Academic journal article ABA Banking Journal

Core Exercises: Community Banks Seek Leverage Points with Core Processors

Academic journal article ABA Banking Journal

Core Exercises: Community Banks Seek Leverage Points with Core Processors

Article excerpt

One of the biggest pain points for many community bankers is their relationship with their core processor--and this is a problem because of how central these vendors are. "We want to have good relationships," says Micah Bartlett, president and CEO of the $740 million Town and Country Bank in Springfield, Ill. Bartlett notes that for his and most other community banks, core processors are the largest single vendor--"many multiples of our next highest vendor."

For bankers frustrated with their core providers, the pain can be most acute in the contract. With only a handful large core processors serving more than 10,000 banks and credit unions, bankers report feeling over a barrel when it comes to getting a favorable deal. "You're just stuck in these contracts," says Bartlett, a member of ABA's Community Bankers Council and chairman of the Illinois Bankers Association. "Not one of us alone has enough leverage."

That may change with a new collective effort to pool community bank bargaining power. The Golden Contract Coalition, launched earlier this year, claimed 165 interested financial institutions representing $1.45 billion in contract value as of late August.

GCC's goal is what founder Aaron Silva calls a fair, balanced, market-confirming and compliant master agreement for core processing services. The Golden Contract would have real teeth, Silva says, replacing unenforceable service "objectives" with real service level agreements. It would complement a base master agreement with customized contract terms but standard pricing for different core processing modules that institutions might choose.

Silva--founder of a consulting firm that works with financial institutions to negotiate core contracts--combined his experience with expertise from the law firm Pillsbury, which has negotiated hundreds of billions of dollars' worth of IT contracts for major Silicon Valley companies.

How will the GCC get the large core processors to play ball? "This is a business opportunity to the vendors," he says, pointing to the "friction" caused by the current individual negotiating process. …

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