Loyal readers, life of late has been dominated by clients’ core system selection processes. Oh, I still dabble in the tech planning. I dip my toe in the strategy practice when my cufflinks are polished and I can scam a key to the ivory tower. But a good 60% of my time has been spent in the trenches – crunching financial proposals, on the phone with my adoring vendor fan base, curled up on my couch reading RFPs with a frothy cup of Swiss Vienna coffee, mmmmm, and in our customers’ palatial training facilities eating crullers while observing product demonstrations. Ain’t it glamorous?
This week I’ll let you in on some of the trends we’re witnessing in the core system world. In contrast to my usual mind-blowing insight and dazzling takes, this’ll be a simple regurgitation of the issues I’m seeing with our core selection clients.
Parenthetically, let me gleefully report that the days of the PowerPoint product demonstration are as over as Rosie O’Donnell’s crush on Tom Cruise. With very few exceptions, banks and credit unions are demanding live presentations, and vendors are delivering. The PowerPoints are by and large being used only by the sales manager to introduce the company, illustrate the many, many states in which the vendor has an installation, and show off pictures of the smiling employee base back at the home office. (By the way, where ARE all of the modelesque lovelies that are shown in the vendor office photos? Nothing against the vendors’ hiring practices, but I just never see the Pam-Anderson-in-a-Business-Suit type when I roam the cubicles at Fiserv.)
Here’s what I’m hearing from our clients:
INTEGRATION IS EVERYTHING
Let me start with a true conversation that took place a couple of weeks ago in front of about 10 financial institution managers on day one, hour one of a vendor demo.
Consultant: My client is concerned about integrating the branch system you have proposed to them. Specifically, they are leery of a system that you have not yet implemented – live and in-production – at any of your clients.
Harvey, the Sales Rep: Hmmm… I am a little surprised to hear you ask that, and I’m absolutely surprised that you haven’t told XYZ Bank/CU that we do have several banks now running that system.
Consultant: Oh, sorry, I hadn’t heard that. At how many clients is it now running live?
Harvey: About 12, right Jenny?
Jenny, the Vendor Screen Jockey: Absolutely! Twelve, but they’re still in beta testing.
Consultant: How long have they been in beta?
Jenny: They are scheduled to start beta testing next month, but they’ll probably start as soon as next week.
Bank/CU COO: So, in 45 seconds we’ve gone from 12 banks now running the system to 12 banks that may start beta testing next month?
Harvey: Absolutely! So…let’s take a look at the GL……
The single biggest issue in our core selection processes is integration. And second place is a distant second. Many mid-sized banks and large credit unions are becoming weary of the responsibility of integrating the many disparate systems that they have purchased. The vendor community is struggling to keep up, and in large part they are losing the battle. There are simply too many systems and vendors to work with to do a top notch job at integrating them all. Add a vested interest in tightly integrating their own or preferred providers’ products versus unrelated products, and overall integration efforts get 85% done with a 60% satisfaction rate.
On the other hand, some banks are contributing to their own problems by going best of breed when it makes little to no sense to do so. Banks that are larger than $10 billion have no choice but to go best of breed. Niched banks in the $5 billion range have legitimate best of breed demands for particular business units. But it’s all too common to see banks with no particular niche or volumes too small to justify a best of breed environment acquiesce to a vocal line of business. This contributes to – and in some cases causes – the expensive and distracting complexity problems that so many banks and credit unions are now trying to fix.
The integration issue has led to banks and credit unions of ever-increasing size opting to choose proven suite providers versus the integrators. It’s an exercise in headache reduction that is justifiable. While we used to see just about all banks over $3 billion opting for some kind of best of breed solution, we’re now seeing $5 billion+ banks choose suite providers for peace of mind. Our clients of increasing size are looking hard to simplify their technical environment, particularly our clients that have been down the best of breed road and suffered.
That said, our clients that are hell-bent on being integrators are getting wiser in their selections. Most of the vendors now offer some form of technically open architecture. (see Sr. Faulkner’s GonzoBanker article, “Easier Integration a Priority for Vendors”.
But we see technical design as only one side of the Openness Argument. The other half is willingness to integrate at a reasonable price. Now, our best of breed clients are concentrating more on the “willingness” side of the openness equation than they are the “technical design” side. We are urging our clients to go deeper in their due diligence when talking about openness and talk to prospective vendors’ existing clients about history, willingness, and price to integrate. We’re seeing some clients willing to take a half-step down in technical design in favor of vendors who are winning the willingness argument.
On the functionality front, every bank, S&L, mutual thrift, credit union, finance company, barter house and loan shark in America is chasing the small business niche. The traditional commercial bank vendors are well ahead of the game and working on integration and beefing up commercial ancillary features like account analysis, (image) lockbox, positive pay, etc. The traditional thrifts are developing commercial functionality or partnering with commercial providers, but they’re getting a righteously dubious reaction from their existing clients and not much notice at all from prospects wanting to go big-time commercial.
Even the credit unions talk about getting into the small business game, and the traditional CU vendors are scurrying to develop, partner or smoke-and-mirror their way into commercial functionality. This functionality shortfall has paved the way for a good deal of momentum among the traditional banking vendors that are actively marketing to the large CU market – Aurum and OSI to name two. CUs will pay a price premium for the traditional banking vendors’ products, but these banking products are the only real alternatives for CUs that are truly serious about garnering commercial functionality NOW. The CU vendors will catch up, but it’s a matter of years, not months, before they do so.
With a slumping economy and a virtual revolving door among the Internet banking vendors, banks and credit unions are more keenly aware than ever of their prospective core vendors’ financial condition. This can cause some problems with the privately held vendors that do not have SEC filing requirements if they do not, early in the process, open their kimono for prospects. Vendors that too closely protect their financials, even if they have legitimate reasons for doing so and/or if their financials are in reality just fine, start off with a looming question mark.
The publicly held vendors obviously do not have that disclosure problem, but they are not responding to an increasing challenge from our clients to reveal product-level or divisional financial performance. The first vendor to reveal financial performance for the product/division that it is selling will score huge credibility points. We’re not holding our breath on this one.
Though price is 50% more heavily weighted now than it was just four years ago, price accounts for just 15% – 20% of our clients’ system selection decisions at the onset of the process. But in truth, price is easily 90% of the decision once the process has been whittled down to two legitimate contenders. Price’s increasing importance is a chief reason why the incumbent vendor is now winning 60% of all system selection processes – more than twice the rate of just a few years ago.
Particularly affected by this trend are the vendors that make their data warehouse products mandatory for new clients. I like the mandatory strategy from a longer term perspective of building a user base, but these systems can sometimes add 15% – 20% to the price of a contract over five years. Unwillingness to pare off these warehouses from the core product is hurting vendors selling to increasingly price sensitive banks and credit unions.
Sad news, GonzoMongers. Our Phoenix pro football team suffered a devastating home loss to Houston last weekend – a humiliating 39-nil shutout. No, not the Cardinals. I’m talking the Phoenix KnightHawks of the Women’s Professional Football League. With counseling I’ll move past the loss. The true tear-jerker is that I was actually in attendance at the game. And I paid 10 clams to see it. Voluntarily. Is this the rock bottom that I have always been warned of?