ABA Banking Journal - November/December 2016 - 31


SPECIAL REPORT > INNOVATION AND TECHNOLOGY

Core Exercises
Community banks seek leverage points with core processors.
BY EVAN SPARKS

O

ne of the biggest pain points
for many community bankers
is their relationship with their
core processor-and this is
a problem because of how
central these vendors are. "We want to
have good relationships," says Micah
Bartlett, president and CEO of the
$740 million Town and Country Bank
in Springfield, Ill. Bartlett notes that for
his and most other community banks,
core processors are the largest single
vendor-"many multiples of our next
highest vendor."
For bankers frustrated with their core
providers, the pain can be most acute
in the contract. With only a handful
large core processors serving more
than 10,000 banks and credit unions,
bankers report feeling over a barrel
when it comes to getting a favorable
deal. "You're just stuck in these
contracts," says Bartlett, a member
of ABA's Community Bankers Council
and chairman of the Illinois Bankers
Association. "Not one of us alone has
enough leverage."
That may change with a new collective
effort to pool community bank
bargaining power. The Golden Contract
Coalition, launched earlier this year,
claimed 165 interested financial
institutions representing $1.45 billion in
contract value as of late August.
GCC's goal is what founder Aaron Silva
calls a fair, balanced, market-confirming
and compliant master agreement for
core processing services. The Golden

Contract would have real teeth, Silva
says, replacing unenforceable service
"objectives" with real service level
agreements. It would complement a
base master agreement with customized
contract terms but standard pricing for
different core processing modules that
institutions might choose.
Silva-founder of a consulting firm
that works with financial institutions to
negotiate core contracts-combined
his experience with expertise from the
law firm Pillsbury, which has negotiated
hundreds of billions of dollars' worth
of IT contracts for major Silicon
Valley companies.
How will the GCC get the large core
processors to play ball? "This is a
business opportunity to the vendors," he
says, pointing to the "friction" caused
by the current individual negotiating
process. In 2009, the average core
contract took 84 days to negotiate;
today, it takes 180 days. Even if core
providers win on most points, individual
negotiations are costly and cumbersome
for the vendors.
Silva insists that core processors
want to end that friction and the sore
feelings it leaves with bankers. "Vendors
understand that every time they come
up for renewal, it causes great tension
and erodes goodwill between the bank
and the vendor," he says. "We want all
that to go away."

Pro-growth
Key to the Golden Contract is that it

would reward growth. This is a sore
spot for Bartlett, whose bank recently
concluded an unexpected merger that
brought 40 percent more processing
volume to the bank. His core didn't
have to spend a dime on marketing
or incentives to add that revenue; "it
just fell into their lap," says Bartlett, a
GCC member.
"As a community bank, we work with
our customers," Bartlett adds, noting
that he works with customers-say,
dropping a rate if a customer can bring
new business or add new products.
But when he sought to renegotiate the
contract to reflect the higher volumes,
he found his provider unwilling to touch
the contract unless they signed up for
a new six-year term-with no provision
for other problems Bartlett's bank
had experienced.
Under most contracts, "it costs more to
terminate a contract than it does to let
it run out," Silva notes. "It's pay-to-play
and pay-to-leave."
Ironclad contracts can also hinder
innovation. Many core contracts "do not
address the ability for a bank to leave an
offering if it becomes uncompetitive,"
Silva says-leaving banks at risk of
being outpaced by innovation simply
because of these contracts.
"It's hard to imagine any other business
where you have this vendor who's
not keeping up in a major area and
yet you have absolutely no leverage,"
says Bartlett.
aba.com/BankingJournal | ABA BANKING JOURNAL

31


http://www.aba.com/BankingJournal

Table of Contents for the Digital Edition of ABA Banking Journal - November/December 2016

