Loading...
| by Brian Hink | 0
I often ask myself, why do banks or credit union executives wait so long to negotiate their core vendor contracts? Beginning the renewal process at the “right” time can be one of the most important decisions of the overall process. Most vendors will allow an early renewal, within reason, but I am quite certain a lot of banks are not aware of that timeframe and do not fully understand the value of renewing early. What is the appropriate timeframe? Keep reading.
The process of a core contract renewal is daunting to most people in the industry. Consider it a lot like the “old school” method of buying a car. The vendors have most, if not all, of the information and that can be very intimidating based on the size of these organizations and their corporate procedures. Even the most skilled negotiator at a community financial institution is in over his or her head during this process. Knowledge is power. You do not need to be a certified negotiator for work through a renewal successfully.
The items to focus on during core contract negotiation are:
C-Level executives at multiple banks recently told me that they have been occupied by FDIC audits, IT reviews, PPP loans of 2020 and 2021, etc. The first quarter of any year is quite challenging to begin a renewal for a bank planning to go through the process on their own due to these annual events. Therefore, they tend to kick the can down the road a few months and end up significantly inside the 24 month window. That could be a big risk for their financial institution. The window of time that is ideal for contract negotiations is 18-24 months out from the core contract expiration date. During a renewal with less than 12 months remain, a bank loses a lot of leverage including the threat of moving to another vendor no matter if it is implicit or factual. The vendor knows appropriate timeframes to complete processes and will use timing to their advantage.
The Remedy Contract Negotiation team is tracking an industry average of 4-6 weeks per response for vendors to respond to requests for change to a contract or pricing reduction request originating from the customer. This response time used to be 2-4 weeks. We are not sure why the increased delay by the vendor but these delays add up. Also, they are in favor of the vendor, not the bank. For example, if you have 5-6 requests, that could be 6+ months of vendor delays for just basic requests/changes. Assuming the vendor has more negotiating power than the customer, the closer you get to your renewal date, a bank or credit union CEO starting their renewal too late is painting themselves in a corner due to this vendor latency. That CEO likely will not get what she deserves when compared to market prices and T&Cs.
The other option is to use a consultant to work the process for the bank. Let’s go back to the metaphor of being in the market for a car. If you use a consultant, you will not have to go to the dealership, your consultant goes for you. This saves you a lot of time throughout the process allowing you to focus on the day-to-day business, growing the bank, etc. Throughout the process, if your consultant is on top of things, you will only spend about 4-6 hours over a 3-6 month period on the phone with your consultant. A good consultant informs the vendor what you are willing to pay knowing the price is fair and reasonable without overreaching risking the loss of credibility. The consultant continues to go back and forth throughout the pricing and contract phases providing updates along the way. Keeping you informed of the ebbs and flow of the process and getting your input on any strategy adjustments, if necessary. With clear communication and time on your side, your consultant can put a lot of money back in your pocket by cutting you expense.
So, buying a car, if your only job is to test drive it and your consultant takes care of the paperwork, negotiation and waiting on the salesperson to speak with their manager, would you? I would. Remedy Consulting is that consultant that takes the hassle off your plate so you can focus on operations and includes the customer when strategic decisions need to be made.
If you are within your 24 months window, reach out to me for more ideas or assistance with your upcoming core contract renewal.
Brian Hink
Senior Director
Brian manages Remedy’s Vendor Negotiation and Bank Strategy practices.
Strive or thrive? Pivoting with Strategic Planning & Economic Changes
How to figure out if your Core Software has been Sunset (without you knowing it)
Remedy Consulting helps financial institutions (FI) thrive through best-in-class fintech consulting services specializing in System Selections, Contract Negotiations, Outsourcing/In-House Advisory, Bank Mergers & Acquisitions, and FI Strategic Planning. As a trusted advisor to banks and credit unions located in Wisconsin, the Remedy Team has executed over 700 system selection and vendor negotiations since 2016. Our clients receive a cost reduction on their core vendor contracts and increased efficiency with Remedy's Price Repository. To learn more about Remedy Consulting, contact us today!
Remedy Consulting was able to achieve much more than our expectations during our core contract negotiation including significantly lower rates and contract language that much more favorable to the bank. We were extremely impressed with the project management and professionalism shown by the Remedy Team. Highly recommended.
Walker Jordan, President
Bank of Monticello
Our organization was engaged in a negotiation with our core provider for a contract renewal. Although we were already well into the process, I made the decision to hire Remedy because I felt the negotiations were taking too long and consuming too much of my management team's time.
Josh Hoppes, CEO
Mutual Savings Association, Leavenworth, KS
Cornerstone Bank thanks Remedy Consulting as a strategic partner in core contract negotiation. Brian, Project Manager, streamlined the process of our core vendor renewal and advised us as to the new technologies that we could continue/implement and still receive a cost reduction on our five-year contract. We are happy to highly recommend Brian and the Remedy Team.
John Doull, President
Cornerstone Bank, Overland Park, KS
We wanted to ensure our pricing and contract terms were in line with those of other financial institutions. Remedy had the tools and knowledge to help us out. The process, from beginning to end, lasted about 4 months. Remedy took care of all the negotiations and simply kept us apprised of where the negotiations were at and how they were going.
Ben Hansen, CEO
RSNB Bank, Rock Springs, WY
After completing one renewal on your own, it was evident that market pricing information was necessary for an effective negotiation. Remedy was able to provide that plus other contract information that made for a positive renewal. Remedy was able to achieve more than our expectations, including significantly lower rates.
Amy Johnson, COO
Dairy State Bank, Rice Lake, WI