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According to recent headlines, the United States is in the midst of one of the strongest economic booms in recent memory. On the other hand, don’t expect that prosperity to translate to a wealth of flexibility during budget season. After all, has it ever? While the austerity of the years immediately following the financial crisis may not have reached everyone, there never seem to be enough new dollars to avoid hard choices among priority initiatives. And with market salaries on an upward trend, any additional funding will likely be quickly absorbed.

Every institution wants its various processes and practices to be best of breed. Most, at minimum, want to know how they stack up against the best in their business. Typically, peer groups are established for this purpose, usually based on a bank or credit union’s asset base.

However, there are countless reasons why the performance of two financial institutions of identical size may not warrant side-by-side comparison. For example, one institution using a service bureau for core processing will have a lower efficiency ratio than one of its peers that does not use one. The retail/corporate mix within loan portfolios will also give rise to operational differences.

The most recent installment of our ongoing series of SRM Academy papers focused on the digital transformation at financial institutions. The latest installment explores the potential of biometrics – voice recognition and authentication in particular –to improve digital banking while also leveling the competitive field for regional and community institutions.

Fall has arrived and the holidays will be here before we know it. What this means for many of us is that Q3 is closing and budget priorities for 2019 are being finalized. In the spirit of this special time of year, SRM wants to revisit a few vendor contract management reminders that may be useful to you at this time.

These tips are not only useful during budget season when the hunt for savings that can be used to fund other initiatives is vital. They can also help you add value to your institution throughout the year. In fact, vendor performance management should be a year-round discipline. We know now that finding ways to reduce costs or enhance revenues can be particularly important.

Most financial institutions are moving into the heart of budget season, which offers a great opportunity to take a step back and assess business priorities. In many cases, however, budget planning also carries a heavy dose of frustration. As I came to call it over my years in the industry, Doctor No takes up residence in the office – putting the kibosh on a variety of worthwhile and aspirational projects.

Department heads realize that no budget will have room to fund every project, and good managers find ways to free up enough dollars to pursue a select group of long-term initiatives alongside the “keep the lights on” necessities. Nonetheless, by the time the process is complete, it inevitably seems like the belt-tightening has squeezed out too many of the promising ideas.    

Before joining SRM, I worked almost exclusively with the top 50 U.S. banks, helping them with strategic sourcing decisions and vendor contract negotiations. Since coming to work for SRM though, I’ve been exposed to a broader array of sizes and types of institutions, spanning both the 150 financial institutions exceeding $10 billion in assets as well as the 12,000 banks and credit unions with assets below $10 billion. Given this perspective, it is not difficult to notice the many differences between the national and regional institutions versus those who operate in the community market. In the realm of vendor management, these differences manifest in three distinct ways.  

The one constant across my nearly 20 years in the payments business is that things have never stood still long enough to get boring. Starting with the days when consumers’ only payment options were cash, checks and house credit (okay, that was a lot more than 20 years ago), merchants and financial services innovators have continued to add new payments alternatives at a dizzying pace. And just as importantly, they haven’t retired any.

The Fed recently issued a report detailing average debit card interchange fees by payment card network. I know, it’s like Christmas in August, but try to contain your excitement. Joking aside, payment geeks like me find endless insights pouring over the details and footnotes of this annual publication. We regularly share these reports with our clients, and suggest they keep the information at their fingertips.

It seems like basic blocking and tackling on the surface, but you’d probably be surprised with how often it slips through the cracks. Most financial institution vendor contracts include a requirement that the client file a “notice of non-renewal,” otherwise the agreement will automatically renew at “expiration” on pre-defined terms. A multi-million dollar organization should have no trouble tracking such administrative to-dos as vendor contract management, right?

If you work at a bank or credit union and are the worrying type, there is no shortage of things to occupy your mind. However, it’s not what you know that should make you worry. Most often it is what we don’t know that creates more challenges.

For example, there’s a decent chance that for most financial institutions (FIs), vendor contracts are not the source of concern they should be, especially if the supplier is a company you feel does a good job for your institution. Given the numerous issues that must be addressed in the course of business at a bank or credit union, the axiom “if it isn’t broken, don’t fix it” often serves as a default. This may make it easy to rationalize letting contracts automatically renew with incumbents who are providing satisfactory levels of service.