Paladin Blog

The Incentive of Doing Nothing

Posted by Aaron Silva on Jun 15, 2016 8:00:00 AM

For community financial institutions, it’s customary that every 5-7 years the decision must be made to either stay and renegotiate with their Core and IT provider or embark on a new contract with a competing vendor. When this time comes, it’s important that all decision makers have the right information, which can create more work for the banking staff with minimal incentive.

After many years of fighting on behalf of community FIs and countless conversations with senior bank executives, the truth is that senior management and their staff are not always receiving objective and unbiased information when it comes to identifying the best options for their franchise because there is so much extra work involved (with a future core conversion) —which in turn creates an incentive to stay put with their original vendor.  

In a recent conversation with the COO of a past client, an $800 million asset bank in New England, I learned that he believes his staff, and just about the staff of any community bank, has a natural incentive to want to do nothing when it comes to the question of staying or going. 

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Topics: Contract Negotiations

No Such Thing as a 10-Year Core IT Contract

Posted by Aaron Silva on Feb 20, 2015 4:14:00 PM

How can any of us bet on the function and value of technology 10 years from now?  When you think of the question a few times the answer appears obvious.  You cannot.  It would be impractical.  Unreasonable by any measure.  However, vendors are doing a great job of convincing banks and credit unions they need a 10-year deal.

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Topics: Contract Negotiations

Cough! Cough! Are You Ready for the Financial Service Industry Plague?

Posted by Aaron Silva on Aug 4, 2014 6:41:05 PM

Cost Inefficiency – An Industry Plague

By Aaron M. Silva, President Paladin fs, LLC
asilva@paladin-fs.com

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Topics: Contract Negotiations, community banks, Credit Unions, Editorial

New Ideas for Achieving Unexpected Returns for Shareholders.

Posted by Aaron Silva on Aug 4, 2014 9:37:00 AM

A 2nd annual report from the Business Performance and Innovation Network (BPI Network, www.bpinetwork.org) focuses again on the impact that core and IT services contracts have on community financial institutions nationwide.  The 2013 report titled “Less Burn, More Return” was well received by the market and generally panned by major core service providers. The newly released 2014 report, titled “The Core Way Forward,” will have a positive reception by bankers as it is a tome of informational data and analysis, never before assembled in one resource.  The report includes:

  •       The results of a comprehensive ‘state of the industry’ survey sent to 15,000 bank leaders. 
  •       A line-by-line analysis of 54 actual contract negotiations between bankers and vendors ranging       between $150 Million to $5 Billion in assets.
  •       Specific M&A section that details real-life examples of contracts’ impact on mergers.
  •       Insights and advice from industry experts including legal, compliance and investment bankers.
  •       Peer reviews and commentary on their experience negotiating contracts with core services vendors.
  •       An assessment of the impact of vendor consolidation on a bank leaders ability to negotiate a fair market value contract.

CLICK IMAGE TO READ THE NEWLY RELEASED CORE WAY FORWARD REPORT:

 

Key Takeaways from the Core Way Forward Report.

Impact on Mergers is Real.  The number of mergers has grown since the Less Burn, More Return report was issued in 2013 and of those that have taken place, an ample number were tracked in BPI’s, 2014 The Core Way Forward report, which allowed for actual and quantified measurements of impact. I believe, as the valuation of an institution moves away from tangible book value to profitability, we will see the entry and exit clauses of these agreements reaping havoc on M&A deals going forward unless bankers are willing to attack these agreements in advance, rather than waiting until they already have an LOI or purchase agreement working with another bank.  The Core Way Forward report points out that leverage with vendors is wasted if you ask for help after word on the merger is out.

 

Vendor Consolidation: Vendor consolidation has turned the tables of negotiation even further against the industry.  With so few vendors (the report details a total of 5, 3 of which control 85% of the market) there is little competition. Demand for core and IT services [according to BPI’s survey] will increase for the foreseeable future.  An oligopoly has formed and there is real concern that banks will have a difficult time getting a fair shake.

 

Hard Market Data Trumps: No longer can institutions go into a renewal situation with professional negotiators unless they are armed with information that can be backed up and substantiated. Very little efficiency in pricing exists, according to BPI Network, and this may be a result of vendors delivering a “get what you can” approach to pricing. Companies like Paladin, which is equipped with the Paladin Blue Bookdatabase, are keeping vendors fair and allowing for an introduction of favorable terms and conditions into contracts. Accomplishing these conditions is not without great amount of time, effort, finesse and experience.

 

Over the coming months Paladin will break apart BPI’s The Core Way Forward report into small, manageable and easy-to-understand chapters. These sectionals provide education and analysis of the material, as well as additional information and insights not found in the report.

