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ALL contracts matter, not just your biggest ones

Aug 12, 2014 by Kelli Schultz

I recently got a call from an industry friend who knows how passionate I am about community banking and the technology providers that support it. He was curious. I have been a technology provider of key solutions to banks and credit unions for over 15 years. His perception was that through participation in a study on core banking services, I was confirming that through my own knowledge core vendors are over-pricing services to their banking clients.While I can see how he came to this conclusion, my driver for participation was to evangelize this message: As an industry, we are negligent in the ongoing, active management of the growing number of third-party relationships on which banks and credit unions depend to operate.

In essence, it’s exactly this point that has caused the FFIEC, FDIC, OCC, CFPB and every other regulatory body in the industry to place significant emphasis on the importance of vendor management.

Taking Ownership on Decisions with Ongoing Service Providers

It’s easy to focus on core banking and the services that typically extend from that given they typically represent that largest technology spend for a bank or credit union. It’s even easier to make the vendor the “bad guy”.

Let’s face it. Its human nature to want someone to blame when we realize we have let something slip or failed to place attention on a process we intellectually know should be in place. The hard truth of the matter is this: We outsource so that we can do more with fewer employees, or better said, with a higher level of skill at a lesser price than we could provide the same service for ourselves. When we outsource (anything), we own the decision, both now and as time passes.

This is NOT a one-time buying exercise. That is for things like food, clothing, and other consumables. These decisions for ongoing services must be revisited regularly to insure the strategic fit is still good, the service is of an acceptable quality and the price is still fair. It’s not rocket science. It’s simply a management discipline.

Paying Attention to Contracts with Longterm Providers

Nonetheless, the past two decades have delivered us a change curve that we can barely comprehend let alone keep our arms around as managers. So, there we have it. Things changed rapidly, we outsourced more and we forgot to put a discipline in place to manage the number of ongoing relationships (in other words, contracts) that we depend on to run our bank or credit union.

Or maybe we didn’t really forget, but time has gotten away from us and we’ve been too distracted with other things to follow through with our good intentions.

When contracts are ignored, particularly for technology-related products and services, price remains unchanged or may even go up automatically. Over several terms, the build-up on price can be significant. We’re now seeing the effects of this build-up in everything from elevator maintenance contracts signed 20+ years ago to yes, core processing agreements.

So, show me a contract for any product/service with any provider that has been in place for 5, 10 or (horror) 20 years without any price or term discussion since the day it was signed, then yes I’d say there’s a good chance that institution is overpaying. There’s a good chance the oversight of the rest of that vendor relationship is lacking as well. I can make a difference for our clients and help with all of the above. THAT’s what I’m passionate about!!

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Kelli Schultz

Written by Kelli Schultz

Co-Founder & Director of Strategic Sales at Digital Compliance.

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