Artisan Advisors Unfiltered

Artisan Unfiltered: True or False - Core Vendor Technology Belongs in Your Bank’s Strategic Plan

May 10, 2024 Artisan Advisors, LLC Episode 13
Artisan Unfiltered: True or False - Core Vendor Technology Belongs in Your Bank’s Strategic Plan
Artisan Advisors Unfiltered
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Artisan Advisors Unfiltered
Artisan Unfiltered: True or False - Core Vendor Technology Belongs in Your Bank’s Strategic Plan
May 10, 2024 Episode 13
Artisan Advisors, LLC

TRUE. And absolutely essential.

“After personnel, your bank’s biggest cost is likely your core vendor contract. If it’s not working in service of your overall strategic plan, then it’s just not working.”

- Jim Adkins, Managing Partner, Artisan Advisors

In the latest episode of Artisan Unfiltered, “Core Vendor Technology and Your Strategic Plan,” our team of experts – Steve Heckard, Matt Bergman, Jim Adkins and Jeff Voss – dive deep into the complexities of negotiating the core processing vendor agreement that will drive your strategic plan.

You’ll get great advice on:

· Hidden landmines that may be lurking in your contracts

· What to look for in a vendor to know if it’s right for your bank

· What you should be doing right now to ensure a smooth renewal or conversion process Listen here and contact Steve or Matt to get a pulse on whether your current contract is setting your bank up for success.

You’ll also learn more about whether a Virtual RFP is right for your bank.

For smaller institutions, Artisan Advisors offers its vRFP – a comprehensive contract review process which is implemented virtually to minimize engagement fees and provides project management, industry knowledge and overall assistance with a competitive vendor review. We perform significant due diligence in reviewing existing contracts, invoices, bank strategies and objectives, and how the bank utilizes the services being received. We also use the vRFP to define bank requirements and collect vendor due diligence. Artisan manages the entire process, provides financial analysis of proposals, and negotiates contract terms, resulting in a contract that works for the bank and helps them achieve their strategic goals.

Show Notes Transcript

TRUE. And absolutely essential.

“After personnel, your bank’s biggest cost is likely your core vendor contract. If it’s not working in service of your overall strategic plan, then it’s just not working.”

- Jim Adkins, Managing Partner, Artisan Advisors

In the latest episode of Artisan Unfiltered, “Core Vendor Technology and Your Strategic Plan,” our team of experts – Steve Heckard, Matt Bergman, Jim Adkins and Jeff Voss – dive deep into the complexities of negotiating the core processing vendor agreement that will drive your strategic plan.

You’ll get great advice on:

· Hidden landmines that may be lurking in your contracts

· What to look for in a vendor to know if it’s right for your bank

· What you should be doing right now to ensure a smooth renewal or conversion process Listen here and contact Steve or Matt to get a pulse on whether your current contract is setting your bank up for success.

You’ll also learn more about whether a Virtual RFP is right for your bank.

For smaller institutions, Artisan Advisors offers its vRFP – a comprehensive contract review process which is implemented virtually to minimize engagement fees and provides project management, industry knowledge and overall assistance with a competitive vendor review. We perform significant due diligence in reviewing existing contracts, invoices, bank strategies and objectives, and how the bank utilizes the services being received. We also use the vRFP to define bank requirements and collect vendor due diligence. Artisan manages the entire process, provides financial analysis of proposals, and negotiates contract terms, resulting in a contract that works for the bank and helps them achieve their strategic goals.

Artisan Unfiltered #14

Jim Adkins: [00:00:00] Thanks for joining us today on Artisan Unfiltered. Today's topic is core processing and vendor selection and how this should be a strategic process. I am Jim Adkins and with me is Jeff Voss. We are the managing partners of our Artisan Advisors. Along with Jeff and me are Steve Heckert and Matt Bergman.

Steve and Matt run Artisan's Core Financial Technology Group, which assists financial institutions with issues surrounding core processing, digital banking, loan origination platforms, and managed services. Thanks Both Steve and Matt have many years of experience in financial technology and are, like everyone at Artisan, focused on providing community financial institutions advice and solutions to make them better.

Welcome, Steve and Matt, and let's just jump right into it. My first question, gentlemen, are, do institutions, as you see it now, do they do a good job considering The issue of core technologies in their strategic plans.

Steve Heckard: Some better than others, [00:01:00] Jim, you know, some banks are really focused on that. Other banks, which is fine, are, are, are more reliant on their core vendor to lead them in technology.

Jim Adkins: So when they do that, Steve, you know, if you're relying, I get, you know, I get, you know, you're, you're paying these core vendors or it's a, it's a very expensive situation. We'll talk more about that, but do the core vendor, do you see them participating with the banks in the strategic process? I mean, do you see them trying to understand?

What the banks or the credit unions are trying to do, and then actively trying to see how their solutions fit into that, do you see that happening?

Steve Heckard: Not enough,

Jim Adkins: Yeah.

