Paladin Blog

Wisely Restructuring Requires Strong Internal Management

Posted by Aaron Silva on Aug 7, 2014 12:38:00 PM

By Aaron Silva

Contrary to popular belief, you cannot just pick up your Core and IT service contracts a few months before expiration and hope to get it restructured in a way that isfavorable to the franchise. Frankly, this may be the worst timing with respect to trying to get your contract restructured. The act of negotiating a renewal agreement can begin the minute after you sign the original agreement and then continue for years.  It takes a team that is in control, well managed, detailed and articulate.  And it takes strong management to make sure it gets done and at the right time.

 

Be honest.  Are you one of those banks that manages your contracts with an Excel spreadsheet? If you said yes then congratulations, you are in the majority.  While Excel is a great database for this type of "stuff", it doesn’t work unless you actually open that particular worksheet or workbook in time to review your renewal dates.  This means you have to set a reminder in your Outlook calendar or other system.  Sometimes you might delegate this internally. Either way, it’s inefficient and relies on a human and is now subject to human error.  Outsourced Core and IT services contracts with the likes of Fiserv, Fidelity, Jack Henry, CSI, D+H, etc. are usually the second largest expense in your institution, behind payroll.  Weigh down this reality with the fact that they are one of your most critical vendors and this is no small matter or fleeting concern.  Make a mistake and it will be another 5 to 7 years before you get another shot at your core vendor contracts.  An Excel spreadsheet is just not enough and wisely restructuring is key.

Contract Management Systems


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Topics: Editorial

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

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

Finally an Industry Study Actually Worth Reading

Posted by Aaron Silva on May 22, 2013 1:43:00 PM

The Business Performance & Innovation (BPI) Network created quite a brouhaha releasing a new and unique study in May called the Less Burn, More Return (LBMR) that looks at the issues and priorities facing today’s community banks during a period of prolonged low interest margins, increased regulatory pressure and sluggish economic growth.  While the study touches many different aspects of current industry business problems, it looks closely at one key area of non-interest expense (NIE) – spending on core bank processing and related IT outsourcing services.  The study uncovers a major opportunity for improved efficiency ratios, profitability and franchise value.  One California CEO quoted in the study completed a merger just a few months after restructuring a new 7 years deal with their core vendor that in turn added more than 7% to the merger deal for his shareholders.  The data used to validate the BPI Network study was collected from surveys conducted with over 10,000 senior executives from banks and credit unions with less than $5 Billion in assets.  Interviews and testimony from CEOs, CFOs, investors, and advisors are peppered throughout the 24-page report further standing up BPI’s claims and data sources.  The report can be downloaded for free at bpinetwork.org – just look for the Less Burn, More Return program link.

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

Fiscal Cliff Negotiations Failure Looks Familiar

Posted by Aaron Silva on Feb 5, 2013 3:20:00 PM

The Fiscal Cliff negotiations are temporarily off the table as our leadership has figured out a way to kick the can down the road.  At every level a qualified failure and we can all be disappointed at the entire spectacle.  We all saw this coming a year ago when they manufactured the post-election fiscal cliff show down and none of us were surprised they could not get it done when those chickens came home to roost.  Like most Americans I am enjoying the brief pause in non-stop news coverage on the failed negotiations.  There is always something to learn from failure and so during this respite I have taken the opportunity to reflect on the mechanics of the failed fiscal cliff negotiation and outline some key similarities and observations that I see all-too-often in the community banking industry when bankers and vendors negotiate their own fiscal cliffs (albeit a lot smaller).  I don’t believe for a minute that I might be the best negotiator on the planet, nor do I know anyone who might be, but the fact is over the last four years we have successfully restructured and renewed many dozens of multi-million dollar Core & IT services agreements for institutions of all sizes coast to coast.  In fact, all we do here at Paladin is restructure and negotiate deals using a proven, research-driven, outcome-based methodology that doesn’t harm existing relationships.  In just four years, we are approaching $65,000,000 in hard dollar non-interest expense reduction for our bank clients, averaging nearly $800,000 per deal, and without having to change core vendors (i.e. Fiserv, Fidelity, Jack Henry, etc.) or perform a wasteful RFP process (scam).  We’re proud to stand on such a strong record and experience and I hope to share some of these insights with you here.

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Topics: Contract Negotiations, Paladin Research, Editorial

Hiring Naked Consultants

Posted by Aaron Silva on Sep 12, 2012 9:31:00 AM

“How do you do that and make money?” “Are you crazy, why would you give away what you know?” “There has got to be a catch – really…for free?” These were the top three questions heard from bankers after we announced that all of our national market research on Core & IT providers was accessible to CEOs and CFOs for no cost or obligation. Yes, we even provide our analysts’ time up front to discuss the entirety of your Core & IT contract renewal options, make recommendations to the bank and specifically detail what steps you should take even if you do it on your own. Is it crazy consulting? No. It’s called Naked Consulting and while not a new concept in business, this model is quite rare in a community banking industry accustomed to the rote approach of paranoid vendors holding back the answers until after you have signed their contract. Coined by a old friend of mine and best-selling author Pat Lencioni (Five Temptations of a CEO, Five Dysfunctions of a Team, Death by Meeting) it describes a way of consulting whereby you build trust, confidence and respect with bank leaders [in you] by being vulnerable, disclosing and completely honest in advance. And yes, you do give away proprietary business intelligence, insights, advice and direction in the early stages of earning business relationship and without expecting a penny of compensation in return.


I had the great fortune of hiring Patrick as my CEO Coach for about 2 years (circa 1998) just as he was publishing his first book. I learned a lot from him about being vulnerable, completely clear and not being afraid of saying what I thought was important even if it meant taking a slightly weaker negotiating position. This style of management and consulting has served me well over the years and while he had not yet invented the concept of naked consulting back then – his most recent book Getting Naked finally does and I recommend it strongly.

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Topics: Contract Negotiations, community banks, Editorial, Paladin Success Stories

More Negotiating in the Trenches with Core & IT Vendors

Posted by Aaron Silva on Jul 5, 2012 9:37:00 AM

In my last article we summarized that there are two initial steps necessary to successfully renegotiate a new or renewal service agreement with any Core or IT vendor. Step One: Admit that you’re a banker and not a CIO. The deck is stacked against you. These multi-billion dollar corporations have forgotten more about writing a obnoxiously favorable vendor-leaning agreement than you might ever know in your entire career as a banker. That’s nothing to be embarrassed about – it’s reality. Begin with the humility of “knowing you don’t know what they know.” Step Two: Don’t believe for a second that beating up your vendor will get you anything that might not be gained with a more partnering approach. Using an RFP process or overtly entertaining other vendor pricing (when you genuinely have no real intention of ever leaving your current provider) is a crime and a shame. Speaking as a former vendor…there exists a silent code amongst vendors for treatment of bankers that use this water boarding tactic to extract improved pricing, terms and conditions. That is, you may get the pricing you want – but the partnership is over. Forget ever calling in a favor or receiving anything that resembles a “deal” in the future. Unlike terrorists, you can get you want out of Core & IT vendors without the torture of an RFP or public hearing with their competitors.

So then, if you are ready to be humble and show your vendors respect, then you have a chance of executing the next steps successfully.

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Topics: Contract Negotiations, community banks, Editorial, Paladin Success Stories