Top 10 Software Platforms for Regional Banks
Author: Ekaterina Podgaiskaya
Last updated August 30
Contents
Introduction
While regional banks comprise more than 10% of the share of consolidated total assets of financial institutions, they play a vital part in the U.S. economy. As a financial institution that operates below the state level, regional banks operate in a certain region and serve both individuals and businesses through their comprehensive range of services and specialized departments. According to the Federal Reserve, a bank that manages assets valued up to $10 billion is known as a community bank, whereas a bank with assets amounting between $10 billion to $100 billion is referred to as a regional bank. With their size in terms of assets, regional banks operate on a greater level as compared to community banks that have a particular community as their major customer base.
Regional banks have grown by more than 50% over the last two decades with around 134 of them operating in the U.S. economy as of the year ended 2022. With more than 13000 branches, regional banks focus on serving the mass market with their diverse range of products and services to uplift the economy and the U.S. residents. Before we dive into understanding what makes the role of regional banks and their software platforms important, it’s crucial to know how regional banks differ from nation and community banks apart from their total asset size.
Analyzing Regional Banks: Understanding How They Are Different from National and Community Banks
While in terms of asset size, regional banks fall in between community and national banks; there are several other differences that make regional banks different from the other two types. Community banks have a branch network of less than 10, while regional banks have a branch network of approximately 100 branches, with the total assets of all regional banks being $3.1 trillion, as reported by the Federal Reserve. Apart from their geographic footprint, regional banks also have a differentiating factor in terms of the complex services they offer, catering to the demands of the consumers within a specific region and offering capital for a specific niche of customers.
Insights Into the American Banking System and the Role of Regional Banks
Since the inception of the Federal Reserve in 1913, the American banking system has evolved to promote financial inclusion and make banking services easier for the residents. With different types of banks operating in the U.S. economy, the number of banks has shrunk over the past few decades with the Great Consolidation, and there are around 4100+ banks as of the year 2022. While regional banks are key drivers of the U.S. economy, they serve small businesses and individuals who cannot go to larger banks. Regional banks not only provide one-third of the financing that small businesses require — but also support individuals in the broader financial system. With the increasing importance of regional banks in the American banking system, it is crucial to understand the market trends and the key challenges that these banks are facing, which are going to increase even further in the upcoming years if the appropriate mitigation strategies are not adopted in the current times.
Market Trends for Regional Banks in 2024
While regional banks are facing immense pressure on their regulatory side, the market outlook for these banks is not very positive considering the recent collapses in 2023 that have not only shaken customer confidence — but have also attracted increased scrutiny from regulators to prevent any regional bank run from happening again. With the high borrowing costs, the demand for loans has declined which has forced regional banks to invest in highly risky areas, such as in the case of Silicon Valley Bank. Here are some of the recent collapses of regional banks and the reasons related to why they have shaken the entire customer base of these banks in the United States.
Recent Collapses of Regional Banks
While regional banks have been growing over the past two decades, the recent failures of regional banks in the United States have shaken consumer confidence and regulators are increasing their scrutiny level to ensure that the failure does not happen again in the future. Amongst the top failures of regional banks include the Silicon Valley Bank (SVB) and First Republic Bank, both of which failed within a period of 2 months in the year 2023.
1. Silicon Valley Bank (SVB)
The Silicon Valley Bank (SVB) was a massive regional bank operating in California and largely serving the tech sector plunged into utter chaos in March 2023 with depositors demanding their money, and the collapse resulted in shock waves for the technology startups and venture capital firms. Within 48 hours of the collapse, there was complete disruption attracting regulatory reforms and increased scrutiny to control the situation.
Now the question remains as to why this regional bank that was booming and had a more stable position in the market as compared to its competitors failed. One of the most evident reasons for the Silicon Valley Bank run is the lack of diversification and high concentration in risky assets that initiated the crisis. Many of SVB’s depositors were tech startups that had been booming since the COVID-19 crisis, but with interest rates already hiked up and record-high inflation levels, the tech sector experienced massive layoffs and started pulling out their deposits from SVB.
