EMV conversion and the new vendor arrangements that come with them are making many credit unions question whether they're getting the best prices from vendors, and according to some experts, the answer is probably not.
Debit processing, for example, is one of the most overpriced services right now, according to Bob Roth, who is managing director of vendor management and payments at Cornerstone Advisors in Scottsdale, Ariz.
"We see a spread of almost five to one between the top provider – the most outrageous pricing – and market," he said. "In core, that's probably about two-and-a-half to one," he said. "Now that's the variation between market's best and worst. You would never see that in core, or Internet banking or anything else."
Here are some signs your credit union might be paying too much and what you can do about it, according to three vendor management experts.
- The spread between what the credit union collects in interchange and processing revenues and what it pays out in processing fees is narrowing. "That interchange, by virtue of our move to a cashless society, ought to be going up by about 5% a year, period," Roth said. "What happens is a lot of times it's going up but you're giving it back in too much processing."
- The vendor's price increases are above the increase in the cost of living. "I've seen credit unions that might have been paying, gosh, like three times market or four times market," he said. "They were getting 5% year-over-year cost increases for processing," he said.
- A processing vendor is one of your five largest vendor payments. One way to figure out which vendors might be ripe for renegotiation – especially for debit – is to sort your AP vendor list from largest to smallest, Roth added. "When you start seeing one of these processors end up being at the top five of this list, it's a problem. Because it's just debit," Roth said. "These vendor offers, their processing ought to be not a material part of your overall spending."
- Your contracted price doesn't match the invoice. It's a great way to uncover what Bob Koehler, an executive vice president at the Memphis, Tenn.-based Strategic Resource Management, called "market creep."
- You're paying more than $5 per EMV card for plastic. "We've actually had pricing on one credit union come back at over $8 a card. When you add two cards per account, that can be very costly," Kelly Flynn, national sales director for John M. Floyd & Associates' Contract Optimizer product, said.
But don't obsess over plastic pricing, Roth warned.
"Plastic is of a concern because it is a one-time deal," he said. "To be quite honest, in our negotiations we're getting the vendors to pick up the cost of that one-time plastic move anyway. The real ball you've got to keep your eye on now is the authorization price. They won't bring it up with you."
What should you do if you suspect your credit union is paying too much?
One option is to send the work out for bid. "At the end of the day, most of the time from a price standpoint they all end up acquiescing," Koehler said. "And of course, the suppliers can't be too hard, because they know if they go to bid they've really made a client upset, and they're really going to have to go down even further."
But it can also cause trouble.
"It sometimes ticks the other vendors off," Flynn noted. "If they know that there's really no shot for getting that business, if it's something like a ploy, then keep in mind that that could come back to haunt you a few years down the road when maybe you do need to convert."
Another option is to call a vendor-management company, which can help negotiate with vendors and compare bids. Either way, talking to the vendor is usually a good start, Flynn said.
"Just asking sometimes can open dialogue and can help move those costs down simply by just saying, 'Hey, is this really the best deal that you can give us?'" she said.
For more tips on keeping vendor costs down, check out the July 1, 2015 issue of CU Times.
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