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This month, a look at managing your core vendor relationship, and some thoughts on the (seemingly never-ending) scrutiny that OD/NSF fees are receiving.
Expiration Date Alignment: A Key Item When Negotiating Contracts
I spend a lot of time consulting on system selection, renewals, or renegotiations. This includes core software, debit and credit card solutions, and of course digital platforms. Today more than ever you need an advisor in this arena to help you navigate the increasingly complex and vendor-biased agreements you will be asked to sign. I always focus on three broad areas:
A) Feature/Function: getting the right mix of products and services.
B) Relationship Matters: negotiating favorable contract terms and conditions, addressing service and support models, and assessing the compatibility of cultural and business practices between your bank and the vendor.
C) Pricing: getting the right price initially and ensuring a predictable cost of ownership for the life of the agreement and beyond.
The matter I want to bring to your attention this month is contract expiration dates. Often, we encounter issues when a bank’s technology agreements do not expire at the same time. Contract alignment allows you the maximum flexibility whether renegotiating an existing contract, leaving an existing vendor, or negotiating a new contract with a new vendor. We work to make sure all agreements, including third party vendors, are aligned as to expiration. Once you’ve done this to start the agreement, diligence is required to preserve these aligned expirations. You will find that new addendums offered during the life of the original contracts may have differing expirations – be sure to insist that these match the existing contracts. You may have to negotiate odd terms (58 months instead of 60, for example) but it is worth it to preserve a single expiration date. Beyond simple vendor management (when do the contracts expire) this is in fact proper IT management (ensuring that contracts are aligned to support the business plans of the bank, reduce and manage risk, and allow for maximum flexibility in changing solutions as needed).
Renewed Pressure on NSF/OD Fees
As you have no doubt seen, there is a new round of political and regulatory pressure on these fees. Consumers continue to vote for these fees by using these services, but many are determined to take them away. Recently, the CFPB felt inclined to prohibit fees that banks aren’t even charging yet! These fees are for transactions that are declined at the point of sale. A completely unnecessary step, that almost contradicts the current practice of NOT charging for declined transactions.
Still, this scrutiny is not going away anytime soon I’m afraid. To help you stay ahead of the external pressure on these fees, here are a few things to consider:
1) Monitor your fee income for NSF/OD separately, at least monthly. Maintaining an awareness at a management and board level of these fees will help you better anticipate changes that result in reduced fee income. This has value as both a risk management and a budgeting tool.
2) Consider eliminating fees for returned items, especially in those cases when you return an item more than once. These fees are highly visible and can create ill will on the part of your customer.
3) Review your fees for NSF/OD, but be careful about reducing them too much, too quickly. Some institutions have seen usage increase when the per item fee is reduced. At this point, you probably don’t want to do anything that seems designed to increase volume.
4) Make sure that through your marketing materials, and in-person staff contacts you continue to promote the value of your NSF/OD services and encourage prudent use by consumers. Remember that customers still value these services.
5) Advocate for your industry via personal contact with your congressional delegation, and through broader efforts at the state and national banking association level.
As always, I stand ready to help you with these or other matters. Feel free to email, call, or text. I am always glad to learn more about your bank and ways I might be of service.
My speaking and teaching commitments will have me out and about this spring. Upcoming events include Pennsylvania Bankers Technology Conference in March, and GSB at the University of Wisconsin in April.
Trent Fleming
trent@trentfleming.com
901.896.4007
If you are new to my newsletter, you should know that I serve as a trusted advisor to financial institutions. My goal is to help community banks make good decisions on matters of strategy, management, and technology.
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