You may also find this article in the not yet published quarterly magazine from Community Banker's of Washington's.  Click here to view Summer 2014s publication.

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Topics: Contract Negotiations, Paladin Research, community banks, Credit Unions, Editorial

Clint Eastwood Designs Most Banking Events

Posted by Aaron Silva on Jun 3, 2014 3:20:00 PM

I think it may be true. Clint Eastwood has been secretly behind the physical design and layout of most banking and credit union events for years. This theory dawned on me this spring as I attended and spoke at many national and regional events all over the country. Until starting Paladin fs in 2008, I spent most of my career as your typical vendor selling IT services to bankers. Today, I spend all of my time representing bankers in difficult Core IT negotiations with their vendors (Fiserv, FIS, JHA, S1, Q2, etc). Back in the day, attending and exhibiting at events became almost obligatory if you wanted to "get noticed" or hoped for someone to buy your wares. Being stuck behind a booth in the exhibit hall next to three of your competitors with flashier pens, higher-priced golf putters is a difficult and thankless pursuit. The days are long laced with many hours of boredom while your targets attend breakout sessions or play golf. Then, two to three times a day, a stampede of bankers rushes past you to acquire coffee, food or alcohol strategically located at the other end of the hall - that reminded me of the famous 1977 Clint Eastwood movie, The Gauntlet.


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Topics: Contract Negotiations, Paladin Research, community banks, Fiserv, Fidelity, Jack Henry, OSI, Vendor consolidation, Credit Unions, bank events, credit union events

The Real Impact of Core IT Vendor Consolidation on YOU

Posted by Aaron Silva on Nov 27, 2013 2:12:00 PM

In October we highlighted a clear and present danger resulting from the further consolidation of the Core IT vendors.  Fewer vendors exist than ever before and the impact to your service level, legal rights and business options are even slimmer if the institution does not make restructuring your relationship and contract a strategic board-level matter.  We teamed up with attorney Gary Findley to put on a national web seminar on this very topic that was widely attended by CEOs and CFOs of all sized institutions.  With tremendous feedback we have scheduled an encore presentation on December 10th and 11th if you are interested in joining and hearing some proprietary legal and business strategies on how to manage and mitigate this major risks area please attend.

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Topics: Contract Negotiations, Paladin Research, community banks, Fiserv, Fidelity, Jack Henry, OSI, Vendor consolidation

Why so much Fat in the Middle?

Posted by Aaron Silva on Sep 19, 2013 1:58:00 PM

As a middle-aged man I ask this same question of myself all the time.  Luckily, my wife is nice enough to not bring it up so often as she might otherwise like to - which is good since this is what makes her a great wife...she lies to me (about me).  And of course I know what to say when she asks that question about how she looks in those new pants she just bought too.

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Topics: Contract Negotiations, Paladin Research, community banks, Fiserv, Fidelity, Jack Henry, Credit Unions, Editorial, Paladin Success Stories

"Rope-a-Dope" used by Vendors to Beat Bankers

Posted by Aaron Silva on Aug 12, 2013 1:10:00 PM

I was maybe only 5 or 6 years old when my father took me to the Cow Palace in San Mateo, California to watch Ali and George Foreman fight in what is known as The Rumble in The Jungle on closed circuit television broadcast on giant movie screens.  I don't remember much of the fight except that I recall how surly the crowd was and all the smoking.  My Dad was always, and still is, a big boxing fan and it was a favorite pastime listening to Howard Cosell describe Ali fights.  I watched that fight many times in years since and grew ever more appreciative of just how masterful Ali really was in using the "Rope-a-Dope" to fool his opponents and snatch victory.  In my book he is the greatest fighter of all time and like so many sports - there are lessons which can be carried into life and certainly into business.

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Topics: Contract Negotiations, Paladin Research, community banks, Fiserv, Fidelity, Jack Henry, OSI, Credit Unions

Under $500M? Tips for Preparing for a Potential Sale

Posted by Aaron Silva on Jul 17, 2013 1:39:00 PM

A recent poll of 10,000+ CEOs and CFOs uncovered a very interesting result:  The majority agreed they would participate in M&A in some way however, very few sheepishly admitted (3%) to wanting to sell.  But I think the die has been cast. 

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Topics: Contract Negotiations, Paladin Research, community banks, Credit Unions

M&A Preparation: Old Wisdom vs. New

Posted by Aaron Silva on Jul 17, 2013 1:38:00 PM

For an institution implementing a future merger strategy, what would another $250,000+ per year in additional profit mean (without having to make a single loan)?  

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Topics: Contract Negotiations, Paladin Research, community banks, Credit Unions