SAFE CU Calls Vendor's Bluff, Cuts Costs 25%

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NORTH HIGHLANDS, Calif. — SAFE CU here slashed about 25% from online banking costs after bringing in a consultant to call the technology vendor's bluff.

"Vendors will try to get as much out of you as possible and hide their ultimate price points," explained David Pope, SVP-technology at the $1.6-billion CU. But vendors apparently can't hide from SAFE's hired gun: San Francisco-based Paladin, a consulting firm that knows how low service providers will go.

"Paladin has people on staff who have actually worked for these vendors and know what the price points are," Pope said. "They know what other FIs are paying."

"We have a national knowledge base and 'Blue Book' of market intelligence and pricing data on core vendors," said Aaron Silva, president of Paladin. A library of terms, conditions and covenants for each vendor also works to skew the new contract in favor of the CU. Paladin's arsenal gives the CU knowledge in advance so it can "negotiate powerfully."

Even after paying Paladin for services, SAFE walks away with 20% savings, Pope added. "I figured if I went into the negotiations by myself and really banged on it, I could only get 10%."

The highlight of the negotiations is the money SAFE will save on offering electronic bill payment, Pope suggested. The per-user fee was eliminated in favor of a flat user-fee, with a "small" reduction in the per-item fee to sweeten the deal.

Per-user fees for bill payment programs are common-and crippling. "Bill pay is always growing," said Pope. Bill pay usage at SAFE increases by 12% per year, whereas online banking growth is 8% per year. At that rate, per-user fees for bill pay can get "pretty pricey."

Credit unions don't always go about contract renegotiations the right way, Silva suggested. "They don't have many tools in the chest to get the best market deal. By rote, many turn to the RFP process or threatening to leave as a way to compel the vendor to lower costs, which is a tactic that we, as former vendors, believe will not get you anywhere. We like to catch more flies with honey and so prefer to build a business case that we present to the vendor as their partner."

Paladin's approach is well aligned with SAFE's philosophy, Pope said. "We were two years into our five-year agreement, and it was hard to imagine why the vendor would be motivated to negotiate. So we offered the online banking provider a carrot, which was to extend the agreement we are in the middle of in return for better pricing. We weren't demanding or confrontational because we wanted to preserve our relationship with the provider."

Paladin has worked with credit unions starting at $65-million in assets up to $3.5-billion, saving them an average of $700,000 per five-year contract in 2009, said Silva. "Any contract negotiated in the last three to five years is probably 18% to 42% over Fair Market Value."

Account processing, item processing, electronic funds transfer systems and Internet banking are the focuses of Paladin's negotiations.

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