Could Paring Vendors Help Banks Get an Edge on Rivals?
Bankers know they likely should cull the vendor herd because regulators are increasingly focusing on how they manage those relationships, but doing so could also put them in a better position to compete.
At least that's the hope at Suffolk County National Bank in Riverhead, N.Y. The company has consolidated several vendor relationships to a single very deep one with Fiserv — it is in the middle of a core conversion and is taking on additional five solutions from the giant bank technology firm.
Being in the New York metropolitan area means competing against the biggest banks in the country, said Denise Chardavoyne, chief information officer for the $2.1 billion-asset commercial bank. The move to streamline its vendor list was intended to improve its digital capabilities and free up its technology staff from mundane tasks related to its lattice-style technology so it could be better situated to go up against the big boys.
Too many institutions focus on time-wasting tasks that divert their attention from how to stay relevant in a rapidly changing banking environment.
The financial industry is fractured over a Federal Deposit Insurance Corp. plan to require big banks to temporarily pay more in deposit insurance premiums, with small banks lobbying to force bigger payments over a shorter time frame and many large ones wanting to stretch it out.
Regulators are demanding that banks keep closer tabs on their relationships with third-party vendors, but they have left it to banks to determine which vendors require the most oversight.
"Our clients expect real-time, integrated banking services," she said. "We are in a better position to achieve short and long-term objectives of focusing on innovation; previously we had to dedicate a lot of staff and support to vendor management."
Suffolk's predicament is common — customers are demanding better technology, but bankers are consumed with core legacy issues, including having a long list of vendors associated with trying to bridge that gap.
"We're in a two-speed world," said Nitin Rakesh, chief executive of Syntel, an outsourcing firm that provides automation solutions. "Customers want things done in digital time, not in legacy time, and banks have to figure out a way to navigate the divide."
Banks are going about solving this issue in myriad ways. Some are looking to add vendors like Syntel, while banks like Suffolk are overhauling their core system and deepening their relationship with one vendor. Others would say that adopting a service-oriented architecture is the way to go, because it gives the bank the ability to address some of the core issues while making it easier to pick best-of-breed solutions.
Suffolk began to take steps two years ago as many of its existing vendor contracts were set to expire around the same time. It knew it wanted to have better digital banking and a simplified IT environment, Chardavoyne said.
When adding new solutions from different vendors, "they would be layered on the core, creating a complex technology environment," she said. "It made rolling out new products and services quickly difficult."
Ultimately, Suffolk chose Fiserv last year. Before the conversion, Suffolk's relationship with Fiserv was limited to a wire transfers product. The company declined to disclose its former core provider or the number of vendors it has shed.
The results so far include more standardized processes and the hope for widespread efficiency gains thanks to the reduction of manual processes, Chardavoyne said.
"We have a lot more automation, which allows our employees to focus more on the customer and less on the back office mechanics," she said.
Customers also get uniformity in their experience.
"We want to present the same look and feel across all channels to the customer," she said.
The ability to strip out costs and provide an even experience to customers is driving more banks to go with one vendor, said Eric Jones, Fiserv's senior vice president of product management.
"It's primarily driven by two key factors: a desire for efficiency and tighter integration across solutions, and a focus on enhancing the digital experience for the bank's customers," he added.
And with community banks facing continuing headwinds in keeping up with regulatory and compliance burdens, this trend toward IT consolidation will continue even further, said Jeffery Smith, a lawyer at Vorys, Sater, Seymour & Pease.
"As community banks weather the current storm they are in, with reduced earnings and margins repressed, there are many opportunities to consolidate backroom operations and reduce costs," he said.
In fact, Smith said we may see this trend extend beyond just technology platforms to an industrywide sharing of services, such as sharing credit analysts and accounting firms, among community banks.
"It might be something you see sponsored by a trade association," he said. "IT consolidation and sharing of services helps community banks be more customer-focused instead of worrying about the back room all the time."
Streamlining the IT environment can also help institutions better manage and plan strategic roadmaps for future growth, as employees spend less time on manual processes, said Regina McNeill, senior vice president of market analytics and strategic planning at Origin Bank in Ruston, La. The bank recently implemented a cloud-based strategic planning software platform from the Atlanta-based vendor AchieveIT to streamline their disparate reporting systems and reliance on manual Excel spreadsheets.
"Now we're better focused on where we're headed, and making three-year plans," McNeill said. "It enables us to be forward-thinking rather than always thinking about where we are."
Robert Barba contributed to this story.