Dan Fisher
Dan Fisher

With over 35 years in the financial industry, Dan M. Fisher has proven himself as a leader in the financial industry holding roles as the former director of the Federal Reserve Bank of Minneapolis and former Chairman of the ABA Payment Committee.

Not fully trusting your vendor is absolutely a healthy strategy that could save you millions of dollars when it pertains to core and EFT application vendors.

Over the last five years we have observed major financial industry technology vendors write their processing agreement terms and conditions in such a way that are nothing short of abusive. When we call them out we have been able to affect a favorable change, but to those that do not fully read the agreements and understand them before executing them, it could be detrimental to their financial institution.

We are not attorney’s nor do we provide legal advice. We do, however, know how to identify business terms that are not in your best interests and we call the vendor out.

Here are a few tips for as you consider before you execute a vendor contract:

  1. The vendor always works for the vendor.
  2. The vendor, no matter what they tell you, is never your partner.
  3. Everything in the vendor agreement has meaning and the vendor has every intention of enforcing what is in the agreement.
  4. The vendor always has more money to spend on legal resources than you do.
  5. Whatever the vendor sales representative commits to you in a conversation, get in writing from the vendor.
  6. Agreements include multiple amendments, addendums, attachments, exhibits, schedules and, service orders. Contained in this mélange of documents are multiple terms purposefully designed to cause you to unknowingly extend your agreement or cause you huge financial pain if you decide to leave at a later date.
  7. Most agreements are silent or vague on things you need to know you should try to avoid, and if not disclosed, give the vendor the opportunity to charge you whatever they want under the clause at standard price.
  8. Once you execute the agreement it is done. There is no erase or do over option available in the glossary that you can activate.
  9. Never go it alone when negotiating a new agreement, renewal or extension of an existing agreement with your vendor. The vendor will never tell you what you don’t know, but you will find out soon after you execute the agreement that you should have known.

Food for thought (Compounding Annual Price Increases can really hurt an Institution)

You vendor has just offered you a 10% discount on your services pricing if you renew your contract for seven years. The automatic price increase, if it activates on year 2 and is 5%, means that by the end of year three, the vendor has just recaptured the entire discount and you have authorized the vendor to increase your total contract price by 34% (minimum). There will be more price increases too. Your great deal is not what you thought is was!

Other Places to Hide

Processing agreements are not the only places that vendors hide extremely adverse clauses. Try looking at your network operating rules for your EFT processing. What may seem to be a harmless, is a complicated document that governs interoperability. These network documents are full of rules that are intended to divert your interchange, increase your costs, and take away your control of your debit card.

There is a simple clause in every vendor EFT processing agreement that states you have to join the vendors’ network and when you do, your institution must agree to comply with their Network Operating Rules.

First of all, you do not have to join their network. Second, if you do then you also agree that they can change any price or any product or any card fraud liability (separate of Mastercard and Visa) for the entire term of the agreement and you can do nothing about it. You also need to be aware that the vendor also controls your debit and ATM card artwork you put on the card.

Network Operating Rules, by far, are where we have observed the most vendor abuses, and it is getting worse.

All financial institutions need to read and understand these rules. Do not dismiss them as just debit card stuff and blow them off. The vendor truly hopes you do, but that one misstep will cost you in the six figures faster than you can swipe or insert your card.

Really, agreements today have become a confusing series of busines terms, conditions and rules that are deliberately designed to distract, mislead, and increase your costs. This makes it next to impossible to economically leave a vendor that is not providing the right value and good service.

Finally, some vendors make a business out of excessive overcharges of exit and change fees. Take time to protect your institution and apply a generous portion healthy skepticism toward any vendor and their agreements. It could significantly reduce your stress and save your institution millions.

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Dan Fisher
Dan Fisher

With over 35 years in the financial industry, Dan M. Fisher has proven himself as a leader in the financial industry holding roles as the former director of the Federal Reserve Bank of Minneapolis and former Chairman of the ABA Payment Committee.

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The Copper River Group is a financial consulting firm that believes in the benefits technological advancement has for streamlining business.

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