Paladin Blog

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.

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.