Paladin Blog

How much am I overpaying for core, IT, and fintech services? 

It’s the most frequent question we’ve received since we started helping community banks and credit unions fight back against unfair vendor agreements over fourteen years ago. 

Naturally, it’s a fair question to ask, but it’s impossible to provide a simple answer to such a complex financial question. Core banking agreements and fintech vendor contracts have so many nuances that it’s impossible to pinpoint the “right” price to pay for these services without hiring an expert armed with market intelligence to analyze your contract — there are just too many factors at play.

Many banks and credit unions face a growing dilemma: their core banking systems are outdated, complex, and inefficient. 

When your core banking system predates the commercialization of the internet (circa 1992) — that’s a problem, don’t you think?

If you’re a community financial institution, there’s a good chance that you’ve overpaid for banking system services at one point or another. For decades, the core legacy providers — Jack Henry, FIS, and Fiserv — gamed the system, strongarming community banks and credit unions into unfavorable deals with lofty prices, predatory terms, and limitations on technological access. In turn, smaller financial institutions have trouble competing with the bigger players. 

Legacy core providers and fintech vendors know what they’re doing. They know how to manipulate contract negotiations and renewals to their advantage. Historically, smaller institutions haven’t had the resources to combat their tactics. That’s changing. 

Paladin fs recently moderated 2 peer discussion sessions with American Bankers Association’s CFO Peer Exchange virtual event. We moderated various breakout rooms and discussed questions around the topics of innovation, risk assessment, and the impact COVID19 had on bank technology with 100 community bankers from around the country.

Read below to find out the key takeaways from these bankers on these topics.

Your Core IT vendor knows their stuff — and they should, it’s what you pay them for. However, when core banking providers exploit that knowledge during contract negotiations, it’s a problem.

Historically, Core IT vendors have nickeled and dimed community banks and credit unions with an arsenal of hidden fees and unfair terms. Unlike the major banks, these institutions don’t have the staffing or resources to counter vendors’ legal teams and IT expertise. The result: costly, one-sided contracts that heavily favor the vendors. 

To combat unbalanced contracts and predatory terms, you have to outsmart your Core IT vendor, which isn’t as challenging as it may sound. How can you keep the experts honest? It starts with understanding your vendor and negotiation counter party.

Mergers are a common occurrence in the current community banking environment. In our discussions with bankers about strategic growth and possible acquisitions, we find that most are either active in the pursuit or at least open to possible merger opportunities. All bankers should be prepared and have core contract language in place to address being acquired as well as acquiring another institution before an acquisition opportunity is presented.

Below is an actual case study showing many of the critical factors that need to be considered in a core contract for a successful merger.

My name is Bill and I spent the last 10 years employed for one of the “big three” providers of core software for community financial institutions in the United States.  A re-read of that previous line aloud almost sounds like I’m part of a 12-step program.  Six months now after leaving and switching sides to a consulting firm that professionally negotiates for banks against my previous employer - has been sobering for sure.

We are not looking for opportunities to insult FIS, Fiserv, and Jack Henry. They are fine institutions that offer an array of products and services. When community banks and credit union executives share their candid remarks about the Big Three we bring that information, and more, to your attention. That is why the 2021 Evercore ISI Bank Tech Outlook report we participated in is so insightful.

I have recently been enjoying this classic TV show with my 10-year-old son. 151 more episodes to go! He is enjoying a classic show his grandparents watched at the same age, but he does not bank with a financial institution running COBOL (Common Business-Oriented Language). Some things stand the test of time. Your core processor running COBOL will not.