On the other hand, SVB not only has sufficient funds to meet its liquidity requirements — but it could also not prevent its stock price from falling when investor confidence was shaken up.
Another crucial reason for this largest regional bank run could be the inefficient usage of software systems to manage liquidity and predict the situation to avoid its lack of solvency issues.
2. First Republic Bank
First Republic Bank was a regional bank based in San Francisco and had a comprehensive mortgage lending business that was booming. However, this business declined in 2023, and with the SVB bank run, the depositors of First Republic Bank also started to withdraw funds as the bank continued to deal with its liquidity crisis. In May 2023, regulators seized the bank and promised the depositors that they would receive their funds under the Federal Deposit Insurance Corporation’s policies. With the liquidation of this bank, consumers have lost confidence in regional banks and the position of these banks in the U.S. economy is very weak with the development of the perspective that other regional banks would fail as well.
While discussing the market trends and the recent collapses of regional banks, it is also crucial to understand the key challenges faced by these banks in the current times, when the inflationary pressures are quite high and the global economy is facing a lot of difficulties in the post COVID-19 era.
Key Challenges Faced by Regional Banks
Apart from the recent collapses of regional banks, there are some significant challenges by these banks which make their survival even more complex considering the global economic situation as interest rates are hiked up to control the inflationary pressures. Here are some of the key challenges faced by regional banks:
1. Competition with Larger Banks
While regional banks operate in the middle ground between community and national banks, they face immense competition from larger banks, which not only makes their survival difficult — but also puts their investors into a dilemma, especially if they are listed on the stock exchange. The shareholders might perceive that their investment in a regional bank might not yield a good return, which can encourage them to withdraw their investments pushing the price of the stock of a regional bank downwards.
2. Limited Resources
Apart from competition with larger banks, regional banks have limited resources when it comes to marketing, customer acquisition, and expanding the consumer base. Regional banks, in terms of the size of their assets, are not able to capture the clients that national banks can easily acquire, which restricts their profitability to a certain threshold. With their limited resources, it is not possible for regional banks to operate on a scale and serve a customer base that larger banks can cater to.
3. Maintaining Customer Relationships
One of the main challenges that regional banks face is maintaining customer relationships with the increasing competition and value-seeking behavior by customers. While the margins of large banks in the United States are declining up to 4.3%, as reported by Truist Financial Corp. for the year ended 2023, the situation is no different for regional banks, which operate at a smaller scale than the larger banks. With shrinking margins, regional banks are combating deteriorating
customer relationships since they do not have enough resources to invest in customer relationship management softwares and employee training to ensure amazing consumer experiences as they interact with the bank.
4. Outdated Software Systems
The usage of outdated software systems and the inability to invest in the latest technologies are causing regional banks to lose customers and face a severe decline in profitability, which makes their survival tough in the current economic conditions of the world. With the financial system going digital and branch traffic declining day by day, regional banks need to forgo their outdated software systems if they want to survive in the upcoming years. However, their limited resources and legacy branch systems are restricting them from embracing the technological revolution and implementing it into their business processes.
5. Strategic Business Model Adaptation and Growth
With the rapidly changing economic and business environment for financial institutions, regional banks fail to implement strategic business model adaptation according to the market trends, which not only hinders their growth — but also makes their survival a challenge in itself as they continue to compete with their competitors.
With these challenges persisting within the paradigm of regional banks, embracing technological changes and implementing digital transformation at the grassroot level is what all regional banks should focus on, which not only ensures profitability in the upcoming years — but also guarantees fast-paced growth.ears — but also guarantees fast-paced growth.
Why is Digital Transformation Crucial for Regional Banks in the Current Era?