Steve Heckard: you know, not nearly enough. It should be, it should be. And, and, and quite frankly. [00:02:00] If, if the core vendor is not requesting an update annually after the bank sets their strategic goals for the new year, the bank should request a meeting with their core vendor and be fully transparent on what their objectives are for the next year,

Jim Adkins: You know, I, I think that's so important because, you know, we, you've got the creative, the creative people in the bank and, and you've got marketing people and people are always trying to come up with new products and solutions. And sometimes I think, uh, our, you know, clients or banks and credit unions in general, They make the mistake of thinking about the core and its capabilities last instead of first, right?

Instead of saying, oh, can, can, can we do these types of things? I think they assume that the core technology that they have can just do everything. And, you know, that'll take care of itself. And in many cases, and we've seen this, That's not the case. So that real special product that [00:03:00] someone wants to put in or that, that new, maybe a FinTech relationship that they want to pursue is just not possible because they didn't ask that core issue question early in the, in the process.

Steve Heckard: right?

Matt Bergman: Great.

Jim Adkins: Yeah,

Jeff Voss: So, so I see, I see a difference between larger institutions and smaller banks in the, um, the strategic planning process, if you will, that larger institutions, um, usually the CIO or the CTO, Are involved in a strip. They call it their strategic plan itself for technology, and it it usually considers the core pretty well in terms of its capabilities.

What I what I don't see is the smaller banks. [00:04:00] Having a process that is as robust as the larger institutions and, you know, the, the level of documentation, the level of thought process, Jim, I think is exactly what you're talking about in smaller banks. Um, they, they don't consider the core. In the, in the strategic planning process and, um, and again, it's probably more of a matter of size and the people that are running the technology group itself.

So guys, can you comment on that as it relates to the, you know, the clients that you deal with small, large. Uh, does that make a difference, if you will, not the small, large, but the quality of the people involved?

Matt Bergman: Yeah, Jeff, I would agree with you on that. I think, you know, in your larger community banks, you're, you're seeing that they're meeting quarterly with their core providers, right? They're, they're, they know what's happening. [00:05:00] They know what's going on. They're strategically planning things as they go forward, but in a smaller community banks, you know, we'll throw an asset size out there, but the really smaller ones, they're lucky to meet with them once a year.

You know, uh, from, from that standpoint, or maybe it's just when things are bad, uh, there's their meeting with them. So they're not, they're not strategically planning those things out there.

Jeff Voss: Yeah. Yeah. Steven, do you have any additional thoughts on that with your clients?

Steve Heckard: core vendors today. Have a vast menu of offerings and, and, and, you know, it, it may not be the core solution itself, but it's coming from the core vendor. So obviously every bank needs, needs to be in discussion with their core provider about what else they have to offer. And, um, you know, if nothing else.

mandate the meeting. There's no reason it can't get done, even if it's through Teams or Google Meet, [00:06:00] whatever. Have some type of interchange. Uh, you know, the smaller bank, unfortunately, is getting forgotten in many cases by the core

Jim Adkins: right. And the smaller bank.

Jeff Voss: you ever seen, have you ever seen, I'm sorry, Jim. Have you ever seen guys, the, in a, in a strategic planning process, the core vendor participate in that process itself? If they've ever been asked in your, in your world as consultants. Uh, have you ever been asked to participate in the process itself?

Steve Heckard: I have not seen that

Jeff Voss: Yeah. Yeah, I've not either. And oftentimes I, I struggle as to why they wouldn't be part of that. Um, so that the board understands the seriousness. Of it. And, um, you know, what I, what I see [00:07:00] is the president or the CFO in these smaller institutions fumble their way through an explanation. If even if they talk about it, right?

A lot of times you don't even talk about it. Um, with, um, The, uh, uh, core solutions that are out there and how, what needs to be done to integrate the, the core in with their strategic plan and perhaps new products and services that they're going to be offering.

Jim Adkins: Well, you know, it's the smaller banks. They wear so many hats, you know, if you get a, and I know we're going to talk about, uh, some cool things that we do in this regard to try to help this process, but they, the smaller banks president is, you know, he's the president. Sometimes he's the president and the CFO and the chief credit officer.

And there's just so many hours in the day. And I think, you know, Sometimes banks, smaller banks, especially make the decision, [00:08:00] uh, and it's, I don't know if it's a decision that they consciously make, but they just want to get it over with, right? They just want to get the process done and get it signed up and inked and moving and and when they do that I think we we They miss this, the long term, the strategic aspect of it, just because they just don't have the right advisors, the right support staff, uh, in, in, in going through the process.

One thing I, just on a practical level, you know, what, give us some timeframes and how, uh, banks, whether small or large, you know, when should they start doing this? When should they start thinking? Let's say that they've. You know, they, they have a, uh, contract that's going to be coming up at some point in the future.

And when should they start actively forming that committee and getting that process going? How does that work in terms of like a timeframe or timeline?

Steve Heckard: You know, three years [00:09:00] ago, I would have said 18 months, 12 months, 18 months in advance. Now, uh, there's so much turmoil in, in the market at least 24 months. And, and the reason I say that is you want to allow enough time to, um, execute a competitive analysis. It can get very complex at times. We also have to allow time to get converted.

Many vendors today have their conversion calendars filled for a year in advance. So if you make your decision 12 months before your expiration date, I can't guarantee you're always going to find a conversion slot available, but you should at that point. You should, you should be able to, the worst thing is to happen.

