Veni, Vidi, Vici

History has it that Julius Caesar reported on a battlefield victory with brevity: “I came, I saw, I conquered.” Credit union executives can apply that to-do list with vendor contracts by taking the lead in monitoring third-party relationships and thoroughly reviewing the potential for improvements in advance of renewal.

Given that technology contracts form the foundation of member service delivery—and a big share of the budget—the job of ensuring that systems are operating optimally should not be delegated. Ongoing executive team involvement in building strong working relationships with vendors helps to ensure accountability and that the CU keeps pace with changes and upgrades.

When executives meet regularly with vendors, their CUs get consistently better results from technology systems, tap more productively into their functionality, make the most of updates, and get a jump on new features and products. For all those advantages, though, this level of involvement is relatively rare. In our experience, ongoing executive-level involvement in vendor relationships happens in only about one in three financial institutions.

Stay on Top of Service and Sales

We recommend that executives stay involved at the decision points and know enough about the process to weigh in on strategy throughout the contract term, typically five years. The executive responsible for the line of business should attend quarterly meetings with vendors. These kinds of meetings are not common but do provide real value. Despite the negative connotations associated with sales presentations, these meetings can help CUs understand what vendors are working on and what new features and products are coming. Executives can keep pace with the evolving capabilities of key systems and get to know their account teams. When things go wrong, the CU will turn to the people on those teams for solutions.

Consider this analogy: A century ago, before department stores, traveling salesmen would roll into town with their wares. If you needed something, you had to get to that wagon because it might not be back for a year. The same goes for optimizing technology systems: On a regular basis, sit down with vendors to review the performance of existing systems and determine if new offerings support your strategy. You might find you’re not using a product to its full capability or that you’re using the wrong product to accomplish your goals.

Another essential function of these quarterly meetings is to address service problems and to review any outages in recent weeks. You can talk about how many help tickets you’ve had and any recurring questions about functionality. And you can look for new solutions for persistent quandaries. For example, an executive might say, “I was at a branch yesterday, and it took a member service rep seven minutes to open an account. The hold-up was in getting members’ signatures on documents and disclosures. What are we doing wrong? How is everyone else doing it?”

This proactive approach is the difference between being strategic in managing vendor relationships versus having a “break-fix” mentality—where if it’s broke, you fix it, but otherwise you leave it alone, without looking for opportunities to upgrade. Progressive CUs view salespeople as a key part of their teams, helping to identify the best uses of technology. In financial services, you are your technology. You cannot be better than the systems that power member service. Treat vendors as the partners they are, so you can get the most out of the technology you’re paying for.

Start Early on Contract Renewal

The golden rule of lining up the next contract is to start no later than 24 months before the end of term to maximize leverage and allow ample time for discussions and final due diligence on the full set of services for the upcoming term. Starting this conversation three-fifths of the way through a contract may seem way too early, but if negotiations break down for any reason, you will still have time to find a new processor and convert systems. The longer you wait, the clearer it is to your current vendor that you don’t have other options.

Sometimes we hear executives say, “Come on, we’re not really looking to switch systems, and our vendor knows that.” But it’s not just about the core system anymore, is it? Your core vendor also wants your internet, mobile banking and debit card processing. If you decide you want to consider other options for one of those systems, you’ll need time to compare products and select one that will integrate with existing systems and provide an optimal member experience—or to circle back around to your current vendor, if necessary.

Other advantages of starting early are the potential to launch new products sooner and to switch to a new, less expensive price plan a year earlier if you complete negotiations by then. Credit unions often stop buying new products as a contract term nears, because they know adding those products at renewal will come at a price discount. By starting and finishing earlier, you may be able to get a jump start on new products and pricing.

Negotiations typically take six to nine months. Early in discussions for contract renewal, plan on a long meeting to get organized and go through the contract and recent invoices line by line. This is the time to ask: What are you using and not using to the full capability? What are you paying for? In one such recent review, for example, we saw a significant charge to a $200 million CU for generating a file to send to a card processor. The credit union was paying $7,000 a month, $100 a file for an average three files a day all month long. That’s not normal. Someone needs to be noticing and asking about those kinds of charges early on, but you at least need to identify these issues at renewal time before committing to paying these fees for the next five years.

In short, take the time to examine the entire vendor relationship. It’s not the job of the vendor’s account reps to spot issues. They are working with too many clients to be able to do that, and besides, there’s no incentive for them to proactively look for ways to reduce costs.

Push for Guarantees

A primary aim during contract renewal discussions is to balance price, functionality and service, including negotiations to provide for better guaranteed levels of service, especially for member-facing technologies. Historically, these agreements have been weak in guarantees for level of service, with no mechanism to hold vendors accountable.

We recommend a four-part framework:

1. defining hours of operations for all of your systems;
2. targeting a percentage of systems availability, the standard for when systems will be up and running during those defined hours;
3. specifying penalties if those targets are missed; and
4. setting out an option to cancel service if those targets are consistently missed.

For example, a CU should be able to switch to a different vendor’s system without paying an early termination fee if the current vendor fails to deliver on contract terms that the system be available 96 percent of defined hours of operation for four or more of the previous 12 months.

Contracts traditionally have specified only the first standard, but financial institutions have become more persistent about adding accountability. Don’t expect vendors to add these terms voluntarily. The contract renewal process is an excellent time to bring up these terms and negotiate their insertion in your agreements. 

Take a Holistic View

CUs need to look at all technology services when negotiating a core contract. Are there any systems you should consider moving to your core vendor—or away? The constant pull between integration and cost should be rebalanced regularly at renewal. CUs range along the continuum, from being cost-driven to going for service excellence despite costs. There is no one right approach.

Antithetical to this holistic view is getting caught in a loop where you’re signing a new contract for the core system one year, for internet banking the next year and for debit processing in three years. This constant cycle of renewals perpetuates a disparate approach to managing systems. By aligning contract renewals in the same time frame, you have more flexibility to assess the relative costs of various systems and evaluate the benefits of integration.

Be the Squeaky Wheel

If every credit union in the country committed to this game plan of more in-depth periodic meetings and thorough contract reviews, would vendors have enough staff to meet the demand? Maybe not, but that doesn’t mean your credit union should follow the crowd. Make sure your vendors are doing their job by sharing their expertise and supplying the grease to oil the squeaky wheels in your systems. This approach takes more time but pays dividends in the form of products installed more promptly, staff trained to use systems to their full capabilities and perhaps even lower pricing.

An added dividend is better vendor relationships—not necessarily hugs and kisses, but a level of trust that everyone will fulfill their end of the bargain. When credit union executives stay involved with contract renewal and implementation, they work more productively with local and national account teams and they have a clearer understanding of how their systems work.

To survive in this industry, your credit union has to grow, and you need technology that will grow with you. If you are stuck with weak vendor contracts, the relationship is lopsided and the abilities of your organization to serve members may be jeopardized.

A natural byproduct of growth is increased responsibility to come to the table with vendors, to see all the available options and to conquer the best possible array of automated systems at the best possible price.

Bob Roth leads contract negotiations and payments for CUES Supplier member and strategic provider for technology and risk management Cornerstone Advisors, Scottsdale, Ariz.