While the world is witnessing the biggest-ever technological revolution since the past decade, embracing digital transformation could not only lead to about 20-60% cost savings for the banking industry — but it could also enable banks to expand their customer base and increase their market shares. Having said that, regional banks need to jump on the bandwagon and follow the key steps of digitalization to benefit from leveraging technology and increasing consumer preferences for digital banking and finance services. Here are the key steps of digitalization that could benefit regional banks greatly:
Key Steps of Digitalization for Regional Banks
While regional banks want to implement digitalization within their business processes, they need to embrace technology and integrate it into their banking software platforms at the core level to ensure proper implementation.
Cloud Adoption
Cloud computing and adoption play a robust role in the banking and financial services industry as it not only streamlines operations — but also brings enhanced security features to protect user data. Regional banks need to evaluate whether they need a private or public cloud or even a hybrid cloud solution that addresses their operational dynamics appropriately.
Digital Assets
After ensuring cloud adoption and proper integration of their software systems, regional banks need to focus on their digital assets to not only enhance their payment solutions — but also manage their assets in a reliable manner. Digital assets include contractual arrangements, files, and payment integrations that serve the core purpose of banks, so it is important that regional banks build up a central repository and a digital assets management system that is linked to their core software system to ensure efficiency and proper integration.
Fintech Collaboration for Innovation
With fintech evolving and influencing every industry, the banking industry is no different. Regional banks that wish to prioritize innovation and enhance their business processes with mass technology implementation should focus on fintech collaborations to stay ahead of their competitors. With more than 13,000 fintechs operating in the United States alone, fintech collaborations are the future of innovation for the banking industry, especially regional banks that serve a massive customer base. Therefore, regional banks should collaborate with fintech platforms as a part of their digital transformation journey to ensure immense growth in the future.
Data-Driven Decision-Making
Regional banks need to focus on data-driven decision-making as they start their journey of digitalization, which will not only help with informed decision-making — but also enable the management of banks to predict outcomes
related to consumer demand, market outlook, and economic conditions. With the big data analytics market expected to cross $24 million in the next 5 years, implementing data-driven decision-making should be the priority of every regional bank’s digitalization strategy.
Building a Digital-First Culture
While regional banks are stuck in their legacy culture, building a digital-first culture is a crucial component for mass digitalization to revolutionize regional banking operations. Better employee engagement and assigning leadership to the workforce can help with the increased adoption of a digital-first culture for rapid digitalization. As the global digital transformation is expected to reach $1 trillion by 2025, building a digital-first culture is something that all regional banks should prioritize in the upcoming years.
Training & Development
No digitalization strategy can work efficiently without full support from the employees and the core teams of any regional bank. Therefore, focusing on training & development for their workforce is something that all regional banks could consider to ensure that their digitalization strategy enables them to achieve growth prospects as expected.
Embracing the Digital Transformation
With their mission of implementing digitization at the grass root level, regional banks need to embrace the digital transformation and revamp their software systems according to the preferences of their consumer base for mass adoption and to increase the demand of their diverse services.
Having understood why digital transformation is important for regional banks, the next step is to choose a banking software platform that not only handles a regional bank’s operations smoothly — but also adapts according to the demands of its customers.
How to Choose a Banking Software Platform for Regional Banks?
When choosing a banking software platform, regional banks might face a dilemma related to what aspects they should consider when selecting a software platform that not only streamlines their operational efficiency — but also enables them to expand their customer base to enhance profitability levels. While the global core banking software market was valued at $14.54 billion in 2023, this figure is expected to cross $17 billion with a CAGR of about 17%.
Since investing in a software platform can be a significant cost for any regional bank, here are some key aspects that could enable them to choose a platform that caters to their expectations and consumer base in an appropriate manner.
Scalability
Cloud computing and adoption play a robust role in the banking and financial services industry as it not only streamlines operations — but also brings enhanced security features to protect user data. Regional banks need to evaluate whether they need a private or public cloud or even a hybrid cloud solution that addresses their operational dynamics appropriately.
Customizability
Cloud computing and adoption play a robust role in the banking and financial services industry as it not only streamlines operations — but also brings enhanced security features to protect user data. Regional banks need to evaluate whether they need a private or public cloud or even a hybrid cloud solution that addresses their operational dynamics appropriately.
