Top 3 Mistakes Banks Need To Know About Technology Contract Negotiation

By September 30, 2019Banking

George McGourty is an expert in contract negotiation. Banks rely on technology products and services to serve their customers. George is the co-founder of Arriba Advisors, an organization which helps financial institutions find the best technology products for their business and negotiate the contracts in a way limits the risks.

In this episode, George talks about the challenges of contract renewal, the risks involved, and the three big things they look at in a contract.

In this episode of the Banker’s Success Podcast, we explore:

George’s banking and technology background ([00:15][03:15])

George has been working in banking technology for over 30years. Although he originally started in the IT department of a savings bank in Miami, he has mostly worked for banking technology providers such as providers of core processing, digital banking, loan origination, and payment platforms. He co-founded Arriba Advisors 3 years ago. Their primary focus is on helping their customers evaluate, select, and negotiate high-risk banking technology enterprise systems.

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Favorite success quote ([03:15][04:28])

The doers are done doing long before the talkers have stopped talking.

Challenges of contract renewal ([04:28][09:16])

Nowadays, banks can be thought of as technology companies that offer financial services. The contracts and ecosystems are incredibly complex. It is not only hard to understand, but bankers typically only review the systems and look at their options, once every 5-10 years. The vendors, however, do it all the time, which causes an imbalance fro the two parties when negotiating.

Why a specialized firm is essential to negotiating contracts ([09:16][11:55])

Most Attorneys don’t have much experience in negotiating these contracts. A specialized firm that understands how the technology provider business works are essential to making sure the arrangements protect you from the risks.

The issues with a contract which lasts 5-10 years ([11:55][15:53])

Contracts can last for 5-10 years. There can be a lot of consolidation in the technology sector, with smaller companies being bought by other companies. You buy a product from an early-stage company that is investing heavily in R&D, has an excellent service reputation and the culture is very aligned to you. But then they get sold. The executives leave, the company that bought them stops investing in the product, and now the product is years behind, and you can’t offer your customers the right service to compete in the market. If the vendor does not deliver, you still have to pay out the rest of the agreement to end the contract. There is nothing in the contract to compel them to do all the things you chose them for in the first place. Technology moves so quickly and an agreement that covers 5 to 10 years period may not have allowances for change.

The three big things they look at in a contract ([15:53] – 1922)

When analyzing a contract, they look for the following:

They look for the ability to raise prices arbitrarily in the agreement.

The legal risk and financial exposure of a data breach

The service level agreement – how long will it take the company to respond and fix service issues.

The process of negotiating a contract ([19:22][24:54])

First, they try to understand the strategic goals of the financial institution they are working with.

What markets are they going into?

What is their plan for growth?

What customer groups are they trying to serve?

What do those groups expect in terms of customer experience? What products and lines of business do they want to focus on?

They then work with the operations department to understand the technology requirements of the institution. This enables them to come up with 3-4 vendors that are most likely to provide the services they need.

Weigh the cost of paying to get it right the first time versus the cost of it not working ([24:54][25:56])

The return on investment on these services is one of the best investments you can make as a banker.

For more information about Arriba Advisors, visit https://arribaadvisors.com/

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