Magazine article American Banker

Bankers Hiring Hagglers to Negotiate IT Contracts

Magazine article American Banker

Bankers Hiring Hagglers to Negotiate IT Contracts

Article excerpt

Byline: Jackie Stewart

Community banks are spending a little bit of money now in hopes of saving more on core processing and IT-service contracts.

A growing number of lenders are hiring consultants to negotiate technology contracts, which are typically among a bank's biggest expenses. Hiring experienced hagglers can lead to more favorable terms and better equip banks for future growth, industry observers say.

"Bankers are at a disadvantage because they don't know how the game is played," says Aaron Silva, president and chief executive of Paladin, a firm that negotiates IT contracts for financial institutions. "Bankers really have no idea what they should be paying for their contracts."

Roughly 60% of bank and credit union executives who participated in a study released Monday by Business Performance Innovation Network listed lowering noninterest expense as a top priority for the next 12 to 18 months. That concern was topped only by a need to book loans and add interest income.

"Banks don't have the revenue to offset expenses," says Dave Murray, director of thought leadership at Business Performance Innovation, or BPI. "Reducing expenses is not a cure-all, but it is a significant step."

BPI, which worked with Paladin on the study, found that community banks and thrifts, on average, saved more than $915,000 over a five-year period after restructuring a contract.

In comparison, a small bank would need to book $5.6 million in loans, on day one, to generate the equivalent of $1 million in net interest revenue, BPI estimated using the average net interest margin for the fourth quarter. …

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