How community banks are balancing urgent pressures with long-term modernization

Community and regional banks operate in an environment of perpetual tension. They need to grow deposits and drive lending profitability while managing operating costs that threaten to overwhelm smaller institutions. They must also prevent increasingly sophisticated fraud while delivering customer experiences that match Amazon and Netflix. And they need to do all of this while building technology foundations that won’t become obsolete before the implementation is complete.

At FIS’s Emerald 2025 conference in Orlando, Peter Boyer, head of banking at FIS, and Craig Focardi, principal analyst at Celent, discussed how financial institutions are navigating these competing demands. Focardi and Boyer discuss how modernization is now a continuous process of adaptation, and that the institutions most likely to succeed will focus on enabling agility rather than chasing specific technologies.

“If you really take a step back and think about regional and community banking, there’s a couple headwinds or tailwinds, that are driving how banks are thinking about the market,” Boyer explained. “One is deposit growth and profitability growth through lending. Every bank right now is thinking, how do I grow? What is my sweet spot in my segment? Thing two is operating costs. How do they continue to drive a more efficient bank? AI is a big topic on that particular solution. And thing three is fraud. How do you protect the banking ecosystem? You put those three together and you’ve got a meaningful amount of where the energy is in the market today.”

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The modernization spectrum

The challenge for any discussion about banking modernization is that the word itself means different things to different institutions at different points in their journey. 

“Modernization is one of these words that gets thrown around pretty loosely,” Boyer noted. “In the end, it’s about how you are leveraging technology to drive the outcome that you want. We go back 10 years ago, the big modernization would have been, do you have a mobile app or web interface? Nowadays, it’s more about, how are you powering better fraud tools and controls through data? How are you creating a personal experience in digital through marketing or just the experience layer itself.”

Focardi’s research at Celent consistently reveals surprising variation in capabilities along the modernization spectrum. “We have a lot of clients of different sizes, and we sometimes find community banks or credit unions under $10 billion in assets that have many of the same great products and services as the very largest banks have,” he observed. “They’re certainly smaller, which in some ways helps them adapt more quickly. But they don’t necessarily have the money or the resources to do that.”

The contrast becomes even more stark when considering the different challenges facing small versus large institutions. Community banks may be more agile organizationally, but they lack the resources for major technology investments. “The large banks have to manage those big operations. They have those big costs. They have the scale, but it’s harder to turn that ship around,” Focardi explained.

Building for today while preparing for tomorrow

The fundamental strategic challenge for community banks centers on budget allocation: how do you invest in immediate competitive needs while building infrastructure that will remain relevant as the industry evolves?

Boyer emphasized that the answer begins with choosing the right foundation. “Are you buying or installing a product that your vendor is going to continue to invest in? Because you don’t just buy it one time. You’re actually getting new upgrades. You’re getting new connectivity, new feature functionality.”

This point matters more than it might initially appear. Deciding to partner with a vendor for a point solution or upgrade means partnering with their development roadmaps – a reality many institutions miss. “You attach your horse to a vendor, as well, in their product life cycles,” Boyer noted.

The second critical foundation is architectural rather than functional. “What is the connective tissue between that product, the API layers that allow either the bank or the software vendor to continue to add partners and new products that actually enhance the value of all the products, not just a single product,” Boyer explained.

This emphasis on APIs reflects a broader industry shift from monolithic systems to composable architectures. An FI’s capability to connect multiple systems and create experiences that jump over siloes is a differentiable skill. 

FIS’s modernization investments

FIS is directing its development resources toward three primary areas that reflect where client demand and technological opportunity intersect: API infrastructure, digital banking platforms, and unified payment experiences:

• APIs: On the API front, the company continues to enhance Code Connect, its integration layer that enables banks to connect various systems and services. The company recently relaunched its marketplace to make API discovery and consumption easier. “We have just relaunched our marketplace, allowing for easy browsing, easy consumption of our new APIs, and we continue to add that through partnerships and our own internal builds all the time,” Boyer explained.
• Digital banking platform: The second major investment area is digital banking through the D1 Flex platform. “We have been heavily investing in our Digital One Flex product, our new UI/UX for regional community banks,” Boyer said. “That has just come to life, allowing our clients to present the best kind of digital front end to their clients in a really tailored way to how they want to consume it, but also what their clients really want to see.”
• Payments: The third focus area centers on payments, specifically on creating unified experiences that span multiple payment rails. “We have embedded finance with our Atelio platform. We launched that about a year ago. And through innovations like a money movement hub, we’re putting all the channels together for the bank to offer all of those money rails in one experience from a technology perspective, but also integrating that in our Digital One Flex product,” Boyer explained.