Is to make a decision and then you can't convert for six months after your expiration that gets extremely expensive and in some cases, Matt and I [00:10:00] know of one, uh, one of the vendors involved in a deal we're working with will not extend the contract on a month to month. They're mandating a five year renewal.

Jim Adkins: Oh, goodness.

Jeff Voss: Wow.

Steve Heckard: it creates all kinds of, yeah, yeah, it's a mess and it's just, it, it, it's, it, it's a handcuff is what it is.

Jim Adkins: You know, you, you mentioned that the state of the, the state of the market. What, Matt, why don't you give us a sense of what's happening out there? I mean, there's been a lot of changes. Uh, we know there's, everyone's talked about FinTechs and all this stuff. And then, but the core, the core world, the core processing, processing world rather, has had their own changes.

So give us a sense. Of what's happening there. And, uh, so that our listeners can kind of take that into the decision making, uh, uh, process.

Matt Bergman: Well, I mean, there's, they're really broken down into two categories, right? You have your big three, uh, which we all know who those are. And then, you know, you have your, your secondary ones after that. And the secondary [00:11:00] ones, you're, uh, they were classified as tier two. I wouldn't really classify them as tier two.

They, they could do everything that, uh, the big three can do. Um, they're having some very successful years. Over the last three years, they've done a great job of, uh, penetrating that market, um, gaining, gaining new customers. Uh, as Steve said earlier, conversion slots are full. Uh, they're, they're full for a year out.

Some are, some are more than a year out. Some are, some are 14, 16, 18 months out, uh, which is making it a challenge. And there's only so many conversion weekends every, every year. So, uh, the, the, the longer time that those have to, to do those analysis, the better. There's so much involved in the core, right?

Cores is not deposits loans and GL, you know, it's internet banking. It's Teller. It's it's, it's everything and anything in between it's mobile. And it's not just a, it's not just an easy decision anymore. And seen a lot of banks looking at [00:12:00] where it used to be all, uh, you know, best of Best of suite. Now you're seeing some best of breed out there where banks are going to look to bring in internet banking and maybe the course stays where it's at, but they're going to change internet banking solutions throughout the process.

You

Jeff Voss: So, so what's, what's driving, you know, Steve or Matt, what's driving this shift from the large, the big three to the second tier, if you want to, don't want to call it that, but we are, um, is it the, if the products are the same, it's got to get down to service.

Steve Heckard: Most definitely. Most definitely.

Matt Bergman: know, everyone's got a product that supports the community space. You know, every, every vendor we can mention has a product to support the community space, but do they have the support infrastructure to support the community space?

Jim Adkins: does the,

Steve Heckard: And they do,

Jim Adkins: just,

Steve Heckard: Well, do they even have the intention of[00:13:00] 

Jim Adkins: yeah, exactly. That's

Steve Heckard: And we're seeing, we're seeing some vendors pull away from the smaller community banks. And so that limits your choices if you're looking for a new

Jim Adkins: so, yeah. So Steve and Matt, I, you know, listen, I, you know, companies can operate in a space they want to operate in, right. That's the way it is, but how do they, when they pull out, when they, when they consciously say, you know, we're not, we're not going to be supporting smaller banks, how do they do that? Do they?

You know, they don't make a pronouncement, do they? They didn't say, Oh, we are no longer really supporting you. We don't really want you anymore. I don't hear them saying that, but what, how do they do that? Do they just not support it with people and customer service? Is it a pricing mechanism where they just go in and start putting a big premium on their contracts?

Well, how do they execute that process of moving away from a particular size bank?

Steve Heckard: Jim, interestingly enough, Matt and I were on a presentation [00:14:00] by a major Major provider and, uh, the president of the company, or I think somewhere on the sea level was making, uh, talking about their penetration in each of these different asset size categories and how well they've done, and they started at 250 million, they didn't talk about the goal.

We were not really focused on. The market below 250. Okay. So that's pretty obvious what their intentions are. It's also telling us consultants that if we've got a 200 million bank, we're probably not going to approach them as an alternative, you know? So yeah, they're out there telling it. It's subtle. It's subtle or you see their pricing their pricing comes in and they're an outlier you can do business with it but our our rate And uh, you know it it it becomes telling when you do this enough with [00:15:00] enough vendors You know those vendors that are truly interested in small banks and those that would rather spend their time with much larger institutions

Matt Bergman: Jim, we've had on multiple occasions, um, we've had on multiple occasions Certain vendors will not propose, will not, uh, will not go with an RFP, will not do anything from a standpoint, depending on an asset size.

Jim Adkins: okay.

Matt Bergman: So,

Jim Adkins: Well,

Jeff Voss: so

Steve Heckard: I understand they have resources. They have resources that are being stretched really thin right now You Because there's so much business available. And like Matt said, you only have a certain number of conversion slots per year. You

Matt Bergman: they want to fill that with a,

Steve Heckard: from those slots.

Matt Bergman: do they want that to

Steve Heckard: you know, you go for the larger fish.

