Evaluating your Core Processor’s Bundled Pricing Structure and Concessions for New Extensions

The key elements of this article apply to any core processor’s bundled pricing proposal and are especially critical for any bank that is receiving special offers on contract extensions for new concessions.

You may receive an offer for a lengthy extension from your core processor with what appears to be a very attractive structure and attention-getting concessions.  Core processors have a very strong focus on sales, and this makes it critical that the bank be diligent in understanding and evaluating the offer and its longer-term impact on the bank’s franchise value.  Here are some matters to consider.    

  1. “Bundled” pricing can have many benefits, but “Bundled” pricing is NOT “Flat” pricing. 
    a.  It is critical to thoroughly verify each service that is and is not included in the bundle.
    b.  What are the limits on the transaction and account volumes as well as asset size?
    c.  Only a proforma model with account, transaction and asset growth as well as price escalators   will reveal the true impact on your total costs and franchise value.
    d.  How does this new extension affect your opportunity for acquisition, sale or merger during the extended term? 
  2. When a sales force says you cannot use consultants for independent advice, that is a red flag even if you have no intention of using a consultant.  (They will say it is an unnecessary delay, but it should make you wonder.)
  3. Why the hurry?  Is the processor giving you adequate time to conduct a thorough and diligent process of evaluating both the benefits and potential unknown surprises?
  4. Will you lose any important favorable terms you carefully negotiated into your current agreement?
  5. Before extending terms, seek confirmation of their current commitment to open API’s for the growing sources of improved technology.

While these special offers and new pricing structures have some excellent benefits, you will not want to enter into these expensive, complex and long-term agreements without a thorough and diligent process of evaluation.  As we like to say, are you managing your vendors, or are they managing you?

Kelly Karns is the CEO of Karns Profit Improvement®, specializing in vendor management and contract negotiations.  He has served on the faculty of SWGSB and GSB-CO’s EDI program.  Additional articles can be found at Karnsprofitimprovement.com

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