Why Niche Banking May Be Community Banks’ Secret Weapon

NYMBUS CEO discusses how community banks can thrive by focusing on specialized market segments and leveraging technology to deliver personalized solutions that larger institutions can't match.

By Justin Estes

Published on January 30th, 2025 in Personalization

As large financial institutions invest billions in technology and fintech firms continue to disrupt traditional banking models, community banks are discovering their path to success lies in vertical banking strategies powered by modern technology. On a recent episode of the Banking Transformed podcast, host Jim Marous spoke with Jeffery Kendall, Chairman and CEO of NYMBUS, about how data-enabled core banking is transforming how smaller institutions compete.

Q: How can community banks compete against larger institutions?

Jeffery Kendall: The megabanks, the Chases, the Bank of Americas, and Wells Fargo — their path to success has really been one that was predicated upon them being able to go anywhere and everywhere within the country. They have unlimited war chests of money, and if they want to move into a new community — as I live in Boulder, Colorado — if Chase wanted to come in here tomorrow and put up 15 more branches, they could do it, and they wouldn’t even blink an eye.

If community banks are going to suffer because large banks can go anywhere and compete on a scale, they have to find something to differentiate themselves. We believe that niche banking, vertical banking, and different areas where you specialize and focus rather than trying to compete broadly and generically are ways that community banks and credit unions can remain relevant.

Q: What makes vertical banking strategies successful?

Kendall: The key for niche banking, vertical banking, and anything else is that you must be able to truly solve a problem. If it’s just a name, only if it’s a market segment and a marketing gimmick, it will probably have limited success. Once you find out that: "Hey, we did something different for this end user that they can’t get somewhere else," that’s where stickiness is created.

It’s a very simple example, and the hook doesn’t have to be incredibly complex. It can be it just has to solve a problem. Roger Bank, sponsored by Citizens Bank of Edmond, is a great example of that. They had this vision of being able to solve a problem for newly enrolled military members. It was difficult to get a banking account, especially if you were under 18. It was difficult to set up payroll, so your direct deposit was sent to your debit account.

Modernizing Core Banking

Q: Why do traditional core systems limit innovation?

Kendall: If you’re talking about a modern core, you should be talking about something event-driven from its basic bare bones of architecture. Event-driven means that when I do X, I can have the system do Z. That’s important because you think about features and functionality that are very common with some of the big tech players that we know, like Amex. When I get a suspected fraud on my Amex card, I get a text message immediately, and I can hit one to confirm that I made the transaction.

Most legacy cores for community banks and regional banks aren’t event-driven. So, you have to really do a lot of workarounds, a lot of really hard work to try to emulate that kind of key functionality that’s required for these experiences.

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Q: How are banks approaching core modernization today?

Kendall: If you’d asked that question 10 years ago versus today, you’d get two totally different answers. The cost of technology has come down so much that running multiple cores is a viable option now. Now that modern cores can be kind of spun up, like I can turn on an instance of our core in 10 minutes in Amazon and spin it up and there, it’s ready to go, and there’s no really expensive infrastructure and things behind it.

This is super relevant because it allows people to do A/B testing, or sidecar testing. When you hear the term "sidecar core," the whole idea is that you want to keep the bank running and don’t want to put that at risk. So, you can continue to run your legacy systems, but you want to start experimenting with different markets, features, and products.

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Real-Time Data Advantage

Q: How does real-time data access change banking capabilities?

Kendall: If you’ve been around most modern cores or most legacy cores, you know that batch files rule the world. Every night at 11:00 PM, you pull a bunch of data, put it in a CSV file, and put it on some shared drive, and somebody picks it up. And if you’ve been around it, you know that it’s slow, difficult, and often breaks.

In a modern core, we’re one of the few cores built on the concept of immediate data replication via data streaming. When you send something to our core, we can push that same data to any number off systems in real-time. This becomes important because if you’re doing everything in batches and you have to wait 24 hours to notify somebody of fraud, you didn’t really help them.