Jim Adkins: well, and the

Jeff Voss: so I'm a small, I'm a small bank. It's, it's, and One of the big three legacy systems. [00:16:00] Um, what am I, what am I looking for? Red flag, if you will, that's going to be waved in front of my face, um, to lead me to understand that the next time my contract comes due, I should be looking elsewhere other than somebody telling me directly, or is it, is it.

Again, support, where support starts to wane. Is it, you know, an indication that they're going to move, you know, off of, require that these banks move off of their existing legacy systems? Tell me what, what to expect.

Steve Heckard: I think you'll hear it from your staff. The frustration exceeds a certain level and certain banks are more forgiving than others. But once, and in some cases you might see a support mechanism within your vendor has been eliminated. That position. [00:17:00] We've seen that occur, and it just creates. More delays in getting resolution.

Now you mentioned sunset of core solutions. There are too many core solutions out there today. Uh, no one's going to come out and say, we're going to sunset our XYZ product. That has to happen in the future. As we get in through another cycle of, of mergers and acquisitions, we've been kind of dormant on that for a while.

It's picking up. That puts more pressure on, on some of these vendors, you know, how many, what's their minimum level of number of clients. And in some, in some cases we know the vendors no longer selling into one of these, I don't want to call it dormant, but they're not selling that solution anymore. It's only it's customer base is only, only going to dwindle at some point in the [00:18:00] future.

And I'm not suggesting any vendors taking that step today, but it's inevitable. It's inevitable. It's going to occur.

Jim Adkins: You know, I, you mentioned a customer, sir. I remember when I was running the bank. Um, it seemed like, and I, you know, the core provider will remain nameless because, uh, you know, we're, we're going to be nice, but, uh, we had a new rep. I don't know, every three months, it seemed like, and, uh, I don't know. And we were, you know, we're a multi billion dollar institution.

And, and I didn't feel like, you know, I know that it was very frustrating because as soon as we kind of developed a little bit of relationship, The person either left or got transferred and it was, it was really frustrating. And, uh, uh, I, I do remember that. So when you said that, that hit home, it just, the staff would come to me and say, boy, I guess what?

We got another rep. And I said, Oh, really? We just, I thought we just got it. Well, there. Got a new one now. So that that definitely hits home. And it's very frustrating [00:19:00] for our, our, our, uh, banks and community credit unions. What about, is there, because of this, in that same vein, is there still a lot of turnover at the big providers?

Are there people circling, cycling rather, in and out of those places? Or has that, is that the case? And if it is, is it, is it slowing down at all? Or is it just the turnover continuing?

Steve Heckard: It's been more now than it has been, let's say 10 years ago. It was really stable. And now it's, you know, and some of it's pandemic. Some of the people are aging out. I get that. That happens. And, you know, new people come in. Uh, but yeah, I think there's been a fair amount of turnover. Don't you agree, Matt?

Matt Bergman: I, I agree. Yes. And Jim, you brought up a point earlier, you know, I, I think vendors in the past did a good job of separating what I would call account management and service. And, you know, they would have a [00:20:00] service manager, have an account manager with the account manager was concentrating on the account, you know, grow and grow into products and so forth within the, within the bank itself and let the service manager deal with the service issues and kind of the day where we're seeing a lot of those service managers.

No longer in existence or get to a number that is just very difficult to manage, you know, where they may have had 10, 10 to manage. And now they're looking to manage 20, you know, 20, 30 banks at a time. So I think that's causes some, some turmoil as

Steve Heckard: And then And in five years, we're going to be talking about this though, in terms of AI, AI support is from, from core, which is going to change the landscape on service

Jim Adkins: Yes, absolutely. That status is so true. I mean, I'm seeing it now and, um, you know, it's, it, that's an interesting, you know, if you're having, and here's the thing, if you're not having great customer service now, uh, [00:21:00] if you don't do that AI thing, correct, I don't know what the future is going to hold for your organization, uh, because that's going to be, uh, that's going to be a tough, a tough, uh, transition and.

And, uh, that's an, that's very good point. It's very, the whole customer service and, uh, from industry to industry is going to be so dramatically affected by AI. It's going to be just crazy. And I think it's, you know, we're talking about, you know, having people and, and, and people available and turnover and things like that, you know, is it going to cost the core industry jobs?

Are there going to be less people available to talk to in person? I mean, those are things that are, are going to be, uh, you know, we get, we'll have to consider, I guess,

Steve Heckard: I agree, Jim, it's going, it's going to reduce. And I think a movement to AI in most industries now is to reduce expense, not necessarily to improve service. I'm [00:22:00] not specifically talking about core vendors. I'm talking about all of them. You know, in many fast food restaurants now, you've got to go in and hit a touch screen for food.

They, you know, they've eliminated that last mile and that last mile in a, in a core vendor is your account manager, your service reps and so forth. And If that can be automated,

Jim Adkins: Oh, that's going to happen because, you know, think about, you know, like say in the wealth management world, right. Where of course, you know, if you had a certain amount of assets, uh, you know, see whatever that amount of assets, they have a million dollars in assets. You know, you're going to call your, you can call somebody and talk to somebody, but if you happen to be, You know, someone that maybe just starting out or just somebody doesn't have that, that kind of assets, whatever, for whatever reason, you maybe have 100, 000, you don't have the luxury of calling a person, you've got to go through the robotic.

