Is core-banking technology nearing a 'big shake-up'?

A veteran of one core-technology systems provider is throwing his weight behind another.

Alexander Lopatine, the founder of Nymbus, has been named executive adviser and head of the Americas for San Francisco-based Mbanq, which simultaneously announced that it has bought the online and mobile banking platform AgilityFour. The price was not disclosed.

“We think that the U.S. banking core market is long overdue for a big shake-up,” Lopatine said. “No one really likes the main cores because they are so difficult to upgrade, but banks feel there is no alternative because of the complexity of change.”

CB Insights recently noted in an analysis of first-quarter fintech venture capital deals how newer companies such as Finxact and Nymbus are starting to benefit from smaller banks’ frustration with traditional vendors. However, doubts linger about the long-term prospects of many alternative providers, especially those that do more business overseas like Mbanq and Temenos.

“Banks want to keep the cores they already have as they perceive that a complete replacement is a big risk," Lopatine acknowledged. "We respect this caution and business sense, so we’re giving them a way to start innovating without risking the legacy cores they already run."

Mbanq purchased AgilityFour from Park Capital, an investment and advisory firm where Lopatine is a managing partner. Mbanq, which has developed its own core-tech product and provides support services on a subscription basis, has primarily focused its sales efforts on Europe and Asia. It now plans to open an office and fintech accelerator in Miami as part of an effort to ramp up U.S. operations.

AgilityFour CEO Kai Ravnborg also will join Mbanq to lead its credit union service organization. AgilityFour has several credit union clients.

Founded in 2016, Mbanq is working with 15 banks and will add another 10 institutions in the coming months, according to the company. It has 150 employees, including in offices and development centers in Croatia, Singapore and Germany. CEO Vlad Lounegov last week reported that the company had reached profitability.

Mbanq said it is poised to serve banks of all types in the U.S. with four core products.

In addition to AgilityFour’s platform, Lopatine said Mbanq also will offer what it calls an advanced banking operating system that is “suitable for a complete replacement in a traditional bank”; a cloud service in partnership with Amazon Web Services that is meant for de novos, fintechs and digital-only banks; and a payments hub that features integrations to blockchain protocols such as Ripple, Stellar and IBM World Wire.

“Mbanq has the full technology stack necessary to run a bank, with the flexibility to provide advanced financial services, adapt to a rigorous and fast-changing international compliance landscape and without risking the existing core,” said Lars Rottweiler, Mbanq’s chief technology officer.

Mbanq’s U.S. expansion comes at a time when community banks, regionals and credit unions continue to privately voice their frustrations with the traditional cores. Those banks argue the likes of Fiserv, FIS and Jack Henry & Associates are not delivering the technology upgrades necessary for them to compete with the largest institutions, or the digital experiences consumers encounter with popular tech companies. The merger agreement between BB&T and SunTrust stemmed from the need to keep pace with the largest banks’ technology investments, the CEOs of both companies said when they announced the deal.

The American Bankers Association and the Independent Community Bankers of America have publicly rebuked established players for not helping small banks keep pace with technology demands. The ABA even agreed to participate in the alternative provider Finxact's $30 million Series A funding round in January.

The traditional cores in the past have acknowledged the dissatisfaction coming from smaller banks. When contacted to comment about rising competition from alternative providers, a Fiserv executive said he welcomes choice in the marketplace and “encourages due diligence by our clients so they are confident that Fiserv is the best possible choice for them.”

“Fiserv clients benefit from our extensive experience and expertise in developing and delivering financial services technology, as well as our focus on continued innovation,” said Byron Vielehr, Fiserv’s chief administrative officer.

FIS declined to comment for this story. Jack Henry did not respond to an inquiry from American Banker.

Mike Morris, a partner at the Atlanta-based accounting and advisory Porter Keadle Moore, said the struggle between smaller banks and the established cores is an ongoing problem. He said one of the biggest issues his bank clients face with the cores is access to their own data.

“At the end of the day, the bank understands that it’s their data — why can’t they get access to it?” said Morris, who advises banks on technology improvements.

That can lead to other problems. “I can find a tool that can help me access data more easily, but then I have to get an [application programming interface] to interact with the core, and the cores make that difficult and expensive to accomplish,” Morris said.

Yet it is tough for outsiders to crack into the market, especially non-U.S. tech companies inexperienced in dealing with federal and state regulators, he said. “It’s so much different than Europe, and these companies struggle with that. Sometimes the banks are hesitant to make the jump and don’t want to get burned."

Lounegov said that Mbanq has lofty expectations for the U.S., in particular for its fintech accelerator in Miami. Mbanq envisions a scenario where fintechs are more interoperable with each other and can cooperate more easily than today, he said.

“We want to ultimately be a very substantial player within the fabric of the entire financial system, to deliver a modern customer experience with instant on-demand financial services in the U.S. and globally,” Lounegov said.