Chairman’s View
Upfront
Picture This
Banking’s ‘Amazon Moment’
Special Report on Innovation and Technology
Building an ‘Internet of Value’
Do You Do What the Data Tell You?
Innovation in the Bank
Core Exercises
Cover Story Pillar of Her Community
Maintaining a Commitment to Ag Customers
Who You Gonna Call?
Anti-Money Laundering
Power Up Profile
Compliance ‘When Can I Call My Customer?’
Risk Management
ABA Compliance Center Inbox
From the States
Corporate Social Responsibility
Index of Advertisers
ABA Banking Journal - November/December 2016 - bellyband1
ABA Banking Journal - November/December 2016 - bellyband2
ABA Banking Journal - November/December 2016 - cover1
ABA Banking Journal - November/December 2016 - cover2
ABA Banking Journal - November/December 2016 - 3
ABA Banking Journal - November/December 2016 - 4
ABA Banking Journal - November/December 2016 - 5
ABA Banking Journal - November/December 2016 - 6
ABA Banking Journal - November/December 2016 - 7
ABA Banking Journal - November/December 2016 - Chairman’s View
ABA Banking Journal - November/December 2016 - 9
ABA Banking Journal - November/December 2016 - 10
ABA Banking Journal - November/December 2016 - Upfront
ABA Banking Journal - November/December 2016 - 12
ABA Banking Journal - November/December 2016 - 13
ABA Banking Journal - November/December 2016 - 14
ABA Banking Journal - November/December 2016 - 15
ABA Banking Journal - November/December 2016 - Picture This
ABA Banking Journal - November/December 2016 - 17
ABA Banking Journal - November/December 2016 - 18
ABA Banking Journal - November/December 2016 - 19
ABA Banking Journal - November/December 2016 - Special Report on Innovation and Technology
ABA Banking Journal - November/December 2016 - 21
ABA Banking Journal - November/December 2016 - 22
ABA Banking Journal - November/December 2016 - Building an ‘Internet of Value’
ABA Banking Journal - November/December 2016 - 24
ABA Banking Journal - November/December 2016 - 25
ABA Banking Journal - November/December 2016 - Do You Do What the Data Tell You?
ABA Banking Journal - November/December 2016 - 27
ABA Banking Journal - November/December 2016 - insert1
ABA Banking Journal - November/December 2016 - insert2
ABA Banking Journal - November/December 2016 - Innovation in the Bank
ABA Banking Journal - November/December 2016 - 29
ABA Banking Journal - November/December 2016 - 30
ABA Banking Journal - November/December 2016 - Core Exercises
ABA Banking Journal - November/December 2016 - Cover Story Pillar of Her Community
ABA Banking Journal - November/December 2016 - 33
ABA Banking Journal - November/December 2016 - 34
ABA Banking Journal - November/December 2016 - 35
ABA Banking Journal - November/December 2016 - 36
ABA Banking Journal - November/December 2016 - 37
ABA Banking Journal - November/December 2016 - Maintaining a Commitment to Ag Customers
ABA Banking Journal - November/December 2016 - 39
ABA Banking Journal - November/December 2016 - 40
ABA Banking Journal - November/December 2016 - Who You Gonna Call?
ABA Banking Journal - November/December 2016 - 42
ABA Banking Journal - November/December 2016 - 43
ABA Banking Journal - November/December 2016 - Anti-Money Laundering
ABA Banking Journal - November/December 2016 - 45
ABA Banking Journal - November/December 2016 - 46
ABA Banking Journal - November/December 2016 - Power Up Profile
ABA Banking Journal - November/December 2016 - 48
ABA Banking Journal - November/December 2016 - Compliance ‘When Can I Call My Customer?’
ABA Banking Journal - November/December 2016 - 50
ABA Banking Journal - November/December 2016 - Risk Management
ABA Banking Journal - November/December 2016 - ABA Compliance Center Inbox
ABA Banking Journal - November/December 2016 - 53
ABA Banking Journal - November/December 2016 - 54
ABA Banking Journal - November/December 2016 - From the States
ABA Banking Journal - November/December 2016 - 56
ABA Banking Journal - November/December 2016 - Corporate Social Responsibility
ABA Banking Journal - November/December 2016 - Index of Advertisers
ABA Banking Journal - November/December 2016 - cover3
ABA Banking Journal - November/December 2016 - cover4
http://www.nxtbook.com/naylor/BAKS/BAKS0318
http://www.nxtbook.com/naylor/BAKS/BAKS0218
http://www.nxtbook.com/naylor/BAKS/BAKS0118
http://www.nxtbook.com/naylor/BAKS/BAKS0617
http://www.nxtbook.com/naylor/BAKS/BAKS0517
http://www.nxtbook.com/naylor/BAKS/BAKS0417
http://www.nxtbook.com/naylor/BAKS/BAKS0317
http://www.nxtbook.com/naylor/BAKS/BAKS0217
http://www.nxtbook.com/naylor/BAKS/BAKS0117
http://www.nxtbook.com/naylor/BAKS/BAKS0616
http://www.nxtbook.com/naylor/BAKS/BAKS0516
http://www.nxtbook.com/naylor/BAKS/BAKS0416
http://www.nxtbook.com/naylor/BAKS/BAKS0316
http://www.nxtbook.com/naylor/BAKS/BAKS0216
http://www.nxtbook.com/naylor/BAKS/BAKS0116
http://www.nxtbook.com/naylor/BAKS/BAKS0615
http://www.nxtbook.com/naylor/BAKS/BAKS0515
http://www.nxtbook.com/naylor/BAKS/BAKS0415
http://www.nxtbook.com/naylor/BAKS/BAKS0315
http://www.nxtbookMEDIA.com