Jeff Voss: self serving.

Jim Adkins: I, you know, you, you can see that happening with [00:23:00] this core technology thing where the smaller banks, which we were talking about earlier. You know, they're just not really going to have a rep. They're going to have a, you know, a help desk. And, uh, that is not a way to handle such an important and strategically, um, uh, you know, a strategic, a strategically important issue like we're talking about and having to go through a help desk, so.

I think there's a way, you know, like we're doing in artisan, we, I love, we love, we all love small banks, right? We, we love small banks and we give them the best service we can. And maybe some of these providers, these core technology, we'll see that there's a market there for the smaller institutions. We'll, we'll have to, we'll have to see.

Jeff Voss: So I'm, I'm a small institution. I've got red flags popping up around me with service, uh, perhaps it's delays in getting a product installed. Maybe I [00:24:00] can't get a face to face with my, my rep. What are my, and I'm in the middle of a, of a five year contract. What do I do?

Steve Heckard: It's a good question, Jeff. And I want to step back a little bit. Let's remove the parameters. Let's focus on what every bank should do. Because you can't, you cannot foresee the future. We found out in 2020 how good our crystal balls are. Not so good, right? Who foresaw what was ahead of us in January of 2020.

So you may be satisfied with your vendor now, but conditions change. And in some cases they've changed quite a bit. So what I propose, you know, Matt and I talked about this earlier. Think through where your bank is today. If you had to face a conversion to a new vendor in the future, what do you need to do [00:25:00] today?

Because it's too late to unravel something if you're two years in front of your expiration date. You need to think like, like a tabletop exercise on disaster planning. You step through all of this, you discuss it all, and you find out where you need to improve before the disaster hits. That's exactly what we're recommending here for, uh, facing a bank conversion. Now, once you start that process, then you need to look at Expiration date, right, Matt? I think we've had a few cases here. You can talk about. For for that

Matt Bergman: Yeah. You know, expiration dates. If you, if you look at it, there's a, From a bank's perspective, there's a lot of contracts they have, right? You know, you may have your core, you may have your, your network provider. You may be outsourcing your ATM EFT to a different provider. Even internally, you might have everything under one umbrella, but does [00:26:00] everything co terminus.

Right. That's a big one. I mean, having everything lined up together. So when it does take, make time to make a change, you can make that change. Um, if not, you know, you could be stuck. You could be held hostage. You know, that's where a lot of, a lot of banks feel right now. They're held hostage by their, their provider.

Um, I know a couple of vendors that that's a, that was a big deal for them was to make sure their agreements weren't co terminus. Um, that was a big internal push from, from, from vendors. Um, which is, which, when you think about it from their perspective, it makes it very difficult for the bank to leave. Um, if I got my core.

Steve Heckard: expensive.

Matt Bergman: Or very expensive. I got my core expires, you know, one year. And then I got my ATM EFTs two years after that, you know, do I bite the bullet and pay those two years out on that agreement? Do I, do I write it out? Can I, no one's doing short term agreements. Um, so I think that's a big key is making sure those [00:27:00] agreements line up.

Um, we're engaged in a couple of transactions where unfortunately our banks are held hostage and they're, they're stuck. And now stuck this time around, but next time around, as Steve mentioned earlier, we're helping them prepare for that next decision, um, and lining them up. So they can make that decision down the road and they, and they, and they decided to deconvert and move to a new system, they can do it at a cost point.

That makes sense to the bank and it makes sense to the board.

Steve Heckard: I'm working with a client today that is extending their core expiration to be coterminous with their card solutions provider, which is further out in the future. So they have their two different companies. But they're now going to be coterminous. So they're in steps that they need to take today rather than two years out from their core expiration.

They're not anticipating making a move, [00:28:00] but they're preparing themselves strategically so that they could move if it's necessary. A lot of banks aren't looking at it that way. And Matt mentioned also, um, when you install a new service from your core provider, In many cases, that service expiration date is unique to that service.

It may be five, five years from date of first use, which may be three years after the core contract expires. And it's just cumbersome, but you know, Bankers have to take control of that and make sure, make sure they have everything aligned so they can go through a conversion.

Matt Bergman: We talked earlier about best of breed, best of sweet, you know, as, as banks are looking outside now to bring in additional solutions or, or replace additional solutions that throws [00:29:00] that monkey under the wrench too, with all of those that, that can come up at different times.

Jim Adkins: it's a, you know, it sounds a little bit, well, a lot like a chess match. I mean, you really got to think your moves ahead because of all these other factors that, you know, may come to trip you up. And, you know, back to what, how we started this conversation. this conversation. I mean, delay the implementation of your strategic plan and some of the things you want to do.

It could get bogged down in these details of your contract and lose a couple years. And that's not gonna make, you know, management team happy, the investors happy, the shareholder all. No one's gonna be happy. Even the regulators are gonna be happy because they, you know, they look at strategic plans to in many cases.

So really have to take the time to look down the field. That's that's a really good point. So

Steve Heckard: And beyond contract dates, the bank has to look at their own staffing. Matt and I know multiple occasions. [00:30:00] Where the, um, CEO has told us president, whatever their structure is, that our staff's not capable of going through a conversion now, they can't make a change. That's the worst of all worlds to be in.

