The cost, business distraction and uncertain outcomes associated with renegotiating a Core and IT supplier contract can be monumental.
Bankers that go it alone are at a huge disadvantage. Institutions smart enough to retain professional assistance from a company like Paladin fs can do an incrementally better job for their franchise and cost structure by negotiating with information, pricing data and market intelligence in their corner.
Unfortunately, both of these negotiating positions are defensive – you have to do the best with what you have and where you are at that moment. A long and sometimes painful dance ensues - strategizing, maneuvering, threatening and attempting to outsmart the Core IT supplier - all the while knowing that the vendor holds most, if not all the cards.
The oligopoly has grown increasingly strong over the last several years. FIS, Fiserv and Jack Henry now control 85 percent of the market below $1 billion and 93 percent above it. Negotiations are taking longer than ever, even when completed with the help and focus of an outside expert. Tacit collusion is now setting in. Vendors are employing new, competition-free strategies and tactics to bilk every dollar from institutions while laying land mines throughout their one-sided, 2-inch thick standard agreements that will annoy and punish your franchise for many years to come. Just ask any institution that has transacted a merger lately.
Today we are announcing an offensive response to the Core IT supplier oligopoly on behalf of the entire community financial institution industry – The Golden Contract Coalition (GCC). It is a company organized to manufacture unprecedented levels of leverage by pooling the combined contract value found in large groups of community banks and credit unions to change the game – once and for all. Call it a collective, a union, a consortium, a buying group, but whatever the name may be, it will finally create a level playing field between the industry and the suppliers.
How did GCC begin?
The serendipity of a chance meeting with an IBM executive and a $25 million dollar cost reduction in Core IT costs with one banking client planted the seeds of a future coalition.
Two years ago, I met a former executive from IBM Global Services. We talked for a good while about Paladin services and the problem we were solving for our banking clients negotiating against Core IT suppliers. He was skeptical about my reports of how one-sided and predatory the vendors were in our industry and the overall unfairness of their outsourcing contracts and pricing for uncompetitive services.
After all, IBM sold outsourced services to the financial industry all the time and nothing I was saying matched up against the best practices used in contracts by the number one IT supplier on the planet. IBM is the gold standard. I confidentially shared with him a few examples of typical master agreements from FIS, Fiserv, JHA, D+H and CSI. His response was shocking and very evocative.
In short, he said that there was no way any client of his would accept such an agreement in whole or part and that any employee of IBM attempting to peddle such a contract would certainly be terminated. That revelation stuck with me.
About a year later we were retained by a $105 billion asset bank on the East Coast to renegotiate against their Core IT supplier (one of the “Big 3”). The negotiations went very well, as we easily reduced their costs by in excess of $25 million. The most fascinating thing to me was the fact that we literally dictated the new agreement to the vendor. “What the hell is going on here?” I thought. The answer was simple: the power of leverage.
The supplier was willing and able to do anything to keep this client, even if it meant taking a $25 million cut, to avoid losing an existing $100 million long-term contract. The bank (represented by my team) dictated the terms just the way we wanted them and the supplier was willing to guarantee (yes, guarantee) a service level with big penalties if they missed.
With affirmation that the standard master agreement issued by vendors and then signed by unaware bankers sucked more than I ever thought, combined with the first person experience of watching a Core IT executive bending over backwards in the face of real financial leverage, the strategy for GCC was born. With the power of leverage, we are able to impact change on an institutional problem that needs to be addressed. That is what we will do through GCC.
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To learn ever more about GCC, click here.
