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Weighing the Benefits and Risks of Outsourcing Technology Management

By Kelly Flynn, National Director

balanced scale

As community banks and credit unions continue to look for ways to maintain efficient processes and reduce expenses in order to use their resources to provide customers with the products and services they demand, interest in outsourcing information technology (IT) services is on the rise. By outsourcing these important functions, banks and credit unions can use their resources more effectively to provide account holders with the products and services they demand.

With proper management, outsourcing relationships can be successful 
For organizations with limited internal technology resources or expertise, outsourcing such IT functions as data processing, online banking, debit card processing, ATM networking and item processing to a third-party provider can be a vital step toward maintaining a competitive advantage. Doing so can improve the quality and delivery of services, increase efficiencies and savings on hardware and software costs, and allow personnel to concentrate on initiatives focused on account holders. That said, choosing the right vendor and the appropriate services to meet your institution’s needs can turn into a completely new – and potentially costly – challenge if not managed properly.

To avoid risks that can far outweigh the benefits of outsourcing, due diligence at the vendor selection stage is vital. You can prevent unexpected problems, by asking yourself these questions before contracting with a third-party provider:

• Does the vendor have strong compliance credentials to protect the financial institution from regulatory scrutiny?
• Are the vendor’s systems robust enough to protect you from system failures?
• Does the vendor have strong financial resources to insure long-term service?
• Are the vendor’s practices in line with the financial institution’s mission?

Proper management of the relationship is essential for avoiding potential risks that can adversely affect earnings, service standards, operations and compliance. On-going monitoring of contract terms can also ensure that proper controls and contingency plans are in place, giving you confidence that you are getting the best service at the best price, and that your vendors can accommodate any operational changes the bank or credit union might experience in the future.

System security remains a key regulatory concern
From a regulatory perspective, management must be sure that technology vendors provide security throughout the network and customer portals to ensure data privacy, data and system security, business continuity and contingency planning. In addition to disrupting business, security breaches can be devastating to an institution’s reputation and account holder relationships.

When you’re ready to increase your technology capabilities, an expert in IT services contract review and negotiations can help to make sure you are getting the products and services you need to meet your operational and customer service goals, while maintaining compliance with all regulatory expectations.


To learn more about ensuring you’re getting the most out of the terms of your service contracts or to receive an assessment of your vendor contracts and savings opportunities contact Kelly Flynn.

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