Joining Together to Fight the Core

it-contracts-7-27-16.pngEvery banker has to make decisions about technology purchases. But a core vendor and information technology (IT) oligopoly has emerged, leaving very few vendors to choose from, and the costs of new services and fees for early termination are increasing exponentially.

Struggling under the oppressive weight of the core vendor goliaths—with FIS, Fiserv and Jack Henry & Associates now controlling upwards of 85 percent of the market—and shackled by contracts that last five, seven and 10 years or longer, community banks and credit unions have been unable to develop and deploy the same cutting-edge, customer-facing services as those produced by larger national banks, and have been forced to pay more and more, while receiving less and less competitive functionality.

But after decades of injustice, community banks and credit unions are now rallying together as part of the Golden Contract Coalition (GCC), to bring an offensive response to the current era of underperforming IT functionality, unenforceable service-level agreements, unfavorable contract terms and overpriced, one-sided deals.

Today’s savvy consumer has high expectations regarding the products and services they receive from their bank. The structure of core providers slows the adoption of new products for community banks, which ultimately impacts consumer choice and may force consumers into a banking relationship where they will pay higher fees,” said Carl A. Kessler III, chief information officer of First Federal Lakewood, a mutual based in Lakewood, Ohio. “The Golden Contract Coalition has the real opportunity to be a disruptor—helping to empower community banks to meet consumer demands, and allowing consumers to maintain the local banking relationship they value most.”

An alliance of community banks, credit unions and key players from within the banking community, the GCC is charged with addressing core vendor contract disparities from one institution to another, and aims to level the negotiation playing field by creating a fair, standard, right-sized agreement between community financial institutions and their core and IT vendors—exclusively available to its members.

Backed by Pillsbury Winthrop Shaw Pittman LLP, the leading IT contract negotiation law firm in the world, the GCC aggregates expert negotiators, champions of competitive banking and the institutions themselves to implement higher standards of service and more equitable terms.

The vendors and the banks need each other, but there has to be a fair balance established. We are trying to achieve this through the creation of the Golden Contract,” said Pillsbury Senior Partner Robert Zahler.

By stripping the excessive legalese and self-serving conditions from core and IT agreements and pricing, and dictating the master commercial terms and legal conditions by which all core and IT providers must abide, the Golden Contract is able to manufacture unprecedented levels of leverage by pooling the combined contract value found in large groups of community banks and credit unions. With more than 40 members already on board, these collective bargaining methods equip smaller institutions with the same negotiating power as the large, national and multi-national banks, allowing them to pass on cost-saving benefits to their shareholders and to consumers.

The fact is, we are fighting for fairness and equity. Whether the oligopoly knows it or not, the industry is unhappy with the quality of the products, services and value they are currently buying, and there is an alarming suspicion that bankers are being taken advantage of economically. It’s time to change the game, once and for all.

The Big Banks’ Latest Trends in Mobile Banking

mobile-banking-9-10-15.pngBig banks have been committed to working out their mobile strategies over the past two years and are now unveiling the dramatic results they’ve achieved. According to AlixPartners, big banks controlled 67 percent of the primary banking relationships by the second quarter of 2014, while credit unions had 14 percent. Mid-size banks controlled 11 percent, community banks 4 percent and all others at 4 percent. Plus, 78 percent of people who switched accounts went to a big bank, while only 8 percent went to a credit union and the remaining 14 percent to a community bank, mid-size bank or other. It’s an even bigger gap with young people—82 percent of these switchers went to a big bank, while only 7 percent switched to a credit union, and 11 percent to a community bank, mid-size bank or other. The study also shows that in 2014, 65 percent of the people who switched accounts said that mobile played a role in their decision to switch.

Chase Bank, for example, is one of the biggest retail banks in the country and has seen massive gains in retention and customer engagement, along with a steady loss in attrition and branch expense. Over a four-year period, the number of products and services per household has gone up, and attrition rates have fallen to an astonishing 9 percent this year. According to Chase, mobile app users have increased by 20 percent in the past year, mobile QuickDeposit by 25 percent, mobile QuickPay by 80 percent and mobile bill pay by 30 percent.

Not only are these great things for retention, but they are also business strategies that are saving the bank money. Today at Chase, 10 percent of all deposits are made via mobile. Over a seven-year period, teller transactions have been cut in half, driving a tremendous cost reduction. Since 2010, Chase has cut out over $3 billion in costs.

For the past two years, Chase, as well as other top big banks, including Bank of America, Citi, Wells Fargo and U.S. Bank, have been offering the top five mobile services—mobile banking, mobile bill pay, mobile deposits, ATM/branch locator and P2P payments. The list is growing, as three new services have recently become a standard for all of these banks—Apple Pay, pre-login balances and mobile-friendly websites.

Apple Pay
By January of 2015, 300 financial institutions had been approved for Apple Pay, and in April, that number jumped to 2,500. Today there are about 375 active financial institutions using Apple Pay, 250 of which are credit unions.

Mobile payments have a slow usage growth though—only 0.5 percent of people in 2014 with near-field communication (NFC) equipped phones were doing mobile payments regularly, meaning they did at least one mobile transaction per month. According to Deloitte, that number is forecasted to jump to 5 percent by the end of 2015.

Pre-login Balances
All five of the top big banks now offer the ability to check your balance without logging into mobile banking, and it’s a feature that is proving to be one more way to drive engagement and remove a barrier to mobile usage. Customers using Citi’s Snapshot, for example, sign in to mobile banking three times as often as those who don’t.

Mobile-Friendly Websites
Google announced in May of this year that there are now more Google searches on mobile than there are on desktop computers, a trend that greatly influences how people are making decisions to buy products.

In about six out of 10 cases, when people are shopping for bank products, they’re doing online comparisons, meaning banks now have to anticipate the growing percentage of website traffic coming from mobile. Currently, about 15% of banks’ website traffic is coming from mobile, which will only continue to grow.

Not only did Google announce the state of mobile search, but also starting in April, they’ve put a requirement in place that if your website is not mobile friendly, they’ll move the placement down on Google’s search results.

Of the top 10 banks, every single one has a mobile friendly website. Four out of the top 10 credit unions have passed the mobile friendly test.

As customers are flocking to digital services, the big banks are growing stronger. Credit unions and community banks can stay competitive, though, by continuously training their team to have a mobile mission and being disciplined enough to innovate constantly.