Security and Compliance
While security and compliance hold great importance for any banking software platform, regional banks need to look for a platform that guarantees the privacy and security of their users to avoid any data breaches. Immuniweb.com highlights that around 92% of the banking applications contain 1 medium-risk software vulnerability, making security and compliance with the regulatory policies even more complex. Therefore, regional banks should choose a software platform that not only ensures optimal security and compliance — but also safeguards their customer base from data breaches and confidential information leakages.
Vendor Reputation
Vendor reputation plays an integral part in choosing any banking software platform as it not only implies the past experience of a vendor through precedents of software platforms available — but also makes it easier for any regional bank to figure out which software platform can cater to its customer base efficiently. Therefore, vendor reputation is something that regional banks should look for in software platforms.
Domain-Specific Expertise
The domain-specific expertise does not just deal with financial transactions and distribution processes; it also defines the ways through which customers interact with the banking software. Regional banks deal with a massive customer base, so they need to have diverse domain-specific expertise for efficient transaction processing and customer relationship management.
Top-10 Software platforms for regional banks
Velmie offers all-in-one core banking software platform for next-generation regional banks. Velmie provides a suite of products to build engaging and future-proof solutions for banks globally.
Velmie empowers financial institutions with cutting-edge tech solutions providing great customer experiences, ultimate performance, and extreme scalability. The modular cloud-native digital banking platform allows building very unique fintech solutions across the world. With the partner ecosystem and API orchestration layer, our clients have quick access to payment services from market-leading companies. Velmie carefully maintains security on different levels including the infrastructure, software development practices and the company itself.
Velmie is not only a software platform but your long-term partner helping to maximize business performance throughout the lifecycle. The platform supports over 20 million active users with close to constantly available service at 99.9%. With Velmie’s help, banks have widened their range of services and boosted revenue growth - estimates of up to six times faster than peers would typically manage.
Temenos is an advanced banking platform rooted in cloud technology. It supports a variety of banking activities, including retail, corporate, treasury, and more. This helps banks to offer unique products that customers want while keeping costs low.
Using Temenos lets banks make changes faster and more cost-effective. Instead of spending money upfront (CapEx), they pay for what they use (OpEx). This also reduces the overall cost burden on banks.
What makes Temenos special is its commitment to progress and compliance, along with an open, capable platform. It’s designed to work well with cloud services, which means the banks can provide appropriate services for all types of businesses, no matter their size.
Fiserv is a core banking platform that adapts well to varied needs. It is known for its use by many financial institutions as it covers customer onboarding, transaction handling, and data tracking, among other tasks. Fiserv wins over banks due to how easily it works with high-performing products in the market while also being light on cost and having a quick response time.
This platform stands out because of its openness to innovation, allowing adaptability into the future. Not forgetting user experience, Fiserv offers users interaction across all channels that remains consistent each time. It also allows regional banks to design services based on what their consumers need.
Sopra Banking Software provides an extensive suite of tailored solutions for the banking sector. Their portfolio encompasses core banking systems, digital banking platforms, lending solutions, payment systems, and other software crafted to address the evolving requirements of financial institutions.
With a global presence, the company serves diverse clients, including retail banks, corporate banks, and financial institutions. Their solutions are designed to streamline operations, elevate customer experiences, and enable clients to navigate the dynamic landscape of the financial services industry.
Mambu is a cloud-based platform offering banking and finance services. This software helps regional banks and other institutions to set up different lending or deposit services quickly. Not only banks but also lenders, fintech companies, and even retail businesses use Mambu for rapid, secure digital financial product creation while saving costs.
The unique feature of Mambu lies in its modern composable structure. This forward-thinking approach when setting up banks or lending entities embraces change as part of the norm. Hence, it offers control for these institutions, so they can develop technologies that exactly meet their service infrastructure needs.
