The Table Stakes of Vendor Partnerships

As an experienced contract negotiation and vendor management consultant, I frequently find myself in the middle of tension between banks and vendors. Many times the disagreements are very specific; other times, clients just do not seem to enjoy doing business with their vendors or vendors seem near-exhausted with the demands of customers. I often feel a like a divorce mediator when I would rather be a life coach for both parties. While no one is likely to believe in some future state where banks and vendors sing Kumbaya together, there are some simple adjustments to the way vendors do business that would set the table for a better working relationship.

Vendors today are fighting a tough battle for an ever-diminishing pie, and a key ingredient for them to keep fueling quarterly earnings is to take market share from their competitors. As the market drives product and pricing closer together, the vendor’s overall approach to relationship management can help create a “straight shooter” reputation in the market and foster an “I just like those guys” mentality in a vendor selection process. It sounds simple, but if the oligarch providers changed their business models and made it easier for financial institutions to do business with them, I believe it would lead to a material long-term gain in market share.

Every day, I have my morning coffee and begin to work with clients negotiating for their major services, and, each morning, I see vendors doing things that give my clients and me heartburn. If vendors really want to be the FI’s “partner,” then the companies simply have to change up how I see them behaving today. There are two priorities that these major vendors must address as “table stakes” to move closer to a partnership relationship. 

Priority #1: Tear Down the Silos
Vendors have been acquiring products and services for many years, and now many resemble the vertical monoliths of the 19^th century. The only difference is technology versus steel. Now, “one” vendor is often a bunch of vendors in individual silos under a common name. But, one company? Not really. The reality is that the major vendors are organized along different products and service lines, and integration among these business units is a constant and frustrating challenge. 

So how do these silos impact clients? Clients view their relationship with providers in aggregate, and the relationship is not just the dollars they spend with a particular business unit. Yet, vendors often fail to acknowledge the overall relationship when discussing specific products or services. We hear too many times from vendors that a client isn’t large enough in their particular area, but when you add up all the parts and pieces, it is a different story. Clients can be ignored by one particular business unit when the overall relationship with the vendor is quite profitable.

In the large FI arena, vendors sometimes empower one person to be the main point of contact for all services. That’s a good start, but it hasn’t yet trickled down to the community bank space. “Have an issue with a core application? Call Moe. Debit processing? That’s Larry. Mobile banking? Ah, well, actually, we just reorganized and both online and mobile are now under Shemp (You may remember Curly – he is no longer with us)”. The specialization makes sense at a detail level, but who is the person to call to mobilize on the overall relationship for major issues? For the most part, that person doesn’t exist today. Clients would prefer to have an easier time navigating through the vendor org chart. Today it is just way too difficult and time consuming! Importantly, this person should be experienced and senior enough to rattle things across various business units in meeting client demands. An account manager cannot be a junior sales associate fervently focused on cross-sell goals without the ability to advise and help a client navigate a behemoth outsourcing company.

Priority #2: Immediately Cease With “Sneaky” Contract Behavior
As much as vendors want their clients to believe the relationship is a partnership, let’s be realistic: it is a business relationship between two parties. As in any business relationship, we need guidelines as to the responsibilities of each party. We call this THE CONTRACT. Here’s the problem: contracts are drafted by vendors, and, out of the gate, they are one-sided to the vendor’s advantage. I spend considerable time and energy helping our clients chip away, piece by piece, at the most onerous provisions to bring the contract to a more even playing field. Sometimes I feel like I’m back on the car lot with greasy Tony. If vendors were to change some of the more one-sided provisions in their standard contracts, it could go a long way toward making it easier to do business with them. This game of cat and mouse damages the vendor’s brand with clients more than it creates any meaningful financial gain for the company. 

Here’s an illustration of some of the most contentious provisions I encounter every day with my morning coffee and how they negatively impact clients. 

• Charging additional fees that should be part of the initial cost equation. This tactic has become a category killer. Want a tablet application for ebanking? Be ready to pay for online and mobile in addition to the tablet application, even if your customer is only accessing via a tablet. Clients see this type of pricing methodology as a way for vendors to get every last dime and certainly not consistent with how the business is evolving.
• Charging customers fees to access their own data. If a financial institution wants to use a different vendor for its online banking application, it’s no problem, right? Except that vendor access fees will now make the online solution prohibitive. If the FI want a download into that omni-channel data warehouse, it can do that – but the vendor will charge a nickel or two to provide access to the data the FI is already paying the vendor to process and maintain. Financial institutions are at a loss to understand why they have to pay two or three times for what they see as the same service. In effect, vendors are trying to create broader relationships by whacking their clients with sticks instead of interesting them with carrots or earning loyalty through outstanding service.
• Not disclosing conversion or deconversion fees in the contract. Surprising clients with exorbitant fees when they have absolutely no recourse besides groveling doesn’t build trust in a relationship. Sadly, the attempts here can be so egregious that the “partners” end up in court.
• Making clients have to ask for all contracts and exhibits to be co-terminus. Clients many times only learn the pitfalls of different terms for different services when it is too late and they believe they are being taken advantage of.
• Not offering reasonable Service Level Agreements at the onset. Good SLAs put some accountability on the vendor to produce a consistent, quality product or service. In an increasingly outsourced and cloud-focused market, it’s just plain crazy that vendors are asking for multi-million-dollar service contracts without demonstrating their own proactive expertise in and commitment to service level agreements.

The vendor’s first opportunity to establish a partnership brand lies in making the boiler plate contracts more fair and transparent. This would eliminate a ton of early discussions with a client that immediately start to taint the vendor’s reputation. A question I like to ask vendors is this: “Would you sign a contract with a major vendor that had terms and conditions similar to those in your boiler plate?” If the answer is no, then adjust accordingly.

As the oligopoly of four major multi-billion players vies for bank outsourcing and software market share, clients are becoming very frustrated with how these vendors are doing business. The same vendors vying for market share and revenue growth are creating environments that are inspiring bankers to unbundle their purchases out of sheer frustration. The vendor that can get rid of the silos and be known as a straight-shooter in contractual relationships will get attention from bankers who need real partners to execute their technology strategies fast. It would be a great moment in our industry if a major vendor forged the reputation of the “most easy to do business with.”

Of course, if all the vendors made it easier for clients to do business with, then demand for my own contract services might plummet. So, scratch that. I would be too bored drinking my morning coffee in vendor and banker Nirvana. Everybody back to what you were doing. I have an egregious boilerplate contract to redline.
-bh

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