Welcome!

News Feed Item

Core Processing & IT Vendors Outmaneuver Community Financial Institutions in Negotiating Contract Pricing and Terms, New Report Finds

Business Performance Innovation Network Says Latest Data Shows Banks and Credit Unions Overpaying Average of $1.2 Million Over Fair Market During Life of a Contract

SAN JOSE, CA -- (Marketwired) -- 07/21/14 -- Continued consolidation within the core processing and IT services industry has made it increasingly difficult for community banks and credit unions to get a fair shake from vendors, according to a new report issued today by the Business Performance Innovation Network. However, community financial institutions that renegotiate contracts based on national fair market pricing stand to save an average of $1.2 million over a five-year contract. To download the report, please visit: http://www.bpinetwork.org/the-core-way-forward-report

The new report, entitled "The Core Way Forward," also finds that poorly negotiated contracts for outsourced core processing and IT services significantly reduce shareholder value in mergers and acquisitions and, in some cases, sabotage deals altogether. The impact on mergers and acquisitions is becoming increasingly notable, as M&A valuations remain tight and consolidation pressures intensify.

The study findings are based, in part, on national data on contract pricing, terms and conditions supplied by Paladin fs. Paladin is the only research and consulting firm tracking pricing data for core and IT services for community financial institutions. In addition, the study incorporates a national survey of community financial executives conducted in the first half of 2014, as well as interviews with leading executives and advisors.

The study finds that on average, community banks and credit unions between $100 Million and $5 Billion in asset size are paying between 10.2 and 41.4 percent above fair market for these services, or $1.2 million over a five-year contract. The amount is equivalent to the interest income generated by making $6.4 million in new loans based on the average net interest margin of 3.7 percent earned by community banks the end of 2013.

"Community bank and credit union executives continue to grapple with the rising cost of compliance and technology services in a period of low interest margins and a less-than-stellar economic growth," said Dave Murray, Director of Thought Leadership for the BPI Network. "As a result, expense control is a critical lever for building shareholder value and sustainable performance. For most institutions, restructuring vendor contracts is a missed opportunity for positive action."

The analysis demonstrates that institutions in every part of the country can significantly reduce the cost of vendor services by negotiating based on fair market pricing. On average, however, banks and credit unions tend to overpay most in western and southern states.

Survey Findings
A survey of community institution executives shows they are more positive about the business environment, but only modestly so. Just 8 percent of respondents said business conditions have "significantly improved". Another 52 percent say conditions have "improved somewhat," while 40 percent say they have either stayed the same or deteriorated further.

Respondents identified their top four priorities for the coming 12 months as: growing loan portfolios, improving operating efficiency, managing new regulatory requirements, and adding new technologies and banking processes.

Some 69 percent of executives expect a significant increase in mergers and acquisitions over the next two years. Some 36 percent say they expect to participate in industry consolidation as a buyer. Another 21 percent say they will participate as either a buyer or seller, depending on the opportunity, while only 4 percent identify themselves as probable sellers.

The survey also finds significant concern with the vendor contracts. Only 30 percent of respondents say they believe they are paying fair market for their core processing and IT services, while 37 percent believe they are overpaying, and another 33 percent feel they lack sufficient information to know whether or not they pay too much.

Nevertheless, executives say they will continue to add new services. Some 77 percent expect to do so in the next three years. The top four areas for added spending are Internet banking, mobile banking, compliance and fraud detection.

Getting a Better Deal

With 85 percent of the core services market now controlled by three companies (FIS, Fiserv and Jack Henry & Associates), negotiating a favorable contract can be challenging. Most institutions fail to realize they can renegotiate with existing vendors well over a year before their current contracts expire. In fact, study analysis showed that the "sweet spot" for renegotiating is between 24 and 18 months before expiration.

Aaron Silva, president of Paladin fs, believes banks and credit unions are challenged in negotiating fairer pricing for two key reasons: 1) They have too little experience negotiating core processing and IT vendor contracts, and 2) They lack sufficient data on pricing and contract terms nationwide.

"A community bank executive might negotiate a vendor contract only a few times in his or her career, while the negotiator on the other side of table does it for a living. That's an unfair advantage," Silva says. "In addition, most institutions are flying blind. They have no idea what other institutions of similar size and transactional volume pay for the same services. That information is critical, especially when only a few vendors now control the entire market and competitive bidding processes have become ineffective."

