If you work for an independent CPA firm that supports banks or credit unions, it is important to understand how much of your client’s expense budget is allocated to the vendors that support their technology platforms. Here are a few interesting facts:
- Third Party technology vendor expenses are, on average, the second largest non-interest expense for community banks and credit unions in the US, behind only personnel expenses.
- Most Banks and Credit Unions in the U.S. have their core platforms hosted at the vendor’s site.
- Core platform vendor contracts average 60 months, with 94-98% of those contracts renewing with their current vendor. The result is that most contract discussions do not include a vendor change.
- There is a wide disparity between what major bank and credit union vendors charge their clients. Even clients of similar size, with similar products often pay vastly different amounts.
- Most vendor contract renewals are managed internally by either the CFO or CIO, rather than being outsourced to a contract consultant.
Let’s face it, vendor contract management is not sexy. On the list of a CFO’s favorite things to do, it falls just above shopping for employee health insurance and just below cleaning out the gutters at your house.
One of the first questions we ask a CFO is:
“When is your core contracts up for renewal, and are the main services (core, debit/credit, eCommerce, item processing) contracts co-terminus?”
You would be amazed at how many CFO’s cannot answer that question. With such a high percentage of their non-interest expense tied up in these agreements, you’d think that contract dates would be top of mind.
After working in the industry for several years, here are my “Top 3 reasons why trying to get the best deal from your vendor is not higher on the CFO priority list”:
- The infrequency of contract renewals puts an added burden on the day job of the CFO, making it difficult to be proactive, and spend enough time on an effective negotiation.
- Most contracts, and the personal relationships, with the vendor representatives have been in place for years, often a decade or more. Discussing a reduction in rates is can be an uncomfortable topic under these circumstances.
- Even if a CFO knows that she is overpaying, the process of negotiating with the vendors is often an emotional and frustrating experience.
Charlie Kelly is a Principal at Remedy Consulting. Remedy advises Banks and Credit Unions on Systems Selections, Contract Negotiation, Vendor Management, Mergers and Acquisitions and Technology Strategy.
Prior to Remedy, he served as the Vice President of Product Pricing and Contracts at one of the largest fintech core vendors, where he managed a team that was responsible for negotiating the majority of client contracts each year, and setting product and pricing decisions.
Charlie has a bachelor’s degree in Marketing from the University of Wisconsin, and a MBA from Marquette University. He can be reached at 312-270-3490 or email@example.com