Community financial institutions (FIs) are positioned to outperform megabanks and fintechs, but to do so, their vendors must be strategic partners — not just basic service providers. An FI's reliance on partners for technical enablement demands excellence in a provider’s products and client services. FIs should look for vendors with best-of-breed technology and an equal-partnership model, ensuring the vendor will uphold high standards and enable the FI’s long-term business vision.
FIs should expect vendor actions that demonstrate a commitment to the bank’s or credit union's long-term business needs. A true partnership starts during the strategic planning process. When the board develops a technology strategy, or senior leaders are tasked with implementation, they need a vendor that understands the FI’s business needs, is invested in the client's long-term growth, and speaks convincingly about the end game for digital transformation.
When a major technology project is on the table, costs must be seen through the lens of return on investment (ROI). The true cost of legacy technology is the sum of maintenance fees and opportunity costs; neither is palatable. A recent survey suggested that community FIs allocate, on average, just 15% of their technology budget to new initiatives. When they do invest, FIs often encounter major expenses and operational roadblocks related to legacy systems, including high professional services fees and API access charges.
The only sustainable path to success is to untether from systems that are no longer fit for purpose. While the immediate cost of a major technology project may seem high compared with the running cost of the existing tech stack, the FI should focus on the ROI five years out. The money spent on strategy, planning and implementation should return a minimum of 5x to 10x in long-term cost savings and new revenue streams. From this perspective, the resources invested become less about the amount on a bill or the risk of change, and more about the positive long-term impact of a conscious technology choice.
A chosen vendor must demonstrate a commitment to internally driven innovation by consistently being first to market or best in market with applications and features. FIs should expect a convincing two- to five-year vision from the vendor for the industry and itself, as well as a clear plan for how frequently the product roadmap is updated. The roadmap should anticipate where banking is headed and allow the vendor to tailor evolving solutions to fit customer needs.
Many primary alternatives to a consistently innovative vendor are large incumbents whose strategy is to buy products they don't offer and grow by reselling them to existing clients. It is common for innovation to stall after vendors are acquired, and a best-of-breed vendor in that situation will not be one for long. The vendor’s ability to evolve and flexibly support the FI’s objectives fades away once the company has been absorbed.
A key measure of a great partner is how quickly and efficiently they can solve a problem. For that to happen, FIs’ staff must have direct access to the optimal resources for their needs. FIs should expect proactive customer support and a cohesive support infrastructure.
Customer service requests should be top-of-mind for the vendor, and bankers should look forward to a conversation, never a loop of endless follow-ups. Customers should be able to reach a knowledgeable counterpart — not just a help desk — to resolve an issue without spending time looking up key contacts or waiting in support queues.
Vendor partners should have a deep interest in helping banks and credit unions accelerate their business strategies. The right strategic partners have the vision and technical capacity to enable exceptional experiences for end users and strategic growth for their customers. They demonstrate consistent new product development, organic growth, and strong outcomes for clients. They enhance their clients’ strategic insight, execute flawlessly on truly innovative technology, and collaborate as equal partners.
We've entered an era in which artificial intelligence (AI) fundamentally transforms banking, and the pace of change in digital self-service only accelerates. Vendors need to bring to the table relevant, forward-thinking advice, truly innovative experiences that will make their customers stand out, and seamless integration between individual products, platforms, and ecosystem partners. For this transformation, a worthwhile vendor must be a strategic advisor — based on an informed opinion about where banking is headed — and a technical partner, prepared to address tactical questions around deployments, costs and savings. Then they must follow through on implementation and support.
