Emerging technologies and tightening regulatory requirements; limited budgets and staff knowledge resulting in decreased negotiation power; static contracts that don’t evolve with the times. There are a million different factors that stand in the way of a credit union achieving maximum return on its vendor investments.
But the following rules gleaned from institutions featured on CreditUnions.com shows the industry’s players are anything but powerless to rectify the situation.
No. 1: Try Before You Buy
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Greater Nevada Credit Union
Data as of 06.30.15
HQ: Carson City, NV
12-MO Share Growth: 12.92%
12-MO Loan Growth: 22.14%
In a demo environment, skilled vendor operators know how to make their products shine. But will those features maintain their luster when applied to the credit union’s day-to-day operations?
Following a 2011 conversion to the OSI DNA platform, since bought by Fiserv, Greater Nevada Credit Union ($553.2M,Carson City) is now in a position to remove doubts through trial downloads from the company’s DNAappstore.
There, other credit unions on the same core create their own industry-driven apps and services and post them for sale — and all of the offerings come with a free 60-day trial.
According to Linda Barker, the credit union’s vice president of information technology, the option to sandbox these offerings in a real-world environment has allowed the credit union to separate the duds from the must-have’s before it signs the check.
No. 2: Buying Isn’t The Same As Using
When an offering falls short, the blame might lie close to home. According to Barker, some credit unions purchase products and services from vendors without fully understanding or implementing the full capabilities of the offering.
"I was at a Fiserv conference recently and they were talking about how no one has time to invest in these large, once-a-year releases that core companies put out — even though they add a lot of functionality,” she says.
To avoid such costly oversights, Greater Nevada formed a specialized committee to stay on top of what’s new in each iteration and match those to opportunities in the credit union’s business model.
And in cases when new features are not helpful, the team still makes an informed case to executives on why it is choosing not to deploy the features.
It becomes important to not only vet those people but also have contract terms about where the responsibility is if there is a breach or misconduct by that vendor’s employees.
No. 3: Don’t Double Bill
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Data as of 06.30.15
HQ: Tukwila, WA
12-MO Share Growth: 8.15%
12-MO Loan Growth: 13.04%
It’s not uncommon for departments to buy offerings without realizing different parts of the organization already have tools it could use. And the larger an organization gets, the larger the chance of redundancy.
That’s why BECU ($13.6B, Tukwila, WA) hired Jennifer Hancock, its director of vendor management.
Hancock and one other individual she oversees track the institution’s hundreds of individual vendor relationships and thousands of individual contracts and identify redundancies.
Conversely, the duo also connects the dots across the organization to see where a single, new offering could replace multiple existing relationships.
According to Hancock, centralizing ownership in this way has saved the organization millions of dollars since 2003.
No. 4: Don’t Fall For Smoke And Mirrors
In addition to contract management and refinement, Hancock is also responsible for establishing baselines for how much BECU should expect in return for each of its third-party vendor investments.
To help accomplish that, BECU replaced its 10-item vendor questionnaire in favor of a more thorough, 1,800-item licensed questionnaire. In addition, it requires vendors to back up claims with analytics-driven proof.
If vendors provide no or inadequate proof, Hancock has the authority to initiate additional steps to remediate the shortfall or end consideration of that vendor.
This approach shields the staff members who work closely with these companies every day from having to sacrifice their professional relationships for desired performance results.
No. 5: Make Vendors Own Weaknesses As Well As Strengths
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Data as of 06.30.15
HQ: Oak Ridge, TN
12-MO Share Growth: 7.03%
12-MO Loan Growth: 7.18%
Like BECU, ORNL Federal Credit Union ($1.7B, Oak Ridge, TN) has also centralized the ownership of its vendor relationships, this time through its legal department and the use of a co-designed software with a company called InContract.
In addition to providing reminders for renewals and other vendor management activities, this program helps the credit union track potential weaknesses as well as operational or legal risks that its partners might need to address.
“If you wanted to steal confidential member information, what better way than the cleaning crew who has virtually unlimited access to the organization, often when there’s little to no supervision,” says Wayne Hood, senior vice president and chief legal officer. “It becomes important to not only vet those people but also have contract terms about where the responsibility is if there is a breach or misconduct by that vendor’s employees.”
Liability shift is another risk to watch out for. For example, contracts can shift liability for outside activities, such as legal defense costs for patent disputes, to the credit union rather than the vendor.
At ORNL — even with its new approach — the legal team, executives, and the department that wants the service make all key decisions in tandem, Hood says. But by bringing in its own legal expert, the credit union can better catch potential landmines buried in the fine print.
No. 6: Buy Big Or Risk Paying Big
“In general, you don’t buy one Lego,” says Hancock at BECU. “You buy a whole set.”
Her team works to ensure the credit union never overpays for its network of tools. And for institutions without a knowledgeable negotiator in their corner, securing multiple relationships at a manageable price point can be a challenge.
A merger is one way to dramatically increase asset size, vendor connections, budget, and overall bargaining authority, but it is certainly not the only approach.
For example, when six credit unions ranging from $50 million to more than $150 million in assets joined together to form the rkGoBig CUSO, they soon found their combined stature as a service organization allowed them to secure more competitive pricing from vendors, including a projected 47% reduction in costs related to compliance.
“When our project is well articulated to the vendor, we end up seeing radically different pricing,” says Peter Barnard, the CUSO’s CEO. “We’re basically moving from a $57 million credit union to a $541 million credit union in the eyes of the service provider.”
And if mergers or collaborative purchases aren’t in the cards, consolidating separate relationships in favor of an expanded business with a single, multifaceted vendor might tilt the pricing scales in a smaller credit union’s favor.