And that's something that quite frankly, can be avoided in time through additional cross training and things of that nature, anticipate retirements and things of that nature so that your staff can always be ready to go. Three years from now whenever to go through a conversion that shouldn't hold up any bank

Jim Adkins: Do you see, you know, you've got the big three, you know, and that's great. Uh, and then you've got these, the next level that are, you know, in, in many cases, in most cases, just as good at what they do, you know, they do real fine job as well, um, in, in terms of the. Implementation. Okay. You know, they, they're, you're converting to them [00:31:00] are the second tier.

And I don't mean that in a quality way, but then that next level, that second tier, uh, I would assume they, they deal with smaller banks. Are they better at holding the bank's hand and getting the bank converted than the bigger banks? You know, it is there, and I'm talking about smaller banks. Now, did the second tier handle the smaller banks better?

Uh, or is it, it is the conversion, you know, implementation assistance? Kind of the same, whether it's the top three or the next three or four,

Steve Heckard: I think they all actually do a pretty good

Jim Adkins: you know,

Steve Heckard: You know conversion quality has improved so much over the last several years a lot of its due to repetition You know bank or core vendors many of them are converting More banks than they ever have before they don't want a problem. They don't want to an issue to occur.

That's going to drag down their schedule, divert their staff's attention on their troubled [00:32:00] conversion, and they all pretty much have it nailed at this point. You know, I can remember at a time when, you know, banks just had miserable conversions, and I haven't had that conversation for a while.

Matt Bergman: Yeah.

Jim Adkins: that's so interesting to me is that there, you know, the technology's good, you know, and, you know, across the, across the landscape and the implementation and the conversion doing a good job, they're all doing a good job, boy, they just can't the customer service side. They just, you know, seem to, that's the, that's the thing.

That's the differentiator. In the business now that is that fair to say it's pretty much that

Matt Bergman: And you think about what sets community banks apart, right? What sets the community bank apart from, from a B of A

Jim Adkins: great point.

Matt Bergman: their service, right? Customer service. So

Jim Adkins: that's right. So

Matt Bergman: it goes back to that.

Jim Adkins: that's a good point. I mean, and I think our community financial institutions or banks and credit unions, they ought to think [00:33:00] about that because, uh, you know, they treat their customers in a certain way and that, you know, they should be expected to be treated that way from their vendors as well.

And it's a cultural thing. And maybe there's a more cultural commonality. Is that, I don't know if that's a. Way to put it, but a cultural commonality with these second tier groups and our community institutions,

Matt Bergman: Jim, I think it goes back to what we talked about earlier with AI, right? I mean, Steve, Steve and I were at the bank this last week and we were talking about, you know, imagine having to call your provider almost like you call your credit card company a day. It takes you 15 different things. You know, buttons to hit before you can maybe get a live person.

If you're lucky

Jim Adkins: Press two, press three, press four.

Matt Bergman: imagine having an issue with a heel lock that you're trying to get resolved ASAP for a client and you're on the other end and trying to deal with that. That's a challenge.[00:34:00] 

Jim Adkins: Right. And, uh, now that, that, that's frustrating, you know, when, you know, in any event where you can't get the, you want to talk to somebody, especially something that that's, that's such an important thing. Outside of payroll, this contract, the core processing contract is your biggest, biggest expense. And if you take that annual expense and multiply it over five to seven years, it's huge.

It's a huge number and, uh, you know, you'd think you'd get a little, a little love from, uh, you know, talk to a human being instead of having to press three and four and five to get your answer. So, uh, yeah, that's, that's crazy. I tell me about, uh, you know, again, we, we love our smaller banks and we, We take great pride in giving them the service that they deserve.

Uh, you and Steve and Matt, why don't you talk a little bit about a virtual RFP? I think this is a good time to talk about it because [00:35:00] what we want to give, we're trying to give tools to institutions that, um, you know, you know, they're not the biggest institution in the world, but yet they want professional, uh, assistance Uh, this core issue.

So why don't you talk a little bit about, uh, virtual

Steve Heckard: Right. Right. Well, we have two offerings when it comes to, um, their vendor analysis, uh, process. Our full RFP, which is very, you know, very comprehensive, and Matt and I will spend time at the bank doing due diligence on their products. Uh, we'll work with them directly in this process. But for smaller banks.

Typically, and this is not a negative, but typically they're a little bit more vanilla. They may not have as an exact need in a particular area, like they're heavy on SBAs or something like that. Um, and typically, [00:36:00] Everybody there works, wears several hats. They all know what's necessary. We don't need that layer.

They don't need us to be that deeply embedded. They need someone to understand the marketplace that can manage the engagement. So we have a virtual RFP. We'll never step into the bank. We'll do a contract review and understand their obligations to their existing provider. We'll do an invoice review. Uh, and in many cases, we find overcharges or charges that need to be corrected.

Uh, Matt just found one of those last month. Uh, but we'll issue what I call more of a generic RFP. It's designed to collect all the FFIEC mandated Vendor management information. Okay, to get that in their hands at the beginning of the process. We identify the products that are [00:37:00] being included and we'll have a common set of metrics for the vendors to propose on.

