SRM Blog - The Bottom Line

Banks and Credit Unions Must Understand their Vendor Contracts 8-10 Years Out

Written by Ben Mrva | Mar 28, 2024 4:17:00 PM


Any bank or credit union executive who’s taken part in critical vendor contract reviews, RFPs, negotiations, and renewals knows that the process can be cumbersome at best.

Contracts, by nature, are challenging to get right, and maintaining your fair share of leverage in the relationship is difficult. Arcane terms and clauses are added by attorneys and purchasing teams outside the view of those managing the ongoing relationship. People change roles – and companies – over the term of a multi-year contract, too. This leads to a typical scenario where managers responsible for a platform, product, or service procured from an outside party often have no connection to the original agreement. Multiply this complexity across dozens of vendor relationships – each of which may have a handful of amendments – and the challenge intensifies.

One foundational building block to a successful vendor contract strategy remains as important as ever – and unfortunately, as elusive. Banks and credit unions need a clear long-term view of their entire vendor contract footprint, including expiration dates and key negotiation windows, as well as an understanding of critical co- and inter-dependencies across vendors and contract types.

Taking the Long View

A five-year contract can seem like an eternity at the signature date. Not only does that time pass in a flash, but by the final year it’s too late to take meaningful action. Most FI vendor contracts include an auto-renewal clause, requiring advance notice of a year or more of intent to terminate. Even if a bank or credit union plans to continue with the provider, this loss of flexibility compromises any leverage on pricing or other desired adjustments. For those considering a change in providers, one year is often insufficient lead time for an RFP process and implementation – creating an awkward “lame duck” period.

For this reason, SRM recommends the development of a visible time horizon to 8-to-10 years out when reviewing your vendor contract commitments. Given the number of moving parts and the increasing reliance on third-party point solutions to maintain a best-in-breed tech stack and customer experience, all financial institutions should onboard this level of planning to allocate resources to address constantly evolving market demands while knowing their pricing is bespoke and consistent with industry benchmarks.

Alignment is Everything

An increasing number of solutions and providers also creates a more complex web of co- and inter-dependencies. Rarely can an operational platform be swapped out without collateral impact on the rest of the stack. There is an apparent domino effect, and while APIs and middleware can smooth this process, unforeseen interactions are still known to crop up. The input of a partner with deep expertise across the entire landscape of market solutions, pricing and benchmarking, negotiations, and technology integration is a critical investment to avoid surprises. A knowledgeable partner can also help identify attractive product options that may have emerged since the last contract cycle, all while keeping a keen eye on achieving maximum cost savings on every contract.

The Bottom Line

SRM recently launched our ContractMAPSM service as the next evolution in managing and optimizing vendor contracts for banks and credit unions up to 10 years out. Our work with more than 1,000 financial institutions and our 30+ years of collected vendor pricing and incentive data allow us to create a seamless service that efficiently determines how our clients should and can prioritize competing initiatives and deploy resources in the most meaningful way. Existing clients are already adopting this game-changing service in the first quarter of 2024, and we welcome the opportunity to share more details with you. You can contact me directly at bmrva@srmcorp.com to start a conversation.