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Vendor contract amendments can seem pretty straight forward – a few paragraphs over a couple of pages that offers some modifications to the master contract that probably represent some improvement to current terms and conditions. The amendment may be perfectly innocuous or it may suggest some material changes. Either way, it is important not to treat this as a "no brainer."

In recent posts, we have offered words of caution concerning the perils of free money when considering a proposal, contract or addendum from a vendor. As part of our work, we are continuously monitoring the market to remain current on the trends that impact our clients. Lately, we have seen a real-time case study playing out in the market that reinforces why every proposed vendor contract amendment should be reviewed carefully.

SRM was honored to be the signature sponsor at this year’s National Association of Federally Insured Credit Unions’ (NAFCU) 50^th annual conference. Given that more than a quarter of the roughly 250 credit unions in attendance are SRM clients, this was clearly an event our company wanted to help support. For anyone who missed the details, NAFCU hosted the four-day annual gathering in Honolulu, Hawaii drawing more than a thousand leaders from credit unions and service providers.

In less than a decade, the smartphone has become essential to our daily lives. Perhaps ironically, its primary function of allowing us to make a call at almost any time and anywhere has been superseded by a dizzying array of other activities it facilitates, including banking. The convenience and accessibility with the smartphone and subsequent digital devices, e.g., tablet, wearables, etc., has changed things radically for financial institutions (FIs). Today, consumers determine how, when and where they will access financial services. To say this change has complicated things for banks and credit unions is an understatement.

A study conducted by the International Association of Contract and Commercial Management (IACCM) found that poor vendor contract processes cost companies as much as nine percent of their total revenues. Although this was a cross-industry study, there is little reason to believe the financial services sector fares any better or that the picture has improved since 2015. With so much money being left on the table and the drumbeat for cost efficiencies sounding as loudly as ever, financial institutions are seeking new ways to make this area easier to manage more effectively.

Engaging with a sourcing partner can be an effective means to improve your institution’s bottom line and protect your operations from the distractions that can be created when management must handle such duties themselves. However, it is important to note that not all sourcing management firms are created equal. As with all partners you select, some of these firms will be a better fit with your culture and objectives than others. We suggest asking the following questions before selecting a strategic sourcing partner.

For nearly all banks and credit unions, debit interchange ranks alongside overdraft fees as one of the two leading sources of non-interest income, yet few financial institutions (FIs) have actually analyzed the underlying dynamics of their interchange programs.

Since debit interchange revenue has been on a solid, upward trend for decades – with one notable exception – it is possible that some banks and credit unions have decided to leave well enough alone and simply enjoy the ride. In the meantime, however, soaring consumer volumes have masked some less favorable changes in rates and product mix beneath the surface, and FIs that fail to actively manage their debit portfolios are likely leaving money on the table.

Acquisition continues to be a preferred strategy for financial institutions (FIs) seeking to gain economies of scale while also expanding service offerings and reach. Choosing the correct merger candidate usually centers on factors like strategic fit, market footprint and business integration. There is another less exciting but important factor to consider during these talks: vendor contracts which can cause costly, tactical headaches if not identified early in the process.  However, if the contracts are assessed early enough in the acquisition process, an institution can reap benefits greater than expected through due diligence process.

All banks and credit unions rely on third party vendors for products and services to support the backbone of their operations. These relationships are typically governed by long-term agreements and when those vendor contracts are up for renewal, the common reaction is to sign an extension with the incumbent. Assuming service levels have been acceptable, switching costs – especially for anything connecting with a financial institution’s core system – tend to be so onerous that there’s rarely any appetite for the hassle and resource diversion that accompanies a de-conversion.

Financial institutions (FIs) have become more reliant on their vendors – particularly in the payments and fintech areas, where technology and complexity continually advance and customers demand newer and more cutting edge solutions. At smaller institutions where professionals are already stretched thin across a wide array of duties, it’s unrealistic to expect anyone on staff to keep track of all the latest developments in these rapidly evolving tech fields.