And that's it. We'll get the RFP back. Our clients will review it. Matt and I will work on the contractual issues. Try to negotiate across all the vendors that receive this and we will prepare a financial analysis. We'll cover this with the bank in a few hours, a few hours phone call. And based on that, they'll select who goes into presentation.

Jim Adkins: Beautiful.

Steve Heckard: Okay. Well, we'll provide a common agenda to all the, to all the vendors so that everybody is treated equally. And they can come in and present. Matt and I will not be there. They know their needs better than anybody else. They don't need us sitting there at the table. So, through that process, then we narrow it down.

You know, it's a funnel. You start with a lot. There's not a lot, unfortunately, anymore. But you start with two, three, four different vendors. And you [00:38:00] finally get down to a single vendor. By that point, Matt and I have pretty much negotiated all the contracts, because every contractual issue, not every, but several of them have financial impact on the bank going forward.

What's their deconversion fees are, what their price escalation clause is, what if they acquire, what if they are acquired, things of that nature. That will all be provided to the bank so they have a comparison of the different contractual. Uh, commitments available from each of the vendors so they can determine which is best for them.

They don't need us to help them make that decision. All they need us for is to make sure we provide them unbiased, uh, you know, Common metrics across all vendors are looking

Jim Adkins: Right. Right. So we,

Steve Heckard: so we can do this significantly less [00:39:00] expensive because we don't have to account for our hours out of the office and travel and this and that it's, it's a, it's a smaller footprint on our resources and that's reflected in the pricing.

Jim Adkins: And you know, that's our attempt. You know, we obviously, you know, we could go through the, you know, we have the ability to go through the full, you know, core processing process and from soup to nuts. Mm hmm. And, you know, the, the full, full, uh, gamut of all those services. This is, uh, this, this, uh, virtual RFP or VRFP as we call it is our attempt, our attempt to fit into our customer's needs, right?

These smaller customers that, you know, as you just said, um, may not need us for certain things, but that doesn't mean they don't need us for some things. And these are, I know that you've picked out, you and Matt have picked out, uh, as when putting that product together, the [00:40:00] needs that they will need, even if they don't need us for all of the, some of the bigger things and maybe the decision with these, these aspects of our product, they will need this.

And I, I think that is, you know, it's perfect. It's perfect. It's somewhat similar to, you know, Jeff and I, Jeff, uh, how we do our strategic planning. There are some institutions that, you know, need a lot more in depth strategic plan and, you know, we're, you know, they're, It's, it's, it's a very involved process.

And then there are some institutions that don't need that they don't. And so in trying to, instead of forcing them into, uh, this larger program of strategic planning and, and all, you know, in a, in a very in depth, uh, economic, you know, us analysis and banking industry now, all these types of things. We have, as you guys know, we have a more, um, uh, what am I going to call it?

Uh, just [00:41:00] a more, just an easier way to do it. A more efficient way of doing it for, for banks and community institutions. They don't need. That, you know, the full, uh, the full program. And, you know, it's just our attempt to try to, you know, meet our customers where they are. And I think this BRFP is, is certainly that.

Jeff Voss: So, I have a question that is a little bit different than what we've been talking about with existing banks, contract renewal. We've seen, uh, in the last couple of years. Groups of individuals, a bank, non bank entities looking to get into the banking space. And the way they're getting in to the space is buying smaller charter institutions. But the, the plans that they have would [00:42:00] take them to a level That would be significantly higher than what I would consider to be a small bank from an, from an asset perspective, how should they approach the process of not just diligence, but from a strategic perspective, how should they look at that? You know, three years, five years out, uh, in terms of what they plan on doing and how can, what would you advise them to do?

They're with us, perhaps a small bank provider today. Uh, tier two type of provider, the, the products and services that they're looking at adding on may be handled by a small bank provider, but then again, it might not, how, how would you approach that type of a, uh, uh, situation?[00:43:00] 

Steve Heckard: Well, I think it depends on the use case of where What they're going to be. Okay. If they're going to be just 10 times their size today and not change their product offering. Well, maybe their current provider is more than sufficient, you know, going through a conversion. This whole conversion deconversion process is expensive

Jim Adkins: Right.

Steve Heckard: and it's also disruptive.

Nobody wants to do it. So obviously the least of the course of least resistance to see if you can work it out with your present provider. And then after that, if you've got a use case that they can't support, you're forced to look elsewhere.

Jim Adkins: Yeah, I, that, that, you know, a few years ago, well, actually, I don't know when it was, maybe 18 months ago, you know, we got involved in a situation where we were [00:44:00] advising on a very, very strong banking group, uh, coming in and, uh, getting back into the business and, uh, And buying a small bank, like you talk about Jeff and, uh, their projections were substantial in terms of this bank was going from, you know, a hundred million dollar bank to 600, 700 million bank in, in four or five years.

And, um, That, that happens, you know, when you, you've got to be able to have your core system and they, they were very good, this group, very good, very knowledgeable, uh, luckily, luckily they were comfortable with the bank's core system that was in place and had substantial amount of time left on the contract.

