For many credit unions, EMV conversion means adding new vendor services and re-evaluating others. But when pricing transparency is hard to come by, it's hard to know how much is too much to pay for services such as plastic and processing, leaving many credit unions wondering whether the guy down the street is getting a better deal.
People in the vendor management business have the unique perspective of knowing what everyone else is paying. They negotiate pricing with vendors on behalf of credit unions, and often they only get paid when they find savings for their clients (a 30% cut isn't unusual). CU Times asked three of them where credit unions tend to overpay and what they can do about it. Here are a few of their secrets to getting better deals from vendors, especially during EMV conversion.
Don't assume price is final.
"With EMV, what we're finding is that a lot of the institutions are just getting letters from their processors saying this is the amount that you are going to pay," Kelly Flynn, the national sales director for John M. Floyd & Associates' Contract Optimizer product, said. "They're not really opening a dialogue. You don't know if that's good pricing or not, because you're just taking their word for it."
The lack of historical pricing on some EMV products hinders transparency, too.
"I won't say some suppliers are taking advantage of it, but some suppliers are probably putting out their list price and then really not getting any pushback on it to lower that price," Bob Koehler, an executive vice president at the Memphis, Tenn.-based Strategic Resource Management, added.
Keep the contract term short.
Prices for services related to EMV conversion will likely fall over time, but credit unions won't be able to capitalize on those price drops if they're locked into long-term contracts, experts said.
"If you can keep your terms short and magically be able to negotiate after you start seeing the stuff in your invoices, you're going to be way better off than the people who have to renew now," Bob Roth, managing director of vendor management and payments at Cornerstone Advisors in Scottsdale, Ariz., said.
Bid out the business.
"More often than not, when you bid a service out, you will get a better deal because those other vendors are eager for new business, new revenue," Flynn said.
However, RFPs aren't always the answer, experts said, as changing vendors means changing relationships.
"The fact is, that negotiation team is going to walk away, and you are going to be living with it for the next 12 to 24 months," Flynn warned. "Don't let cost be the only factor for putting your staff through a conversion."
Koehler added, "I've had clients leave seven-figure savings opportunities on the table over the life of a contract because they felt more comfortable with another supplier, and that's fine, too."
The bidding process can even burn bridges.
Read more: Auto-renew isn't the best option …
"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."
Beware the auto-renew.
Flynn has worked with credit unions that have contracts that are 10 or 15 years old because they automatically renew. Often, the staff just hasn't had the time to review the contracts and look for a better deal, and that's understandable because credit union employees tend to wear a lot of hats, she said. But the unintended consequence is that many of those contracts renew – at the same prices – year after year.
"What happens is if they've locked you in 10 years ago at those rates and you auto-renewed, guess what? You're still paying rates that were effective 10 years ago," she said. "I guarantee you, they're not competitive now."
Simply keeping a central list of expiration dates can help managers remember to review the contracts, she said.
Look for signing bonuses.
Credit unions often overlook this low-hanging fruit, experts concluded.
"A lot of people think that you only get signing bonus money when it's a new contract or maybe you're coming to that vendor for the first time, and that's not the case. Eight times out of 10, we're able to get signing bonus money for renewal business," Flynn said.
In some cases, those bonuses can reach $100,000, she said. "That can go a long way in helping to pay for the EMV set-up cost, the conversion stuff, all of the EMV plastics and so on. I think a lot of times credit unions sell themselves short, and they don't think they can ask."
However, be clear about what you're trying to achieve, Roth warned.
"It's better for the vendor and it's better for the third-party negotiator than it is for the credit union," he said. "What the vendors like to do is give you signing bonuses and they hope you auto-renew next time so your rate basically goes up during the renewal term. I always prefer to get a reduction in rate over a signing bonus."
Negotiation requires more than just math skills, though. There's finesse to it as well, which is why many credit unions use vendor management firms.
"We know what is fair in the market," Koehler said. "We don't go in and pound on tables and say, 'You've gotta do this or you're going to lose the business!' It's a very low-key negotiation strategy."
Saving $3 million per billion in assets is not unusual, he said; one of his clients cut its processing bill by 82% without switching vendors.
And there's a lot of potential savings to be had in debit processing – 15% to 20% on the low end to 40% to 50% on the high end, according to Roth.
"Some of these people need their bills cut in half," he said.
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