Around the world, over 200 brands trust Mambu with their operations. Well-known international ones include ABN AMRO, Santander, etc. Additionally, over 45 million people across the globe depend on this platform every month.
Natech Banking Solutions democratizes access to banking technology and liberates resources, allowing financial institutions to prioritize what's most important— outstanding service and customer fulfilment. Their comprehensive product suite, encompassing everything from a core banking system to digital engagement channels layer, enables regional banks to craft and deliver personalized financial products.
Their platform exemplifies ease and efficiency, providing seamless onboarding and unparalleled accessibility that guarantees financial institutions a swift time-to-market. As the provider of plug-and-play, end-to-end solutions built on modern cloud-native modular technology, it empowers banks with the agility to swiftly launch products and seamlessly adapt to the dynamic landscape of finance. The ecosystem and API integration strategy are tailored to enhance functionality, delivering precisely what is needed with cutting-edge features, thereby ensuring operational costs remain lean throughout the entire lifecycle.
Backbase is the banking software vendor of choice of 80+ banks around the world, Backbase empowers regional banks to place digital at the core of their business models. The company’s Omni-Channel Banking Platform is the preferred choice for banking technology-oriented companies such as Barclays, Credit Suisse, Deutsche Bank, Fidelity, ING, and many more.
Since its launch in 2003, Backbase has been helping banks develop a compelling experience on digital channels. Today, the company impacts over 90 million end customers daily. An in-depth focus on customer experience management and unparalleled speed of implementation place Backbase among highly rated digital banking vendors. Their “buy plus build'' operating model enables banks to gain speed and flexibility, allowing them to accelerate their modernization journey. Adopting powerful out-of-the-box platform features and customer journeys into their existing tech ecosystem, enables banks to start delivering immediate value.
Through its single software-as-a-service (SaaS) platform, nCino helps regional banks and other financial intitutions modernize and more effectively onboard clients, make loans, manage the loan lifecycle, and open accounts. Transforming how financial institutions operate through innovation, reputation and speed, nCino is partnered with more than 1,800 financial services providers globally. The company was founded in 2011 in Wilmingtonn, USA.
Pismo is a technology company providing an all-in-one processing platform for banking and payments. Regional banks, marketplaces, and fintechs already use their cloud-native microservices platform. Their cloud-based platform empowers teams to build fast and banks to launch rapidly, scaling as they grow to have a broader audience while keeping high security and availability standards for their digital banking and payments solutions.
Pismo was founded in 2016 by experienced entrepreneurs and techies. They are a global company headquartered in São Paulo, Brazil, with offices in the USA, the UK, India, and Singapore.
Q2 Banking is a dynamic digital solution empowering financial institutions to grow and thrive. Trusted by top banks and credit unions, it offers personalized, robust experiences for consumers and businesses, driving differentiation, growth, and community strength. With comprehensive end-to-end solution sets, Q2 enables regional banks to provide cohesive, secure, data-driven experiences to every account holder – from consumer to small business and corporate. Headquartered in Austin, Texas, Q2 has offices throughout the world and is publicly traded on the NYSE under the stock symbol QTWO.
The Bottom Line
Lastly, software platforms are integral to the efficient functioning of regional banks. Having said that, choosing software platforms for regional banks requires an increased level of research and comparison between different vendors to identify which platform suits the needs of the masses. From a regional bank’s perspective, considering the economic situation and the current status of regional banks after the major collapses in 2023 relating to the Silicon Valley Bank and the First Republic Bank, regional banks need to adopt a digital-first culture, which will not only help them in regaining their position in the economy — but also build up consumer confidence.
By considering a holistic perspective of the American banking system, this guide attempts to explain the dynamics of regional banks, and a reliable software platform can be chosen for these banks, which not only protects their consumer base — but also ensures better financial inclusivity and uplifts the economy.
We hope this article will enable you to identify the best software platforms for regional banks to make banking and financial management easier for everyone, be it the banks, the consumers, or the stakeholders.
