Life During Wartime

Like it or not, GonzoBankers, the bank core technology market is now a four-company oligopoly, and that means things are certain to get tougher when it comes to vendor management. We have D&H, FIS, Fiserv and Jack Henry. Yes, there are other vendors, but The Big Four own the market pretty much no matter how you define “market.”

 Think about the traits of an oligopoly:

Handful of market competitors 

Price rigidity

Interdependence (few players means each has heavy influence on the others)

Modeled for maximum profit 

High barriers to entry 

OK, so we’re facing an oligopoly. We have immense power and influence concentrated in a relatively few vendors. That’s a fact of life, so no use bitching about it. Better to just face it, understand the implications, and plan what to do about it.

“This ain’t no party, this ain’t no disco
This ain’t no fooling around.”
-Talking Heads, Life During Wartime 

The strength that an oligopoly provides the vendors will be a hot poker in the side of many a bank and credit union CIO in coming years. Concentration of power is easily the biggest vendor de-motivator out there, and our Big Four have that in spades. The bottom line is that as the playing field diminishes, the remaining players are going to grow more powerful, more arrogant, and less likely to make decisions with customers’ interests at heart. Why? Well, because they can.

Integrating with The Big Four – Integration between two Big Four vendors’ products is a dying breed and threatening to be extinct in short order. “Coopetition” between the big boys existed only until they could figure out how to kill it. Fiserv clients – ever tried to integrate JHA’s iPay bill pay solution to Corillian? You may as well cut your own legs off at the knees. IBS clients – are you finding 100% cooperation from FIS in your efforts to integrate D&H’s CreditPath?

Despite all of the vendor chest thumping about how open their systems are, integrating a system from Vendor A into a product from Vendor B has never been easy or remotely affordable. That is only going to get worse. In the ongoing oligopolic wallet share grab, The Big Four simply are not at all motivated to play nicely together – even if that means they piss off a few clients along the way.

And forget it if you want to integrate an upstart ancillary vendor to a Big Four core. Those barriers are high now and bound to get steeper as the Big Four play hardball. The chances of a Big Four vendor raising a finger to help a bank integrate that startup PFM company’s product into its core are slim now and sliding toward none.

Another group that will find massive roadblocks with the Big Four as they cockily gain market share are banks that want to integrate third party debit, credit and ATM processors. Make no mistake – Fiserv and FIS are payments companies now; payments is where the profit and revenue growth are. Jack Henry is moving that way. But for the Big Four vendors that have their own debit/credit solutions, banks and credit unions wanting to utilize the services of the PSCUs, Vantivs and First Datas of the world are going to find it extremely difficult and repressively expensive.

Service – Clearly, the second element of vendor performance sure to take a hit soon is service. The fewer the competitors, the less important service will be to The Big Four. I’m not saying service will tank all of a sudden. It will be gradual. Vendors will start winning stare-downs they used to cave on because – well, what’s the bank going to do, convert? Service reps’ contribution will be further devalued and relegated to Redheaded Stepchild status by The Big Four, and the good ones will leave.

“You make me shiver, I feel so tender
We make a pretty good team.”
-Talking Heads, Life During Wartime

Silver Lining – Of course, it’s not all bad during life in wartime. Strong ancillary vendors will gain power. For the few real market makers in the ancillary markets, the truly strong will gain power versus the cores and be in an even better position to help their bank and CU clients. For example, MeridianLink for account opening is eclipsing (re-seller) Jack Henry from a market momentum and development perspective, forcing JHA to be very accommodating to its clients when it comes to MeridianLink. Akcelerant for collections is emerging as a strong standard bearer, forcing fake grins from Big Four sales reps when asked if they will work with Akcelerant.

Fighting the Good Fight

“Fight the good fight every moment
Make it worth the price we pay”
-Triumph, Fight the Good Fight

A few pieces of Gonzo advice for working in life during an oligopolic wartime include:

• Use Contract Signing/Renewal for Leverage – To navigate the gurgling vendor management waters in an oligopoly, banks and CUs are going to have to be laser focused and unyielding in demanding certain contractual assurances from The Big Four:
  • Insist on detailed commitments in writing from the core vendors when it comes to integrating key third party ancillaries. You need specifics regarding how long the integration will be supported, real time versus batch, one-way versus two-way, fields to be exposed, etc. Without this, you are at the core vendors’ mercy.
  • To help keep the vendors honest from a service perspective, demand beefy service level agreements with painfully steep cash penalties for missteps. The Big Four tend to be willing to publish SLAs in their contracts, but they will fight tooth and nail to avoid being on the hook for a cash payment if they don’t deliver. You have to fight that fight.
• Keep Your Service Rep on a Short Leash – With thousands of FIs being served by each Big Four vendor, it is difficult for a bank to get the attention it needs. The types of problems that will abound in our oligopoly are the types of problems that service reps are under-gunned and unmotivated to solve. Banks will have to learn to establish relationships with senior vendor executives and cut the service reps out of the equation quickly when big problems arise.
• Be Selective with Best of Breed – Maybe 60 percent of banks that choose to go best of breed with a particular application have a real strategic reason to do so. The cost and hassle factor of working with an oligopoly and trying to get it to play nicely with others is going to be a backbreaker. With so little vendor motivation to cooperate, CIOs are no doubt facing an even steeper uphill climb to hit their elusive integration goals. For those reasons, banks should raise the strategic bar when it comes to going best of breed.
• Keep an Eye on the Smaller Players – Through the dozens of recent vendor acquisitions and mergers, there are plenty of banks that never wanted to be a client of a huge vendor that now find themselves right there anyway. While harder to find, there are some regional and smaller national players out there worth reviewing. Players like COCC, Corelation and CSI come to mind as worthy of a look if your bank just can’t stomach the big boys anymore.

The sky isn’t falling GonzoBankers, but it’s getting cloudy with a chance of Heavy BS from The Big Four. Change your strategies in dealing with them or the storm will overwhelm you.

-Hodgins 
   
Thanks to fellow GonzoBanker Terence Roche for his significant contribution to this article. -SMH

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