More than ever in the history of American banking, bankers are looking for sensible costs of doing business. They want to pay a fair price to attract and retain solid core clients.
And it’s no wonder we all want the same thing. The market has contracted: there are fewer core, revenue-positive clients per bank since any time in the past 40 years. C&I lending is a sound but limited option. Real estate lending surely will re-emerge over time, but for many banks this market will be off limits in the near term. Fee services, from treasury management to private banking, offer promise to many banks, but their growth depends on the prosperity of core C&I clients.
So it is that in these times, pursuing multiple sources of revenue can draw our attention away from the historical truth about smart bank management: banks that can do the most with the least always will dominate the market and will stake their claim for the coming decades as the banks of choice.
The smartest bankers know how to improve efficiency while offering better services to their clients.
The best banks post-recession will be the banks that see the future now, the leaders that can see around the next corner. The banks across town that wait to see what happens, the banks the take shortcuts to boost short-term revenue without controlling costs – they will fare as well as their clients who have done the same.
Paladin’s decades-long research confirms this: The best banks have two things in common: first, they know that how efficiently they deliver their services will set them apart from their competition. Second, they know that how much they spend technologically on being the best – their all-important IT Efficiency Ratio – will tell them whether they will finish at the head of the pack.
And that makes sense. Banks must always be ready to add and change core & IT products and services to remain competitive and provide better services to their clients. There are so many strategies and tactics available to unlock better deals with these critical vendors but time and again I witness bankers electing to take the tired, rote, before-there-was-an-internet tactic called “Request For Proposal” or “RFP”. Now I know this is going to potentially offend some of you that have depended on this classic approach for years, but trust me – RFPs are D-E-A-D. For a moment, suspend your disbelief and permit me to share the inside baseball and behind-the-scenes truth about this gargantuan waste of time, resources and routine soft scam committed upon trusting bankers by many industry consultants and further manipulated by vendors to confuse and obfuscate rather than simplify and clarify your options.
A typical scenario we experience at Paladin is a community bank embarking upon an RFP process to select a new core vendor, IT service provider or a new service or product (i.e. internet banking, bill pay, item processing, EFT, account processing, managed services, etc.). The bank’s team reaches out to 2 or 3 of the usual suspect consulting firms for advice and finally settles on an engagement with one (typically $25K – $70K) for authoring, conducting and managing the RFP process including their recommendation and “objective opinion”.
Inside secret #1: The consultant already knows which vendor, service and price the bank should select and pay. In fact, they have already done this exact service many times over with other similar banks charging their same fee again and again. Referred to as ‘cut and paste’ consulting, the consultant sells you their comprehensive, detailed and thorough process of navigating the throngs of service providers – weeding out the unqualified vendors; meticulously vetting the features and benefits of each service and then tirelessly working day and night to grind down the vendor and get the best price, terms and conditions for you. Sound familiar? You would be wise to look carefully at their final report and recommendations as it probably has another bank’s name on it somewhere! Let’s get real. In an industry that has seen massive vendor consolidation there are only about three to five (yes, 5) qualified core vendors – the rest are not viable over the long-term. Those that are viable will get purchased by Fiserv, Fidelity or Jack Henry before your next contract expires anyway. Resistance is futile. Since each vendor markets one specific platform solution based on your asset size – the choices are even fewer.
Inside secret #2: There are no more than two (2) viable choices for any systems or software decision available to you today. So why do you need a consultant to weed through all of the options? Give me a break! One bank CFO told me the reason they were doing an RFP was to “see what’s out there” and perhaps discover an alternative core provider with software that was cutting edge, more versatile and a better fit for their bank. Sorry, time to join the BORG.
My inside secrets #1 and #2 make it obvious that most consultants are really not there to help you (the way you would hope they would) and that the free market has provided you very few real choices. But what about the vendors and how they respond to these lengthy, detailed and thought-provoking RFP’s that banks from around the country drop on their laps? Are the vendors “shocked and awed” and motivated to respond to each question with scrupulous detail ensuring that your bank has all the information you need to make a decision. In a word…NO.
Inside secret #3: Vendors don’t care about your RFP. One major vendor senior executive told me, “There is an art form to changing a ‘NO’ answer into a ‘YES’ when responding to an RFP.” Vendors have dedicated teams and assistants with libraries of pre-canned answers and experienced responses so that when it comes time to read one of their complete responses you’re sure to go crazy. Their number one un-written goal is to confuse you enough so they “make the cut” and get an opportunity to present in person. Their pricing methods are so proprietary that to compare apples to apples (vendor to vendor, service to service, price to price) you need that highly paid ethical consultant – right? Oops, I forgot the consultant you hired to manage the RFP process isn’t interested in the responses either since they already know who they are recommending to your bank. In fact, your consultant may have already told that particular vendor how to answer specific questions in such a way as to influence the outcome. All of this is quite cynical I know, but this is the way it is done behind the scenes. The deck is stacked and not in your favor.
Inside Secret #4: For every ounce of RFP you give a vendor, expect to get it back in pounds. Shock and awe can go both ways and be sure when the RFP responses comes back you’ll have plenty of marketing pieces, emails, online tutorials, informational case studies, proposals, ROI models and due diligence docs to study. In fact, to study it all would take more time than the bank has to make a decision. Here’s where your consultant really adds value and saves time…uh, oh yea – never mind!
Eventually, vendors know the banker will succumb and submit to a more intimate, personal pre-sales engagement. Usually all of the vendors “make the cut” anyway. The RFP responses will hit the shelf (or garbage) and at the end of the day it’s about the horse and pony show. In exchange for your attention the vendor (with the help of his consultant) will provide you the final report you need for the management team and board of directors in order to select them…it’s commonly referred to as a price sheet. How many lunches, data center tours or references can the vendor shower upon you until you believe at your most inner business place that you have the best deal possible? It’s a war of attrition, behavioral influence, counter-intelligence, inside kick-backs and profiteering in the purest of free market forms. That’s America and this is what makes it so great – now if only the Federal government could step in and begin to regulate the RFP process, make it more fair and transparent for everyone, then we would really be getting somewhere – right?