Community banks are always adding more services, from mobile banking to payment options, and that nearly always means more vendor relationships. This rings especially true for fintech partnerships, which are becoming more prevalent.
“As technology has evolved over the last 10 to 15 years, we’ve had a need to partner with vendors that specialize in a certain technology,” explains Jennifer Moraczewski, SVP of operations and technology at $575 million-asset Tioga State Bank, N.A., in Spencer, N.Y.
Misty Adams, CFO of $1.7 billion-asset Bank of Springfield in Springfield, Ill., agrees that multiplying needs have multiplied vendors. “We do try to consolidate vendors as much as we can to leverage negotiation power, but sometimes that’s not the best option, and we don’t want all of our eggs in one basket,” she says.
Managing these relationships may not be glamorous, but it’s a key part of bank operations. Charlie Kelly, partner at Remedy Consulting, says vendor negotiation can be an uncomfortable responsibility for bankers, “but it’s one banks are required to do.”
Mitigating mismanagement through software
One thing’s for sure: Mismanagement incurs big costs, such as the inability to leave a vendor without large exit fees. “Auto-renewals can cost you in a bunch of different ways,” says Kelly. “It can really put you in a hole.”
Software has become the go-to solution for tracking the information overload. “The risk of error is very great if you’re doing it [with decentralized oversight and monitoring], and spreadsheets are only as good as the individual who is inputting and updating the information,” says Beth Harris, principal for consulting and risk management at DD&F Consulting Group.
Moraczewski notes that vendor management software programs have made great strides. “The software has come a long way,” she says. “There are tools to help us oversee and manage [vendors]. They provide reminders and help with preparing reports and getting surveys.”
Software isn’t a silver bullet, however. Even with its help, Andrew Tinberg, president and CEO of $1.7 billion-asset CNB Bank & Trust in Carlinville, Ill., reports that vendor management is taking up more time. “Software has become critical to us, but even with that investment, we still find that as we expand the number of vendors, the management is almost a full-time position.”
Delegate responsibility
Beyond software, vendor management requires thorough and consistent decision-making. Harris has seen many banks struggle with assigning decision-making responsibilities. “I’ve seen banks where one department manages one set of vendors, and another manages another set,” she says. “Everyone has their own way of doing it, and that creates inconsistencies.”
Harris suggests that responsibilities can effectively be broken up into “process” versus subject matter expertise. “One person keeps all of the information and knows [the contract details, terms] and when the vendor should be contacted, and then outsources the review based on subject matter expertise,” she explains. “For example, if financial analysis needs to be performed with financial statements from the vendor, you need the CFO or another financial executive to do that.”
CNB Bank & Trust takes a similar approach. “We have one person that manages the process and quarterbacks the whole relationship and stays abreast of the contract and the terms that should be in any contract,” Tinberg explains. “They rely on experts elsewhere.”
Bank of Springfield has introduced a proposal process that formalizes how vendors are engaged and trains employees in managing vendor relationships. “When an employee requests a new relationship or a new service, the proposal process walks them through all of the documents we need and which departments are involved,” Adams explains. “It’s very detailed, and it has links to due diligence forms that may be required.”
Maintaining positive vendor dynamics
Managing vendors isn’t only about tracking contract details; it’s also about managing the relationships. Kelly advises banks to foster relationships at multiple levels within a vendor to ensure continuity.
“People move around,” he observes. “You don’t want all of your ability to work with a vendor with that one representative who left. I always recommend having a few layers of contact.”
Tinberg believes banks would do well to fundamentally rethink their vendor partnerships and move away from the “core provider” framework. This has implications for contracts. “Some of these auto-renewal terms were traditionally based in a legacy technical relationship, but they don’t have to be included with a fintech vendor,” he notes. “We’re thinking in terms of starting with a blank contract and making sure we have an exit strategy, and then managing that contract.”
Moraczewski believes that banks and vendors are working more cooperatively as they better understand each other’s requirements. “We have more experience with vendor management than when we started,” she says. “With every exam, every audit we go through, we learn something new.”
Vendors are also leveling up. “Vendors are more accustomed to providing documents we need, and many have a package prepared for financial institutions,” Moraczewski says. “Many are working with ICBA so they can get more educated on what their customer base needs.”
