage can trigger immediate customer attrition, this is not an inconvenience, it is a strategic risk.
We have seen banks experience prolonged outages after core system updates because the provider’s support staff were inadequately trained on the bank’s specific configuration. Compliance lapses followed. Customer complaints mounted. The bank had limited leverage because the service level agreement was weak and the switching cost prohibitive. Contrast this with a bank that negotiated dedicated support channels through consortium-based bargaining that bank resolved issues in hours rather than days and maintained operational continuity through major upgrades.
The lesson is clear, support quality needs to be negotiated and enforceable deliverable, not an assumed benefit. Yet in a market with limited alternatives, many community banks accept what they are given.
The third dimension is scalability. Community banks are not static, they grow organically, pursue acquisitions, launch new product lines, and expand digital offerings. A solution that works at $500 million institutions may buckle at $2 billion. Legacy core platforms, built on outdated architectures, frequently require manual interventions or costly custom development to manage increased transaction volumes, new customer segments, or additional service channels.
Contractual structures compound the problem. Non-linear pricing models where costs escalate disproportionately with volume make growth more expensive than it should be. Proprietary APIs limit the ability to bolt on third-party solutions for new capabilities. And providers are often slow to disclose whether their platforms can genuinely support a bank’s three-to-five-year growth plan. We have seen banks that selected providers with robust open API layers successfully integrate fintech solutions during mergers, onboarding acquired customers seamlessly. We have also seen banks trapped by legacy cores that required six-figure customizations simply to manage organic growth, delaying new service launches and increasing operational risk.
Community banks need to shift from reactive vendor management to strategic technology governance. This means developing internal technology roadmaps aligned with growth plans, building structured RFP frameworks that require providers to demonstrate capabilities through proofs-of-concept with realistic data, and negotiating contracts with enforceable SLAs, performance metrics, acceptance testing phases, and meaningful exit clauses. Peer collaboration through user groups and consortia can help smaller banks pool due diligence resources and benchmark provider performance.
The regulator can accelerate this shift. A publicly searchable database of provider experiences including anonymized complaint data, support quality metrics, and scalability track records would give banks the information they currently lack. Sharing targeted findings from reports of examination would enhance pre-contract due diligence. Updated TPRM guidance with practical evaluation toolkits, rather than abstract principles, would help resource-constrained banks conduct meaningful assessments.
Choosing a CSP is one of the most consequential decisions a community bank makes. Yet the tools available for making that decision and for holding providers accountable after the fact, remain inadequate. Verification, support, and scalability are not three separate problems. They are facets of a single challenge ensuring the provider relationship delivers sustained value, not just a compelling sales pitch. Community banks that approach this strategically, supported by proportionate regulatory frameworks, will be far better positioned for long-term competitiveness.
CCG Catalyst assists banks across the full provider lifecycle, from selection strategy and contract negotiation to ongoing performance management. Reach out to our team for tailored support. Stay tuned for the next installment in our series “Data ownership, extraction, and modernization challenges.”
