OCC's Gould fleshes out goals for core provider review

• Key takeaway: The OCC's information gathering on the concentrated core market is ongoing, but Gould says the agency understands the limited negotiating power smaller firms hold and is looking for ways, including artificial intelligence, to level the playing field. 
• Expert quote: "We understand some of the challenges around core conversions, challenges around updates to systems and the costs associated therewith [and] are actively speaking with some of the major service providers as well," Gould said.
• Forward look: The OCC is continuing to meet with banks and their back-end service providers and reassessing potential reforms, though the comptroller didn't say when such reforms could be coming. 

Comptroller of the Currency Jonathan Gould on Wednesday said the agency is continuing to work to understand the "the uneven commercial negotiating relationship" between small banks and their back-end service providers, the so-called core market..

Speaking at the American Bankers Association Washington Summit Wednesday morning, Gould said he is building on the fact-finding initiative launched last fall by engaging with core providers and banks alike. Gould said artificial intelligence could help level the playing field for community lenders with limited resources. 

The OCC in November requested information from community banks about their core processors, signaling the agency's growing concern with increasing consolidation in the core market. The OCC's request for information asked banks to detail barriers they face in negotiating with core providers, issues around navigating fees and billing errors and conducting due diligence on service vendors.

In February, banks and their trade organizations responded by urging the OCC to reevaluate third-party risk management rules to reflect the limited negotiating power banks hold with respect to the highly concentrated core market. Industry groups largely argued that a small group of core providers dominate the market for critical back-end bank infrastructure. 

"We understand some of the challenges around core conversions, challenges around updates to systems and the costs associated therewith [and] are actively speaking with some of the major service providers as well," Gould said. "We are really at this point just fact-finding, trying to understand where the challenges are, are there ways that we, the OCC, can engage to help facilitate constructive outcomes, recognizing the great technological challenges that many smaller banks in particular have — in contrast to some of the very large banks, which frankly also have technology challenges, but can marshal billions of dollars to address them, and hire huge numbers of software engineers." 

Gould said the agency has not reached any policy prescriptions and is still at the point of fact-finding, speaking to both banks and the major service providers. One aim is to figure out in which ways the OCC can help steer better outcomes for small banks, which are at a distinct disadvantage in terms of resource allocation compared to larger banks, he said.

Banks have long expressed concern about their lack of market power with regard to core service vendors, the largest three of which serve more than 70% of banks and around half of credit unions, according to a study published by the Federal Reserve Bank of Kansas City in 2024. The core service provider business — which provides the technological backbone of banking services like deposits, payments, loans and data — was valued at $5.3 billion that year, according to Fortune Business insights.

That concentration, the independent Community Bankers of America said in its letter, allows vendors to impose rigid contracts and disincentivize banks from migrating or switching providers. In many cases, regulators continue to hold banks accountable for downstream operational and compliance risks.

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A letter from the American Bankers Association also  expressed frustration with third-party supervisory expectations, suggesting regulators might explore shifting the burden of third-party oversight away from banks. An August Office of Inspector General audit argued the agency's existing program for overseeing banks' technology providers lacks clear goals and metrics, recommending new risk-ranking methodology by 2026.

Gould argued that technology like artificial intelligence could help level the playing field, in that smaller banks may be able to prop up systems even with their often limited workforce.

"It's issues like this that really get me excited about the potential use cases for things like artificial intelligence and the possible ability of artificial intelligence to help level the playing field among some of our smaller banks," Gould said, adding that he wants to ensure that AI doesn't "by default become the exclusive purview of just the largest banks."