But if they had not been comfortable with that, their, you know, goal to be six, 700 million in that short, short period of time would have been in jeopardy, uh, might, you know, just a [00:45:00] tremendous way. And, uh, in fact, I, I think when they went in and bought this small institution that they were purpose, one of their key questions was what's the core, what's the core, can we grow with it?

So they, they asked those strategic questions. And that drove a big part. They were, there were a couple of banks that they would have liked as just as much, but they weren't comfortable with the core and they weren't comfortable with the timeframe left on that, on those cores. So they went with, you know, the easier decision and that made the difference pretty much.

Matt Bergman: Yeah. And I think it goes back to what Steve said earlier. I mean, do you want to spend your first 18 months? You know, going through a whole new system, right? Deconverting and going to a whole new system after you acquire the institution itself. Um, or is it the core good enough where you're adding an internet banking solution and that internet banking solution ties in with the core?

Um, and that's something that they're looking to do. So there's, there's a lot of things that go into that play, no matter what.[00:46:00] 

Jim Adkins: Right, right. No, that's

Jeff Voss: I mean, it could be a contract renegotiation at that point, but, but it could also be, you know, just an evaluation of the system, its capabilities, uh, given their business use case. Like you said.

Jim Adkins: you know,

Matt Bergman: It goes back to the, kind of the conversations we had at the beginning of the day of, of making sure everyone is tied together, right. On the strategic plan. And, you know, the board's tied together and everyone's locked and loaded.

Jim Adkins: right, right. No, that's true. So I've got, uh, just kind of a final wrap up question for everybody. Uh, you know, what should someone listening today? Uh, what should they take? What are the three most important things to take away if they forget everything else, which they won't because this is such good stuff.

But if they forget everything else, what are the three things Someone should remember about this issue from today's discussion. Steve, what do you [00:47:00] think?

Steve Heckard: Well, I think, first of all, is hope that you never need to, but begin preparing for the future. Conversion to a new core solution, you know, itemize everything that needs to occur internally with staff training contractually, things of that nature itemize and also every third party solution that may be at the bank may not work at your new core provider.

So, you know, spend some time and research that. But yeah, get ahead of it. Get far ahead of it. That's my number one.

Jim Adkins: Matt, what do you have? You got one to add?

Matt Bergman: You know, know your dates, know your dates across the board, uh, allow that time and make sure everyone's aligned. You know, you have really in a, in a community space, there's just three different components, right? There's the board, there's the executive team, and there's the users, [00:48:00] um, and making sure that everybody is aligned. You know, the board decision, you know, making sure that executive team is aligned with the board and what's important from that perspective. Um, and then, and then had buy in from your users. Cause as, as we've seen multiple times, they just can't go through it. They just, you know, it may be an age thing. It may be a, a.

Past experience where they've had in the past where they just had a horrible conversion. Don't want to go through it again. Um, so there's a lot of, a lot of components to go through that. So, you know, know those dates, allow that time, uh, for a complete evaluation

Jim Adkins: Well,

Matt Bergman: and then make sure

Steve Heckard: I would also, I would also recommend talk to your peer group. Bank association meetings and so forth find out not the bank across the street. Maybe they won't tell you too much But as you're in association meetings and so forth talk to similar banks, who are you [00:49:00] using? How's our service how their support start doing having these peer type discussions to find out who?

Who's really walking the walk these days so so that you're prepared you have a short list in mind

Jim Adkins: that's a good point. I'll throw one in before Jeff takes us out here, but I would recommend this is a strategic issue. It's not an operational issue. It should be at the highest levels Uh, talked and debated and, uh, if you, you think for all you fantastic bank presidents and CEOs, CEOs out there, this is, this is on your plate.

You know, this is something that's going to make or break your plan. So think of it that way and don't think it's something that's just going to magically happen and you know, and everyone's going to be happy. It's not like that. So that would be what I would throw in, uh, to the, to the, uh, offerings on the things to take away from this.

So,

Jeff Voss: Yeah. [00:50:00] The last, the last thing I'll add, and then I'll take us out here is, um, know your numbers too. So, know, know your, uh, termination clauses. Uh, well, I was in a board meeting the other day that the presentation of the contract renewal and the numbers were all presented to the board from a current run rate perspective.

And you know, I threw it out on the table. What would it cost us to have to leave the, leave this contract in the event of either a poor service or a merger opportunity? And, um, they had no idea. And all I can tell you is you should know those numbers and you should know them for all the relevant contracts, uh, whether it's the ATM contract or the mobile banking contract that's separate, whatever that might be, uh, [00:51:00] know your numbers well, cause they can act as poison pills when there's opportunities that could avail themselves very quickly. So with that, I'd like to thank everybody for joining us today. I'd like to thank Matt and Steve and Jim for your, your work setting this up. Um, this is Artisan Unfiltered. Uh, we provide these podcasts periodically and we'll look forward to, uh, getting this out to hopefully allow the users, our users, our podcast listeners, provide them with some benefit related to this core.

Uh, their core experience. And, um, again, we, we thank you for attending and we look forward to talking to people down the road here. And if you have any needs, uh, certainly give Steve and, and Matt a call or Jim and I, and we can direct you to Steve and Matt as well. [00:52:00] Thank you again.