Global independent investment banking advisory firm Evercore ISI interviews fintech expert Aaron Silva on all things banking. Listen now to Aaron's predictions for the banking industry: bit.ly/SilvaOnEvercore
Vendor oligopoly threatening industry recovery and M&A transactions nationwide.
After two years of continual research the BPI Network has confirmed our worst fears about the impact on community banks and credit unions resulting from the oligopoly now enjoyed by just 5 major Core IT providers nationally. Bank and Credit Union leaders must now deal with this clear and present danger to their long-term strategic planning and cost management goals. BPI’s survey and report confirms that while economic optimism is rising, unfavorable legal terms and price gouging hidden in vendor-crafted master agreements and cost structures are raising major headaches during mergers and contract renewal negotiations.
The reports confirm:
- Price inefficiency is rampant. Similar sized institutions pay wildly different amounts for the same exact services. Institutions in the South and West pay more than any other region.
- Bankers have no way of understanding if they are paying FMV or not and vendors have taken advantage of this for many years.
- The odds of achieving Fair Market Value for any service can only improve if intelligently restructuring contracts that with the help of hard market data and outside professional negotiators. On average BPI says institutions they tracked are reducing 5 year run rates on average by $1.2 Million if done intelligently.
- Hidden terms lay waiting in contracts ready to ambush mergers and weaken shareholder value just when you need it the most.
- In the absence of competition - and an effective oligopoly - vendors hold all the cards and are making negotiations very time consuming and expensive for small institutions.
Topics: Vendor consolidation
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.
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.
Trekkie fans will understand the reference to the BORG and what it fees like when you don't have many choices. The assimilated Captain Picard provides this famous line, "...from this time forward you will service us." With the recent purchases of OSI by Fiserv and Harland by D+H many bankers believe the line could be rewritten, "...from this time forward ONLY we will service you...And you have nothing to say about it."