In my GonzoBanker article, “Why Banks are Not Changing Core System Vendors”, I stated that each year, driven by expiring contracts and/or service or product dissatisfaction, 20% of banks review their core system vendors. Of this 20%, only 3% actually make a change, and 7% renew with their current vendors without the formal process of comparing the incumbent’s product and price to competitors’ products and prices. If my math is correct, more than 600 banks will renew their core system contracts this year with little knowledge of competitive alternatives.
So tell me – if you are not comparing your current vendor’s renewal offer with other vendor’s offerings, how do you know a fair and reasonable offer has been made? How do you know your vendor’s products are still competitive? Will another vendor’s product be a better match for the bank’s needs? Will your current vendor’s products support your strategy now and in the future?
It is likely the board will approve an allocation of 5% of your total, non-interest spending for core systems. But, thanks to attention gained by WorldCom, Enron and others, it is also likely that you will be asked these questions at the next board meeting. How will you respond?
As I see it, you have three ways to make a renewal decision:
1. Take the easy way out.
Based on what I have observed, most banks follow the path of least resistance and sign the renewal contract because they trust their core system vendors. In most cases it works, but it’s hard to sell it to the inquisitive board member.
2. Get competitive bids.
Conducting a formal review should be done regularly, but it may not be warranted every time your contract expires. If your current vendor is not meeting product or service expectations, or if your strategy has changed or will change, conducting a formal review of the bank’s core systems and issuing RFPs to other vendors is worth the time and money. The review needs to start 12 to 18 months before your contract expires to allow time to select a winner and change to a new vendor if it is deemed appropriate.
3. Do your research.
Making an “informed decision” on your renewal requires gathering relevant information about what other banks are paying for similar services and the functional strengths of the incumbent and competitive vendors. To be honest, obtaining this information won’t be easy, but it can be done. Here are some possible resources:
Armed with all of this information, you can make an informed decision, have good documentation of the decision, and be able to respond appropriately to your board members’ questions. Maybe even before they ask.
As an end note, I leave you with this: a renewal with your current vendor should cost no more than your current contract – and include all the newest goodies!