The report also finds that institutions need to understand and negotiate terms and conditions that will impact service costs and obligations as business operations change -- particularly in a merger or acquisition. The reports sites numerous examples of mergers and acquisitions that were negatively impacted by hidden and poorly understood stipulations within the contracts of acquiring and selling institutions. It also outlines contract key areas that impact M&A value, including cost of services, cost of change, integration fees, tiered pricing for growth and survival incentives.

About the BPI Network
The Business Performance Innovation (BPI) Network is a peer-driven thought leadership and professional networking organization dedicated to advancing the emerging role of innovation within today's enterprise. The BPI Network brings together global executives who are champions of change within their organizations through ongoing research, authoritative content and peer-to-peer conversations. The group advocates for Innovation as a fundamental discipline and function within 21st Century organizations and seek to demonstrate where and how new inventive solutions and approaches can advance business value, gratify customers, ensure sustainability and create competitive advantage for companies worldwide. More information is available at: www.BPINetwork.org.

About Paladin fs
Founded in 2007, Paladin fs is the leader in bringing greater cost efficiency to the core services and IT investments of community financial institutions. The company improves the profitability and shareholder value of community banks and credit unions by restructuring outsourced core services and IT contracts. Paladin takes a unique data-driven approach to contract negotiations. It's the only firm with a continually evolving database, or Blue Book, on the outsourcing costs for all national and regional vendors, including service agreements with institutions ranging from de novo banks to those with assets of up to $5 billion. Paladin provides free assessments of the potential savings that can be achieved by these institutions through contract restructuring. For more information, visit www.Paladin-fs.com or call 877-746-4859.

MEDIA CONTACT:
Kevin Sugarman
Email Contact
GlobalFluency
408.677.5311

More Stories By Marketwired .

Copyright © 2009 Marketwired. All rights reserved. All the news releases provided by Marketwired are copyrighted. Any forms of copying other than an individual user's personal reference without express written permission is prohibited. Further distribution of these materials is strictly forbidden, including but not limited to, posting, emailing, faxing, archiving in a public database, redistributing via a computer network or in a printed form.

