Core Exercises

By Evan Sparks

One of the biggest pain points for many community bankers is their relationship with their core processor—and this is a problem because of how central these vendors are. “We want to have good relationships,” says Micah Bartlett, president and CEO of the $740 million Town and Country Bank in Springfield, Ill. Bartlett notes that for his and most other community banks, core processors are the largest single vendor—“many multiples of our next highest vendor.”

For bankers frustrated with their core providers, the pain can be most acute in the contract. With only a handful large core processors serving more than 10,000 banks and credit unions, bankers report feeling over a barrel when it comes to getting a favorable deal. “You’re just stuck in these contracts,” says Bartlett, a member of ABA’s Community Bankers Council and chairman of the Illinois Bankers Association. “Not one of us alone has enough leverage.”

That may change with a new collective effort to pool community bank bargaining power. The Golden Contract Coalition, launched earlier this year, claimed 165 interested financial institutions representing $1.45 billion in contract value as of late August.

GCC’s goal is what founder Aaron Silva calls a fair, balanced, market-confirming and compliant master agreement for core processing services. The Golden Contract would have real teeth, Silva says, replacing unenforceable service “objectives” with real service level agreements. It would complement a base master agreement with customized contract terms but standard pricing for different core processing modules that institutions might choose.

Silva—founder of a consulting firm that works with financial institutions to negotiate core contracts—combined his experience with expertise from the law firm Pillsbury, which has negotiated hundreds of billions of dollars’ worth of IT contracts for major Silicon Valley companies.

How will the GCC get the large core processors to play ball? “This is a business opportunity to the vendors,” he says, pointing to the “friction” caused by the current individual negotiating process. In 2009, the average core contract took 84 days to negotiate; today, it takes 180 days. Even if core providers win on most points, individual negotiations are costly and cumbersome for the vendors.

Silva insists that core processors want to end that friction and the sore feelings it leaves with bankers. “Vendors understand that every time they come up for renewal, it causes great tension and erodes goodwill between the bank and the vendor,” he says. “We want all that to go away.”


Key to the Golden Contract is that it would reward growth. This is a sore spot for Bartlett, whose bank recently concluded an unexpected merger that brought 40 percent more processing volume to the bank. His core didn’t have to spend a dime on marketing or incentives to add that revenue; “it just fell into their lap,” says Bartlett, a GCC member.

“As a community bank, we work with our customers,” Bartlett adds, noting that he works with customers—say, dropping a rate if a customer can bring new business or add new products. But when he sought to renegotiate the contract to reflect the higher volumes, he found his provider unwilling to touch the contract unless they signed up for a new six-year term—with no provision for other problems Bartlett’s bank had experienced.

Under most contracts, “it costs more to terminate a contract than it does to let it run out,” Silva notes. “It’s pay-to-play and pay-to-leave.”

Ironclad contracts can also hinder innovation. Many core contracts “do not address the ability for a bank to leave an offering if it becomes uncompetitive,” Silva says—leaving banks at risk of being outpaced by innovation simply because of these contracts.

“It’s hard to imagine any other business where you have this vendor who’s not keeping up in a major area and yet you have absolutely no leverage,” says Bartlett.


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