Pub. 5 2010-2011 Issue 6

www.nebankers.org 22 Extraordinary Service for Extraordinary Members. I N A TIME WHEN REGULATORS ARE focused on “vendor management,” the following offers insight into your core vendor relationship, and how you can manage it to your advantage. Each of the “Big Three” core software providers has at least three core solu- tions, two of them have five or more, depending on how you count. Business sense dictates that all of these solutions can’t be supported going forward: too much expense on the development and support side. Inmost cases, it is hard to know which packages are going to be kept and which are going to be phased out—“sun-setting” is the buzzword for this. Yet, decisions made by these ven- dors as they look to streamline their offerings and reduce expenses will likely impact your bank in some way. Clearly, you want to protect your bank as much as possible. A core conversion is heart surgery, requiring major retooling of systems and retraining of employees, and is to be avoided (absent specific functionality or relationship deficien- cies) if possible. Whether you are outsourced or processing in-house is a consideration. For many years, beginning with the movement toward in-house in the early tomid-1980s, in-house and outsourced processing were viable alternatives, and the choice often depended on the pref- erences of the individual bank. Some banks changed camps, from in-house to outsourced, as they grew, or as manage- ment changed, for example, but the two methods each had their supporters. For the last few years, we have seen the be- ginning of an irreversible trend toward outsourcing. Outsourcing addresses many of the issues that in-house banks are struggling with: regulatory compli- ance, staffing issues, and perhaps most importantly, predictable costs. Vendors also appear to favor outsourcing, as it reduces support requirements, offers economies of scale, and positions them to offer additional solutions through the same channel. My point is not to pronounce in-house processing dead— many institutions continue to manage their in-house systems effectively—but rather to encourage those of youwith in- house systems to consider outsourcing as you evaluate alternative solutions. The news that your system is not go- ing to survive the consolidation typically takes one of two forms: encouragement and economic incentives to convert now, or the dreaded sunset announce- ment. In the case of “encouragement and economic incentives,” you may find good opportunity to enter into a better arrangement with lower costs and enhanced service offerings. In the case of a sunset announcement, you’ll have to deal with some deadline (the sunset date) in making your decision. In either case, proper due diligence re- quires that you not simply change to the “new” or “surviving” core solution that your current vendor is offering, but that you evaluate other offerings in terms of functionality, service, and costs. This process can be time consuming, so there is the need to get started, especially if you learn that your product is not going to survive. Absent an immediate need to change, you may still want to peri- odically review the offering of selected competing core systems, so that you and your staff have some familiarity with them. Your colleagues who are using different core systems are a good source of information. When renewing or signing a new contract, insist on a clause that sets you free if the current product is sunset. Watch out for clauses that force you to convert to another package of the vendor’s choosing. Also, watch for un- necessarily long auto-renew periods. An auto-renew clause is just what it sounds like: unless you notify the ven- dor differently, your contract with them will automatically renew for a specified term once the trigger date is met. A good strategy is to go ahead and notify Managing Your Core Vendor in Challenging Times Trent Fleming Turmoil in the banking industry, combined with extensive merger and acquisition activity in the banking software industry, is changing the relationship of banks with their software vendors in significant ways.