A mutual bank with $1.72 billion in assets managed to save more than $4.4 million in expenses—without changing a single IT supplier or disrupting online customers. Other banks can do it too.
In 2014, BayCoast Bank, in Swansea, Massachusetts, found itself with three suppliers that had three different termination dates. Its core account processing supplier was in the early days of an eight-year agreement but its online retail banking and commercial online services agreements both had about 24 months remaining. The bank, led by President and CEO Nicholas Christ and aided by Chief Information Officer Daniel DeCosta, decided to negotiate against their core IT suppliers and technology vendors in order to save costs. Ultimately, they found a way to save the bank millions and continue servicing customers by leveraging market intelligence and pricing data, with the help of outside expertise.
BayCoast made the same mistake many banks do: signing agreements that are too long and not coterminous with each other. Bank should never lock themselves into contracts that are longer than 60 to 84 months.
To prepare, BayCoast leveraged a business analysis to come up with a new approach to managing these relationships. BayCoast needed to renew its retail and commercial online banking agreements, but market analysis indicated these agreements were over-priced by at least $1.2 million over five years. The contracts had deficiencies, and lacked balancing commercial terms and meaningful service level agreements.
The bank took advantage of a recent acquisition by its core supplier to create a competitive bidding process for these two contracts. The core supplier offered nearly $1 million more in incentives to take over the retail and commercial banking agreements, but the incumbent beat that by offering $2 million to keep the relationship.
The reduction of $2 million from the bank’s cost structure improved BayCoast’s efficiency rate and allowed it to redirect the funds toward other fintech projects and initiatives.
After several years had passed, Baycoast gave itself a 24-month margin before its vendor agreements expired to renegotiate those contracts. This margin allowed executives enough time to get a deal they wanted, or find another supplier.
This time, BayCoast wanted a total change for its commercial online vendor. Their incumbent core and retail online banking suppliers both had competitive offerings, but were under performance probation periods. DeCosta used a third party to interface and negotiate with the suppliers for the core and retail online banking renewals.
The result? Savings of at least another $2.4 million in cost reduction. The bank is putting the finishing touches on its commercial online contract, which could add another $500,000 and push straight-line savings to more than $5 million. This is the equivalent of $151 million in new loans, assuming a net interest margin of 3.3 percent.
By adopting a new approach to negotiating critical vendor relationships and using an outside expert, BayCoast freed up funds that are better deployed. The vendors now have a happy client who is confident they have a market-conforming deal. It’s a win-win for both parties.