Core renewal game plan

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.

Co-term agreements

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.

Vendor consolidation

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 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).

Online and mobile is the new face of your bank and many banks are choosing newer technology with more nimble partners.

Renegotiate price

Your game plan should include your expectations as they relate to the overall savings you wish to achieve. It is nearly impossible to benchmark what you pay compared to your peers and we see many banks get frustrated when they try.

A better strategy is to look at your overall monthly spend with each vendor and determine which areas are “high growth” systems. Pay particular attention to the systems you have procured over the last term of your agreement.

Areas of focus should include online systems, mobile banking, fraud/alert systems, remote deposit capture and payment systems. Also, are there systems you no longer need and any costly third-party integrations? Integration can be expensive, and you should negotiate these fees down or try to consolidate relationships where possible.

Add new products and services

A solid game plan includes the addition of new services. Bundle new services and negotiate reductions in their one-time and monthly fees. The more services you add, the more value you build with your vendor and your account representative.

Get pricing on a wide variety of services that might interest you but only commit to what you can install within the first 24 months of your new agreement. Keep the pricing for the services you do not choose and use it as a benchmark when you are ready to tackle that project later. Pay close attention to the wording in the contract that speaks to clawing back incentive dollars in the event of termination and the timeline you are under before billing occurs (whether the system is installed or not).

Negotiate key terms and conditions

There are many hidden landmines in vendor contracts. If your agreement is silent on any significant term or condition listed below, tie it down. Your contracts should line up to your organization’s strategic goals.

Dust off your agreement and find each of the items listed below or get help if you need it. Ask your account rep if the renewal will be on “new paper” or as an “amendment” to the existing agreement. New paper means you are starting from scratch, so ask for boilerplate agreements as soon as possible.

Amendments usually change some language in the existing agreement and spell out new pricing. In either situation, submit your revisions early in the process while you still have leverage. Be specific with your requests and pay special attention to termination fees.

Understand the future with your core vendor

Take the time to really dig deep with your core partner and understand what is on the horizon as it relates to new products, key initiatives and hot topics in the industry:

  • Open banking (APIs)
  • Cloud computing (private, public, hybrid)
  • Development initiatives and principles (Agile is a big buzzword right now.)
  • Quantum computing

As much heat as the “Big Three” are getting in the media right now, they really can be a great ally if you manage the relationship effectively. Take this time to get to know upper management and understand the organizational chart. Make sure your account manager knows the importance of being responsive to and understanding of your bank.

Establishing routine call patterns with your account management team (monthly conference calls, quarterly in-person visits, annual visits that include management on both sides) is recommended. Use the renewal process as a means to level-set the relationship and make it better.

Putting it all together

Your renewal game plan is sitting right in front of you. The market and technology are changing at a record pace. The good news is, you do not have to start from scratch to remain nimble and current. All of the data you need to make wise and informed decisions is at your fingertips. Start early, get organized, have a plan and engage your vendors with enough time to cover all the bases. After all, you only get to do this once every five years or so.

David W. Saylor is president and founder of Genesys Technology Group, LLC.

Key terms and conditions for mission critical systems

  • Term/renewal term/notifications
  • Termination fees
    • Liquidated damages
    • Conversion of legacy data
    • Deconversion fees (include three file cuts)
    • Holdover premium
  • Federal/state laws
  • Changes to services
  • Transition services
  • Problem reporting/resolution
  • Training
  • Fee increases
  • Payment/billing errors
  • Limitation of liability
  • Termination for breach
  • Governing law/arbitration
  • Credits/incentives
  • Audits
  • Merger/acquisition
  • Travel expenses/standard hourly rates
  • Commencement
  • Exclusivity
  • Client obligations
  • Sub-contracting
  • Service level agreements
  • Gramm-Leach-Bliley Act compliance