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While negotiating a new vendor agreement may be the most visible part of the vendor contract management process, it’s the tedious attention to detail after the ink is dry that ensures the hard-fought cost savings materialize as promised.

This isn’t to say that service providers are looking to pull a fast one. Honest errors can (and do) occur on both ends of the agreement, probably more often than most of us would like to think. Circumstances, both internal and those dictated by market forces, also change over the life of a multi-year contract, leading to results that differ from expectations when the agreement was struck. That’s why ongoing auditing and benchmarking are essential components of any vendor contract management program.

Americans of a certain age recall the not-so-distant days when one had to check the logos (“bugs,” in banking parlance) on the back of their card to confirm it would work at a given ATM machine or retail terminal. For this reason, financial institutions (FIs) join multiple networks to ensure sufficient reach for customers, particularly those who traveled outside their home region. As a result, the multitude of bugs on the back of cards made them look like a NASCAR driver’s coveralls.

Not that they ever were simple, but there has certainly been a notable uptick in the complexity of legal agreements between financial institutions (FIs) and service providers recently.

The driving factors behind this trend are logical­, with the current regulatory environment requiring more aspects of vendor contract relationships to be formalized. Particularly where service providers have access to customer data or support critical operations, enhanced regulatory scrutiny of third-party obligations creates added motivation for both FIs and vendors to limit their exposure. Documenting each party’s responsibilities in detail may help, but in the event of an issue, the hard truth is that customers will look to their FI for resolution, not a back-office provider whose name they don’t recognize.   

Vendor contract management is something that every financial institution (FI) undertakes as part of the cost of doing business. The average number of contracts a bank or credit union may have varies, but it is not unusual to see the number fall in a range of between 100 to 500 contracts on average. 

While every FI is looking for ways to trim costs, many treat vendor contract management as a responsibility that can be simply added to the list of duties held by an employee that probably already has a full plate. The ever-increasing complexity of contracts and the growing number of vendors can make this approach very expensive for an institution. 

In our last blog post, I recounted the industry changes that SRM has witnessed – and in some cases helped drive­­ — since opening our doors 25 years ago. As a follow up, I’d like to highlight a key principle that hasn’t changed since 1992, one that has enabled us to successfully deliver more than $2 billion in savings – and counting – to our financial institution (FI) customers.

In August, SRM marked its 25th year of providing organizations with the experience and information required to optimize their contractual relationships with vendors. Although we’re far more focused on serving our clients in the present and expanding the reach of our expertise in the future than we are on our past accomplishments, it’s gratifying to be reminded of the positive impacts we have delivered to our customers over the time we have been in operation.

While much of the attention paid to regulatory requirements for financial institutions (FIs) tends to focus on Dodd-Frank and mandates issued by the Consumer Financial Protection Bureau, a notable change of late has been the heightened requirement for vendor management oversight and third-party risk assessments. Although the Bank Service Company Act is hardly new, it has recently become the basis for these types of mandates. Powered by different agencies, the message is essentially the same: When it comes to vendors, the buck stops with the FI. In fact, the FDIC requires that it be notified within 30 days of any new service provider relationship being struck.

It’s no secret that our industry is littered with acronyms and jargon Most of the time it is used as a type of helpful shorthand. Even so, an outsider overhearing a conversation incorporating some of this “industry speak” might believe those of us in financial services speak an entirely different language. The truth is sometimes those of us in the industry struggle to translate the latest term or buzz word correctly. 

While the vendor contract negotiation exercise does not need to be an adversarial one, the chances for a happy outcome are increased when both parties feel they are being treated fairly. In fact, that is the goal of most vendors and financial institutions (FIs) we have worked with. After all, vendors have no future without FIs and FIs have not future without vendors. It is in everyone’s best interest to work toward a deal that meets the needs of all the parties around the table.

SRM recently reached out to several dozen credit union clients to better understand their priorities for the next 12 months, including new product rollouts to address areas of greatest interest to members. Their responses cover a wide area, which isn’t surprising given the unique client segments being served. Nonetheless, certain trends clearly emerge.