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Community banks use dozens or even hundreds of vendors—making it critical that they have an efficient way to stay compliant, track performance and more. Some banks are using a combination of software and internal personnel and systems to do just that.
By Cheryl Winokur Munk
There’s a host of regulatory guidance when it comes to vendor management, but community banks also have wiggle room to craft their own policies.
Managing all of your bank’s vendors can be a tall order, especially for community banks that rely on dozens or even hundreds of vendors. That’s why some are turning to vendor management providers to help them satisfy regulatory requirements, better onboard new vendors and more.
A third-party vendor management system can be especially helpful when it comes to managing contract renewals, thanks to automated alerts. Many community banks rely on Microsoft Excel to keep track of vendor relationships, but that method can be prone to human error, which can have major consequences.
“If you inadvertently allow a contract to renew and the bank is extremely dissatisfied, you’re locked in,” says Matthew Gallman, vice president and enterprise risk officer at $960 million-asset Drummond Community Bank in Chiefland, Fla.
Make it somebody’s job
In addition to its vendor management platform, $2.2 billion-asset 1st Security Bank of Washington in Mountlake Terrace, Wash., employs designated vendor managers who are each responsible for five to 20 vendors. The bank works with about 400 vendors, so it also employs a centralized vendor management team of four staffers to monitor contracts and vendor onboarding, says Mia Makanui, vice president of vendor and project management.
Devoting an area of the bank to vendor management is important because of the extensive due diligence required, says Kevin Tweddle, ICBA’s senior executive vice president of community bank solutions. Community banks also need to have a good contract attorney to advise on larger contracts. This person should also understand regulatory guidelines, he adds.
Perform ongoing vendor assessments
To avoid regulatory scrutiny, community banks should formally review critical vendors at least once a year. Less essential vendors tend not to be assessed as frequently, but this can be a missed opportunity to extract pricing or other efficiencies. Informal reviews throughout the year are also important so banks can catch and rectify issues in a timely manner, community bankers say.
“In many cases, there are other vendors you can turn to. That just takes some advance planning.”
—Chris Wewers, Southern Bancorp
Employees who use a vendor’s products or services should be encouraged to give performance feedback and share concerns at any time. There’s no need to settle for subpar service, says Chris Wewers, chief financial officer of $2 billion-asset Southern Bancorp in Arkadelphia, Ark.
“In many cases, there are other vendors you can turn to,” Wewers says. “That just takes some advance planning.”
Set clear expectations
When you sign a vendor contract, make sure it includes clear, measurable expectations where applicable, Gallman says. This gives community banks a quantifiable way to determine whether there are gaps as the relationship progresses.
If a vendor doesn’t automatically include an exit clause in its contract, Southern Bancorp typically requests a provision allowing it to be released after 30 days. This allows for more flexibility if problems come up, Wewers says.
Wewers cautions against letting repeat problems drag on unnecessarily. It’s better to cut your losses and move on, he says. He offers the example of a vendor that underperformed for about 18 months before his previous employer finally severed ties. The bank had been sending notices of dissatisfaction every 90 days, and Wewers believes it should have made a move sooner to avoid wasted time and energy.
“If you find yourself on that roller coaster, that’s when you need to go ahead and be ready to move,” Wewers says.
8 questions to ask when evaluating a vendor
It’s important to be thorough during the vendor evaluation process. Here are some key questions to ask:
- Is the vendor continuing to deliver a product or service that is best of breed or has it become a laggard?
- Is the pricing competitive and in line with the services provided?
- Does it provide all the functionality your community bank needs?
- Is the product or service keeping up with the pace of change in the industry?
- Is the vendor continuing to provide products and services that consumers and businesses are looking for?
- Is this vendor helping your community bank achieve its objectives efficiently?
- Has the vendor shown an ability to pivot quickly when change is required?
- Does the vendor have a tried-and-tested business continuity and disaster recovery plan?
Cheryl Winokur Munk is a writer in New Jersey.