Core renewal game plan
Key objectives banks should consider during negotiations
Although your core vendor relationship is the most critical vendor relationship in your bank, the reality is that your choices are limited in the market. The fintech core startups that are attempting to disrupt the market are not to a point where it is a safe decision for community banks to climb aboard, and the grass is not always greener on the other side of a conversion.
If you are within two years of your contract expiration, it is time to start thinking about when and how to approach your next round of renewal negotiations. Whether you run your core in-house or outsource it, you need a game plan. Let’s take a look at some key objectives your bank should consider in putting together its next renewal game plan.
Length of term and renewal term
We recommend that you start with a five-year term, which is just the right amount of leverage to gain savings but not get eaten alive with termination fees if you sell the bank mid-term. Starting with five years also gives you the flexibility to reduce to three years if the savings are not there or increase the term to seven years to try to gain more savings or incentives.
I do not recommend going past seven years. The market is going to change quite a bit during the next term of your core contract. As for auto-renewal term, shoot for a rolling one-year renewal term. The one-year renewal term allows you to be flexible and negotiate at your own pace after the initial term of your agreement.
Many of the banks in Texas have their contracts all over the place — they have signed agreements for new systems that do not co-term with their core contract. If you find your bank in this position, you have to get organized, and you will need a vendor dashboard.
Your dashboard should outline and identify each of your high-risk vendor relationships. Map your contract(s) to a spreadsheet, describing the service, vendor name, non-auto renewal notification requirements, effective date and end of the term of your agreement(s).
Contact your account rep(s) and confirm you have the right information. Once complete, you have everything you need to understand how to co-term all of the associated vendor agreements. Your core contract should be the anchor point, and it can take years to complete a co-term initiative. Make the commitment, plan ahead and start today.
Managing high-risk vendors is hard, so deal with as few as possible. Take a look at your dashboard and determine if you are interested in consolidating any of the relationships. Consolidating vendors leverages your buying power, can increase systems efficiency and enhance integration.
Be sure to build time into your game plan to allow for due diligence on the systems associated with the consolidation initiative. Renewal negotiations are the perfect time to shrink your “vendor sandbox” and maximize economies of scale.
Take a hard look at your online and mobile systems
In contrast to the vendor consolidation strategy, many banks in Texas opt for third-party online and mobile solutions outside of their core vendor (like Q2banking.com). Online and mobile is the new face of your bank and many banks are choosing newer technology with more nimble partners.
You may want to take this time to invite some third-party solutions to compare to what you are offering today. If you like what you see, make sure you understand all the integration points across your core and item processing systems as well as get a firm grasp on the cost to deconvert from your existing systems (you will need at least two test-cuts and one live-cut for each system in play — maybe more).