Q: How should banks approach API integration for open banking?

Kendall: I think it comes down to this, number one. I love and hate the term API because it’s so easy to throw around, but a lot of non-technology people will be like, "Oh, it must be easy to integrate because there’s an API." One of the big myths in banking is when a vendor says, "We have APIs," that somehow, it’s going to magically be easy to connect to everything, and nothing could be further from the truth.

I am excited about open banking and looking at companies like Plaid, Finicity, MX, etc. One thing they’ve done that I don’t know if they intentionally set out to do is that they’ve simplified not just the process of getting data from this bank to this bank but also the access for non-bank software to banking software.

Q: What makes modern API integration different?

Kendall: Modern platforms like ours are generally built so they’re more modular. They’re not monolithic, and they’re not sort of self-contained. For example, our core was built from scratch, using everything with APIs. Our developers use the same APIs that are available to end customers, to beend, build, and manipulate the product. That is a huge advantage when you can just build from the ground up with modern technology.

Building True Personalization

Q: How can banks move beyond basic personalization?

Kendall: If you were in 2005, personalization meant when I logged into a website, it said, "Good morning, Jeffery." That was the like, "Ooh, it knew my name. That was interesting." And that’s pretty low-value personalization when it just reflects back, "Oh, I know who you are."

I was sort of thinking about that as self-service banking and mobile banking, which was all there in terms of checking your balance, moving money, and doing those things. And that’s where digital banking has somewhat remained for the past 15 years. Are there really that many new groundbreaking features that you’ve seen in any digital banking app in the past five years?

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Q: What technological capabilities enable meaningful customization?

Kendall: One of my favorite FinTechs I’ve seen come out to market recently is Sequence. The value proposition is very simple. It’s a rules engine for your money. Basically, they’ve used open banking to say, "If you connect your accounts through Sequence, you can set up rules and processes, procedures, triggers, and events that are going to automate your money movement the way that you want it."

When you think about true personalization, if I’m an end user and I go in and set up what I want my sequencing to do, what logic I want on every Friday, and move this amount of money from here to there, I’ve just now allowed the consumer to express their intent and what matters to them by looking at the rules they’ve designed for their money movement.

The Future of Community Banking

Q: How will AI reshape community banking?

Kendall: In banking, if you decide whether or not you will use AI in a particular feature or capability, the first thing you need to ask is: "Is precision required?" If precision is required, it’s not a good approach. If it’s, hey, good enough, if it’s horseshoes and hand grenades, then there’s probably some value there.

I see that using AI in an assisted way is probably the first way to increase productivity by leveraging AI for your end customer. It’s not telling the customer, for example, "What’s the next best action or next best product?" It’s telling digital service agents or your staff members what Jeffery’s next best action might be.

Q: What opportunities exist for smaller institutions?

Kendall: I think we’re seeing such a rapid amount of technology coming out, and at the same time, it’s also getting more affordable and easier to put into place. Whereas 5, 10 years ago, you still had to do a lot of heavy lifting to bring some of the solutions together.

And I think if community banks and regional banks figure out the courage to say: "We can’t try to fight the fight with the big banks on the playing field that they’re on" — then they’ll have a chance of success. I think that the next generation of bankers and the next generation of technology will be super bright and super powerful.

The biggest thing I see is that I love the fact that there’s this natural progression of using technology. The cost comes down. When something new comes out that’s great and powerful, the very first one is always super expensive, but then, in the next 10 years, it gets more accessible and more affordable.

For a longer version of this conversation, listen to "Unlocking Value Through Data-Enabled Core Systems", a podcast with Jim Marous, available here. This Q&A has been edited and condensed for clarity.

About the Author

Justin Estes is an award-winning writer, strategist, and financial marketing expert with expertise in banking, investments, and fintech. His clients include the NYSE, Franklin Templeton, Credit Karma, Citi and, UBS, and his work has appeared in Forbes, Barrons and ThinkAdvisor as well as The Financial Brand.

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