Staying on top of changing consumer demands remains one of the top challenges for financial institutions today. Whether it’s a mobile app that allows account holders to better manage their transactions; the ability to receive text/SMS notifications on transactions over a pre-determined amount or outside of a specified geographical area; implementing card tokenization or offering new technology to account holders will most likely involve substantial costs.
I see this situation play out again and again when talking to an organization about their technology contracts – the high costs can become a roadblock to offering the best possible services to their account holders. However, it is possible to off-set new technology expenses by reviewing and renegotiating your existing service contracts.
For example, take your debit and credit card brand agreements. When was the last time you gave serious thought to why you are using your current card brand? The most common answer I get when posing that question to clients is, “We’ve just always used (brand X or Y).”
While you may feel an obligation to your current brand, the truth is you might not be locked into any contractual agreement with this provider if the decision on which card to use was made years ago, based on the advice of your card processor.
Card contract review pays off in surprising ways for financial institutions
For one Southwestern client, a soon-to-expire debit card contract that had been initiated through the institution’s card processor led to an opportunity for substantial savings and income opportunities. Their management team contacted us to look at the renewal contract the processor had prepared. Without in-house contract negotiations expertise, they weren’t sure whether or not the terms represented the best deal.
After reviewing the contract, we determined that there was an opportunity to get a much better offer by negotiating directly with the card brand providers to see what they would propose. While one company offered a generous signing bonus, a competing brand matched that amount and went further to include various discounts for card processing.
This was a surprise to organizations management who were not aware that it was possible to get additional incentives. As a result, the financial institution signed a contract directly with its original provider and is on track to save more than $700,000 over the life of the agreement.
One aspect of the negotiation that was actually in this institution’s favor was the fact that it did not have a contract directly with a specific card brand going into the process. Both companies that responded to the RFP were motivated to secure the business, which resulted in a better deal for the institution.
It pays to have an expert on your side
When it comes to reviewing card brand contracts, look for an expert negotiator who:
1. Can save you time by doing all of the time-consuming legwork, contract reviews and negotiations
2. Is knowledgeable about what constitutes a favorable deal, based on experience working with other institutions comparable to yours
3. Uses existing relationships with vendors to cut through the red tape, keep the process moving smoothly and get the best possible results
Don’t let inertia cause you to miss out
Reviewing and renegotiating an existing contract, or preparing an RFP for a new vendor, may seem daunting to organizations that don’t feel they have the expertise necessary to get the very best deal. Based on my experience, time and a lack of contract negotiating expertise are typically the main reasons many institutions leave potential savings on the table by letting old contracts automatically renew or accepting mediocre terms offered by their existing vendor without question. Unfortunately, these options rarely provide the best terms and, what’s more, can actually cost more in the long run.
I often ask clients who are wavering on whether or not to enter into a credit or debit card contract review to consider the following questions:
1. Are your account holders requesting card features that your current brand doesn’t offer, such as the ability to turn their credit or debit card off from a mobile app?
2. How do you know if you’re paying more for your services in comparison to your peers?
3. Are you planning to reissue EMV cards to all account holders?
A professional audit of your existing contract can help to uncover areas where improvements can be made and lead to savings opportunities, improved contract terms, service upgrades and increased revenue potential – especially if you haven't had a third-party contract review in some time.
To learn more about uncovering savings opportunities by renegotiating your service contracts contact Kelly Flynn at Kelly.Flynn@JMFA.com or call 800-809-2307.