Latest Stories
First generation hyperconverged solutions have taken the data center by storm, rapidly proliferating in pockets everywhere to provide further consolidation of floor space and workloads. These first generation solutions are not without challenges, however. In his session at 21st Cloud Expo, Wes Talbert, a Principal Architect and results-driven enterprise sales leader at NetApp, will discuss how the HCI solution of tomorrow will integrate with the public cloud to deliver a quality hybrid cloud e...
Is advanced scheduling in Kubernetes achievable? Yes, however, how do you properly accommodate every real-life scenario that a Kubernetes user might encounter? How do you leverage advanced scheduling techniques to shape and describe each scenario in easy-to-use rules and configurations? In his session at @DevOpsSummit at 21st Cloud Expo, Oleg Chunikhin, CTO at Kublr, will answer these questions and demonstrate techniques for implementing advanced scheduling. For example, using spot instances ...
SYS-CON Events announced today that Yuasa System will exhibit at the Japan External Trade Organization (JETRO) Pavilion at SYS-CON's 21st International Cloud Expo®, which will take place on Oct 31 – Nov 2, 2017, at the Santa Clara Convention Center in Santa Clara, CA. Yuasa System is introducing a multi-purpose endurance testing system for flexible displays, OLED devices, flexible substrates, flat cables, and films in smartphones, wearables, automobiles, and healthcare.
SYS-CON Events announced today that Taica will exhibit at the Japan External Trade Organization (JETRO) Pavilion at SYS-CON's 21st International Cloud Expo®, which will take place on Oct 31 – Nov 2, 2017, at the Santa Clara Convention Center in Santa Clara, CA. Taica manufacturers Alpha-GEL brand silicone components and materials, which maintain outstanding performance over a wide temperature range -40C to +200C. For more information, visit http://www.taica.co.jp/english/.
As hybrid cloud becomes the de-facto standard mode of operation for most enterprises, new challenges arise on how to efficiently and economically share data across environments. In his session at 21st Cloud Expo, Dr. Allon Cohen, VP of Product at Elastifile, will explore new techniques and best practices that help enterprise IT benefit from the advantages of hybrid cloud environments by enabling data availability for both legacy enterprise and cloud-native mission critical applications. By rev...
When it comes to cloud computing, the ability to turn massive amounts of compute cores on and off on demand sounds attractive to IT staff, who need to manage peaks and valleys in user activity. With cloud bursting, the majority of the data can stay on premises while tapping into compute from public cloud providers, reducing risk and minimizing need to move large files. In his session at 18th Cloud Expo, Scott Jeschonek, Director of Product Management at Avere Systems, discussed the IT and busine...
Organizations do not need a Big Data strategy; they need a business strategy that incorporates Big Data. Most organizations lack a road map for using Big Data to optimize key business processes, deliver a differentiated customer experience, or uncover new business opportunities. They do not understand what’s possible with respect to integrating Big Data into the business model.
Companies are harnessing data in ways we once associated with science fiction. Analysts have access to a plethora of visualization and reporting tools, but considering the vast amount of data businesses collect and limitations of CPUs, end users are forced to design their structures and systems with limitations. Until now. As the cloud toolkit to analyze data has evolved, GPUs have stepped in to massively parallel SQL, visualization and machine learning.
Recently, REAN Cloud built a digital concierge for a North Carolina hospital that had observed that most patient call button questions were repetitive. In addition, the paper-based process used to measure patient health metrics was laborious, not in real-time and sometimes error-prone. In their session at 21st Cloud Expo, Sean Finnerty, Executive Director, Practice Lead, Health Care & Life Science at REAN Cloud, and Dr. S.P.T. Krishnan, Principal Architect at REAN Cloud, will discuss how they b...
Enterprises have taken advantage of IoT to achieve important revenue and cost advantages. What is less apparent is how incumbent enterprises operating at scale have, following success with IoT, built analytic, operations management and software development capabilities – ranging from autonomous vehicles to manageable robotics installations. They have embraced these capabilities as if they were Silicon Valley startups. As a result, many firms employ new business models that place enormous impor...
The next XaaS is CICDaaS. Why? Because CICD saves developers a huge amount of time. CD is an especially great option for projects that require multiple and frequent contributions to be integrated. But… securing CICD best practices is an emerging, essential, yet little understood practice for DevOps teams and their Cloud Service Providers. The only way to get CICD to work in a highly secure environment takes collaboration, patience and persistence. Building CICD in the cloud requires rigorous a...
SYS-CON Events announced today that Dasher Technologies will exhibit at SYS-CON's 21st International Cloud Expo®, which will take place on Oct 31 - Nov 2, 2017, at the Santa Clara Convention Center in Santa Clara, CA. Dasher Technologies, Inc. ® is a premier IT solution provider that delivers expert technical resources along with trusted account executives to architect and deliver complete IT solutions and services to help our clients execute their goals, plans and objectives. Since 1999, we'v...
SYS-CON Events announced today that MIRAI Inc. will exhibit at the Japan External Trade Organization (JETRO) Pavilion at SYS-CON's 21st International Cloud Expo®, which will take place on Oct 31 – Nov 2, 2017, at the Santa Clara Convention Center in Santa Clara, CA. MIRAI Inc. are IT consultants from the public sector whose mission is to solve social issues by technology and innovation and to create a meaningful future for people.
Data scientists must access high-performance computing resources across a wide-area network. To achieve cloud-based HPC visualization, researchers must transfer datasets and visualization results efficiently. HPC clusters now compute GPU-accelerated visualization in the cloud cluster. To efficiently display results remotely, a high-performance, low-latency protocol transfers the display from the cluster to a remote desktop. Further, tools to easily mount remote datasets and efficiently transfer...
In his session at 21st Cloud Expo, Raju Shreewastava, founder of Big Data Trunk, will provide a fun and simple way to introduce Machine Leaning to anyone and everyone. Together we will solve a machine learning problem and find an easy way to be able to do machine learning without even coding. Raju Shreewastava is the founder of Big Data Trunk (www.BigDataTrunk.com), a Big Data Training and consulting firm with offices in the United States. He previously led the data warehouse/business intellige...