Comment: Putting a Higher Premium on Bank-Vendor Relations

By Roche, Terence | American Banker, March 31, 1999 | Go to article overview

Comment: Putting a Higher Premium on Bank-Vendor Relations


Roche, Terence, American Banker


The next core systems decision your bank makes may very well be its last.

The reason is simple, and it is based on one of the most basic tenets of bank sales-a customer with multiple products and services is far easier to retain than a single-service relationship.

Banks today no longer make core system decisions in isolation. They also evaluate ancillary vendor offerings such as retail delivery systems, ATM processing, data warehouses, and imaging systems. Vendors bundle systems in their pricing proposals, either alone or in tandem with other system vendors.

This bundling is done under the auspices of providing solutions and building a partnership between bank and vendor. As banks struggle to expand delivery channels and drastically improve efficiency, the need to define the partnership has never been greater.

Though the average bank today devotes 8% to 10% of noninterest expense to technology, certain innovators will move during the next five years to levels as high as 15% to 20%. Getting the right payoff from these investments will require the right blend of new systems, process redesign, and meaningful measurement tools that management can use to determine the payoff.

By its very definition, the word partnership implies mutual ownership, shared responsibilities, shared accountability, joint risk, and joint reward. Very few outsourcers and banks have such a relationship now. Banks do not share legal or financial risk if a new system created by their vendor fails, any more than a vendor has legal or financial liability if a bank technology project is completed late and over budget. The perceived partnership, therefore, is one more of spirit than legality. Each "partner" values and treats the other as though they are one company with a single set of goals.

This lack of a specific partnership definition leads to problems. Vendor statements such as "we listen" and "we recognize what is unique in each bank" are very important but have as little specific meaning as banks' saying "we are nice to customers." Broad, vague definitions of partnership lead to differing opinions about performance and often create conflict. Until each side gets more specific in its definition, the gap between bank and outsourcer perceptions of the relationship will persist.

Looking forward, let's examine specific differences between a vendor and a true partner in the future:

Core applications. Vendors will sell multiple systems. Partners will proactively work with banks to change their technology spending mix to better support bank goals. How many core systems vendors know the total amount spent on technology by their clients? How many have discussed reducing the amount spent on core processing in order to free up dollars to invest in key electronic delivery and information systems that the vendor can provide? Bankers do this with their customers all the time-it's called cross-selling and relationship pricing.

Information management. Vendors will sell data warehouse systems. Partners will work with the bank to redesign the entire process of information management. …

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