Why a community bank in Missouri is investing in Neocova

For Brice Luetkemeyer, president and CEO of Bank of St. Elizabeth, a Missouri-based community bank with $150 million in assets, investing in a core banking startup is critical for its future. Together with a group of other community banks, Bank of St. Elizabeth recently invested in Neocova, a St. Louis-based core banking startup that targets small banks and credit unions. The startup this month confirmed a $9.5 million Series A funding round.

“It is something that we need to do in order to survive,” Luetkemeyer said. “The big core processing companies are inflexible; they are hard to deal with when trying to integrate other products and they tend to be very proprietary and keep you from using others’ [products].”

Bank of St. Elizabeth joins Coastal Community Bank, First Financial Bank, Kearny Bank, Provident Bankcorp Inc., and Sunwest Bank in supporting Neocova’s Series A round. Neocova, which launched in October, targets small- to medium-sized institutions. Its pitch to customers is flexible, cloud-based technology that allows for API integrations, simpler contracts and cost reductions that can amount to $0.50 on the dollar compared with some legacy providers, according to CEO and co-founder Sultan Meghji.

A recent Bank Director survey of industry executives found that just 21% were “completely satisfied” with their core providers, and among institutions with $500 million to $1 billion in assets, just 11% were completely satisfied. Across the board, complaints included cost and the slow pace of innovative solutions or upgrades.

See also: Core banking startup Neocova to serve challenged niche of small banks

Luetkemeyer said the bank plans to transition to Neocova’s core solution, but did not offer specifics regarding the time frame, saying, “We believe in it to the point where we have invested in it and we know this is the way we need to go.”

For Neocova’s part, the company plans to use the funding injection to iterate and improve its banking software platform.

“We sell our banking core, we sell artificial intelligence [tools], and we sell our underlying technology,” Meghji said. “We’re able to get unbelievably strong and positive feedback and guidance from our investors, bank partners and staff, so that we can continue to refine our products to fit the needs of the community banking ecosystem.”

He acknowledged that the transition from a legacy core platform can be onerous for client institutions, but said Neocova works closely with its community bank partners to ensure a smooth transition.

“We start extracting data very quickly after we sign contracts with customers that land inside of our ecosystem, and our bank customers can in pretty close to real time, quality check and analyze the data as it flows into our system and confirm that everything works the way it should be,” Meghji said.

Neocova recently announced a partnership with Coastal Community Bank to develop and implement a reporting and monitoring platform, a data warehouse solution that will hold partner data securely and allow for enhanced oversight and transparency through a single, unified reporting platform.

For Bank of St. Elizabeth, putting resources towards such innovations are necessary to ensure longevity in the industry over the long term.

“In a fast-moving world today, if you’re not moving forward, you’re moving backwards,” said Luetkemeyer. “It’s not that you have to be cutting edge, but you can’t be too far behind either because otherwise you won’t be relevant and you won’t be competitive.”

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Originally Posted to: Bank Innovation