No haiku, handguns or hijinks today, GonzoMongers. No, sir. We have weighty issues staring us down – some meat and potatoes for our cotton candy world…
Previously, we pointed out how brutal the core data processing market has become. Just three or four years ago, incumbent vendors were winning a paltry 25% of RFP deals in the core market. Now, incumbents win a full 60% of the time, mainly because they are buying deals. Better to save an existing client and forfeit some margin than to spend the time and energy it takes to nurture a prospect. Right?
But what about the remaining 40% of banks that are actually switching vendors at the end of their selection processes? How are vendors unseating bargain basement-priced incumbents?
FORK IN THE ROAD – Banks that are either considering or are in the middle of implementing a true, fundamental change in strategic direction are more likely to jump ship. For example, a traditional thrift that is transforming itself into a commercial bank (ever hear that one?) is more prone to switch vendors in favor of a proven commercial banking product. If the strategic change is deep enough, and management at the highest levels truly believes in the new direction, a price shot by the incumbent can be beaten.
THAT’S A WRAP – You didn’t buy your car because of its sturdy chassis, did you? Did The Fonz ride a Triumph because of the dependable drive train? Hell no! Let’s face it, other than in the example above, core functionality does not win many deals anymore. It’s the vendor’s ancillary system story that tends to secure the bank’s business. This breaks into two distinct categories:
1. Banks under $5 billion in assets are increasingly opting for vendors that can offer an integrated suite of products. Y2K started the flight from complexity, and, in many institutions, the charge to simplicity hasn’t stopped. With banks growing weary of managing the chaos associated with a best-of-breed environment, the vendor that can paint the picture of a proven, integrated product suite can succeed in a price war. This is exactly why the Jack Henry Silverlake product (far from the least expensive product on the market but very well integrated) easily has strongest momentum in new sales in the $1 billion – $3 billion market.
2. Banks over $5 billion have a more complex systems environment, and that is not going to change, Bubba. At least a couple of the larger banks’ lines of business are always going to insist that they need a high end, third party system in order to even have a prayer of meeting their strategic goals. With powerful business units stomping their feet for top shelf products, the complexity issue is here to stay. In this market, vendors will win deals if they can demonstrate a proven ability to manage disparate core systems, integrate myriad ancillary systems and, perhaps most importantly, gracefully solve the twisted data conundrum inevitably found in a best-of-breed environment. Even when the incumbent is much cheaper.
THE GRASS IS ALWAYS GREENER – Despite a motivated base of end-users and talented IT professionals, senior bank managers still become aggravated with their technology environment. Each year, countless banks decide to switch from in-house to service bureau delivery, or vice versa. In-house bank CEOs feel that as soon as they convert to outsourced solutions they will be able to better control projects and costs and achieve the all-elusive Technology Payoff. CEOs of outsourced banks will tell you that their skeletal margins and disappointing stockholder returns will skyrocket once they have the flexibility afforded by an in-house system. While in reality there is absolutely no correlation between product delivery and financial performance, the strong perception that one method is better or more efficient than the other is influential in the decision making process.
@$%#&(!* – Though I have never once been to a bank that has been thrilled with vendor responsiveness, system documentation, product integration or training, these issues alone are typically not weighty enough to make a bank endure the grief and uncertainty of a core system conversion. But in extreme cases, banks will leave a vendor if senior most management loses confidence in the vendor’s ability or willingness to meet the bank’s needs. Clearly, though, it is a high level of frustration from the bank’s CEO, not line of business managers or even the IT director, that is strong enough to unseat the incumbent vendor.
Certainly this group of frustrated bankers will overlap with banks going through strategic changes or banks growing into best-of-breed environments. But even slow moving, status quo-clinging CEOs can tire enough of tabled functionality requests, unreturned phone calls, ridiculously priced customization requests, etc., to decide to jump ship.
That’s how most of the new business is being won in the core market today. How could a core vendor overcome an incumbent’s price shot to win your business?
“Usually when people are sad, they don’t do anything. They just cry over their condition. But when they get angry, they bring about a change. “
– Malcolm X