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A letter from the Federal Deposit Insurance Corp. (FDIC) issued Tuesday, April 2, contained a warning that caught the attention of many financial institutions and their vendors. Specifically, the FDIC stated that it had encountered a number of situations where banks were not sufficiently controlling the risk associated with their supplier relationships.

It seems like only yesterday that the payments world was upended by news of Fiserv’s $22 billion acquisition of First Data. Actually, it was two months ago almost to the day.  We weighed in at the time on the deal’s implications for financial institutions, and speculation quickly turned to how Fiserv’s key competitor FIS might react.

In our experience, saying “no changes, here’s my signature” is a classic blunder.  Why? Because contract renewals or extensions with service providers can be deceptively simple. For example, if a bank or credit union exec is satisfied with their current relationship and the rep approaches them with a modest rate reduction, it looks like an “easy win.” The department head saves on the run rate and avoids a batch of administrative and analysis headaches, while still arriving at the desired endgame.

It’s fascinating how quickly economic tides can turn. For the past decade, banks and credit unions have been focused on lending—first in shoring up the quality of their portfolios, then in attracting new customers to prudently expand loan activity. With rates now on the rise and net interest margins widening, however, attention has shifted to attracting and retaining deposits.

At the start of each year, SRM publishes a list of the trends that are most likely to impact the financial services industry over the coming 12 months.  The trends we described are based on qualitative and quantitative research as well as from one-on-one conversations we had with bankers and thought leaders in the industry.

As more financial institutions get serious about modernizing their core systems and revisiting opportunities surrounding contactless cards, our firm has noticed an uptick in the volume of requests for proposals (RFPs) issued as part of the vendor management process. SRM sees this as a positive development. In fact, we generally recommend that financial institutions regularly subject all their supplier relationships to an RFP process. 

Numeric milestones can be great opportunities to celebrate achievement and build team morale. Asset growth is usually a sign of health and prosperity, and attaining thresholds like $1 billion or $5 billion in assets are certainly momentous occasions for many financial institutions. Reaching $10 billion, however, can bring mixed blessings.

As of January 2020, Microsoft will no longer support Windows 7. This event is creating some interesting conversations at financial institutions concerning their ATM strategy. Fourteen months may sound like the distant future, but time is already tight if banks and credit unions wish to avoid a costly, tactical reaction to the sunsetting of Windows 7, as opposed to a more strategic choice with upsides for account holders.

In years past, soliciting digital proposals was a fairly straightforward exercise of reaching out to digital banking vendors and bill payment solution providers. However, things have gotten significantly more complex for financial institutions as touchpoints like mobile must be considered, not to mention P2P, self-service card controls, and advanced cash management options for business customers. Expectations for seamless omnichannel capabilities have increased as well.

Most bank and credit union leaders are familiar with ways to optimize their credit card programs, yet surprisingly few of them apply any transferrable techniques to their debit portfolios. Debit interchange is the first or second largest component of non-interest income for most financial institutions, so even nominal improvements can drive big benefits. Although credit card purchases generate more interchange on a per item basis, the reality for many smaller institutions is that they have more tools at their disposal to influence debit use.

The same PAU metrics (Penetration, Activation, Utilization) familiar to credit card program managers can be applied to debit. Let’s look at how these concepts can improve P&L: