The banking industry today comprises more than 18,000 financial institutions, including credit unions. The market has been shrinking over the past 10+ years due to extensive M&A activity, with small and mid-tier institutions being absorbed by larger entities. Partially offsetting this trend is relatively steady de novo activity, averaging approximately 120 new bank charters per year.

For community banks, the market has become increasingly competitive. Due to ongoing deregulation and the proliferation of electronic communications channels, community banks now face stiff competition from large credit unions with community-based charters, national and super-regional banks with extensive branch and ATM networks, internet-only banks, and non-bank players such as ING, GE, State Farm and Schwab—all of which can offer lower pricing and/or higher interest rates than the typical community bank.

The supplier market has also been undergoing a period of consolidation, and it looks like more to come. Independent software developers and service providers are being acquired by big companies like Fiserv, Fidelity, Metavante, Harland and Open Solutions. And there is new competition from global providers, with companies like Temenos, i-flex and R Systems all working to penetrate the U.S. market.

Continuing regulatory and technological changes have affected both banks and their suppliers. Increasing regulatory oversight on privacy and anti-money laundering have required banks to invest more heavily in security and compliance and spawned a new crop of risk management software and service providers. Check 21 and the migration to electronic payments have eliminated traditional geographic barriers, reduced operations expense and created new streams of fee revenue. Mobile devices are emerging as the preferred channel to reach young consumers. And legislation such as the Medicare Modernization Act of 2003, which introduced the Health Savings Account (HSA), continues to create market opportunity.

The banking industry is operating in a state of flux, and organizations that want to grow their share of the market must stay ahead of the curve and move quickly to capitalize on emerging opportunities.