This integration point matters because payment capabilities have historically existed as separate systems that banks needed to stitch together through custom integration work. “It’s not just about you having a money moving product and a digital product. Part of modernization is actually getting them to talk together and present a unified outcome for an end customer,” Boyer noted.

Agility as competitive necessity

Market conditions can shift quickly, creating pressure for institutions to pivot their strategies and operations. Focardi pointed to the dramatic swings in interest rates and lending volumes over recent years. “Since the pandemic, we’ve seen interest rates plummet and lending volume go up, and then inflation go up, and interest rates go up and lending volume go down,” he noted. “Those are the big shifts. And as Peter said earlier, lending is a big revenue driver in a retail bank, and so they need to be able to pivot that way.”

But agility is also critical in fraud prevention. The threat landscape evolves constantly, with bad actors continuously probing for weaknesses and developing new attack vectors.

“Fraud just requires everybody to be agile,” Boyer emphasized. “There is no set it and forget it. They’re not resting. Because it’s not just about preventing fraud with your controls. It’s about learning the new trends. Probably some of the most innovative people out there are the fraudsters. They’re really fast, and they really try to poke holes in the defenses of these banks and corporations.”

Focardi reinforced this point by noting that community banks specifically need AI and machine learning capabilities to keep pace with AI-enabled fraud. “Community based financial institutions, they need fraud, AI, ML types of solutions, because the fraudsters are innovating with AI also,” he explained. “Everyone needs to keep up with that. Why? Because with the fraudsters, it’s like water. It will go downhill and find its level. And so it will keep looking until it finds vulnerabilities in the market.”

Meeting evolving customer expectations

Customers who experience personalized, proactive service from companies like Amazon, Netflix, and Uber increasingly expect similar experiences from their financial institutions. “We order Ubers from our phone. We order pizzas. Whatever you order, the package comes the next day from Amazon. We’re just trained like that,” Boyer noted. “And there actually shouldn’t be any difference in banking.”

This creates two distinct horizons for banks. First, there’s a need for competitive parity. “Pretty much every bank I talk to has the urgent need and desire to feel and know that they are being market competitive with their experiences,” Boyer explained.

But beyond parity, some banks aim for genuine differentiation. “There are banks of all sizes that are looking to be really differentiated,” Boyer said. “The whole digitization isn’t just about the visual pieces. It’s about the data and the personalization and the custom offers that come on top of that.”

Focardi’s research at Celent confirms that digital customer engagement remains the top IT investment priority. What’s particularly striking is that digital banking has held this top position for roughly 25 years, or essentially since the beginning of internet and mobile banking.

“It’s somewhat ironic in that, because that’s the first big area of tech spending for internet and mobile going back about 25 years. CX is a process of continuous improvement, and the banks have to keep up with the Googles and Apples of the world,” he explained.

The key insight is that customer expectations continuously evolve as they experience better digital services elsewhere. “Financial institutions and their solution providers do an excellent job of doing that,” Focardi said. “I think for the customer, what they want to see is that it doesn’t need to be perfect and exact and on the leading edge or the bleeding edge. They just want to see their financial institution continuously improving. And I think they’ll stay happy as long as things are always getting better for them.”

For community and regional banks, the path forward includes managing multiple time horizons simultaneously. They need to address immediate competitive gaps in customer experience while building flexible infrastructure that can adapt to uncertain futures. The institutions that are successful will be those that make modernization a part of their culture and ongoing process, this requires strong foundations, the right partnerships, and the organizational agility to keep adapting as the industry evolves.