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Hidden Costs of Managing Multiple Vendors

Kylee Wooten
July 9, 2021
Read Time: 0 min

Assess the full cost of your software investment.

Managing multiple vendors can be complex and expensive. It's important to consider hidden costs, like time and resources, associated with multi-vendor relationships.

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Fintech and banking

Accelerating digital transformation plans

The coronavirus pandemic has highlighted the importance of digitalization and the ability to provide a seamless banking experience remotely, and financial institutions have accelerated their digital transformation plans in response. COVID-19 and subsequent relief efforts, including the Paycheck Protection Program (PPP), initiated a boost in spending and planning for digital transformations to navigate the pandemic and find efficiencies in their lending processes. Those moves will play important roles in preparing banks and credit unions for growth as the economy recovers. As financial institutions continue to push toward digital transformation, it’s important to consider the full roadmap of offerings and services it aims to provide and ensure that the technology vendors it chooses to partner with can support it along the way.

Collaborations between fintech and financial institutions can help institutions increase revenues, generate new offerings and new business, and enhance the borrower experience, but it can also become difficult to manage as the number of partnerships grows. There is a seemingly endless number of technologies available today, and if financial institutions jump at the first available vendor or the cheapest, it can lead to complicated – and expensive – multi-vendor relationships. Multi-vendor relationships can be beneficial for flexibility and price negotiation; they can also lead to increased complexity and hidden costs – both financially and in the form of time and resources. While larger institutions may be able to afford dedicated staff for vendor management, for smaller financial institutions, vendor management is typically one of the many hats an employee has to wear.

If an institution is reviewing third parties for technology or service, don’t just look at the initial price tag; assess potential hidden costs that might be more difficult to determine at the surface level. The following considerations can help financial institutions make more informed decisions when choosing their technology vendors.

Managing vendor relationships

Considerations for software partnerships

Keep your eyes down the road 

When seeking out partnerships and third-party vendors, a big factor is often price. While most buyers will price-compare different vendors, they may neglect to delve into and consider hidden financial costs. Ernest Hemingway used the Iceberg Theory in his writing to stay focused on the most important elements of his story (the portion of the iceberg that’s above the surface) without overwhelming the reader with details (what’s below the surface). If you apply this paradigm to technology purchases, however, the buyer wants to know the full cost of deployment – the whole iceberg - and not just the fee shown on a contract.

The risk of hidden financial costs increases with multiple vendors, as does the risk of incompatibility between the technology. Take a forward-looking approach to vendor relationships. Does this vendor have other products or services that could help in other areas of your bank? Is it able to connect to your core and work alongside current solutions in place? Rather than piecemeal various solutions over time, potentially creating even more complications, consider how the institution can condense the number of technology vendors it leverages. Products that can “talk” and work together seamlessly will require less data entry, more cross-application features, and better overall reporting – all benefits that will save banks and credit unions time, resources, and, ultimately, money. Plus, by leveraging multiple products from the same vendor, rather than purchasing them ad-hoc from multiple vendors, there is a greater chance of price bundling to soften upfront costs. When a financial institution is considering a vendor, ask, “Will this solution grow with us, or will it have to be replaced down the road?”

Time and resources add up

Partnering with new technology vendors requires significant time and resources to administer each relationship, including vetting potential vendors, completing due diligence reports, paying invoices, and managing support staff and implementation timelines. Each contract may have different start dates, renewals, and terms – and it requires someone to track each piece. Andy Snow, Vice President of Implementation at Abrigo, recommends that institutions name an executive sponsor to ensure staffing resources are committed to onboarding new technology and appropriately training staff. “The longer an implementation is deferred, the more risk threatens the project’s goals,” Snow said. “A fully engaged organization with executive support reduces those risks.”

While having an executive sponsor is important to a successful transition, keep in mind that this project is in addition to his or her day-to-day responsibilities, as well as the rest of the team’s day-to-day as they are trained on the new product. Consolidating vendors can alleviate the time and resources needed to properly implement and train staff members.

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Optimize change management for a return on investment 

Implementing new technologies does not automatically make an institution more effective or efficient. Alarmingly, only 35% of IT project implementations are successful. However, this can often be prevented at a minimal financial cost to the organization with the support of the software provider. To get a solid return on investment starts with adequate training and support from the technology partner. The implementation and integration process can be very time-consuming and complex. Add multiple vendors and their respective implementation processes into the equation, and deployment can seem never-ending. With fewer providers, institutions can expect a more streamlined integration process since the software will have similar interfaces, features, and applications. As your institution looks to add new products into the mix, it will take staff significantly less time to get comfortable and up to speed with the features because of prior experience with the vendor’s products. 

And if help is needed, it’s a lot easier to make the call to one vendor rather than an entire roster of third parties. Support with a single contact is just a phone number away. This support contact will be familiar with all of the products your institution uses and will be able to get a solution back to you more quickly.

Software providers can become trusted advisors 

With a single vendor, your institution will have a deeper relationship with one trusted advisor, which can greatly reduce integration and support pressures. When your institution is in frequent communication with a third party, it becomes much easier to build a relationship and trust than it is in a multi-vendor environment where communication is less frequent. If you’re having an issue with your product, your institution simply needs to make one phone call, whereas a multi-vendor relationship can send your institution on a wild goose chase tracking down one vendor after the next before your issue is resolved. Software from the same vendor also lends itself to greater accountability with less finger-pointing.

There is no right or wrong approach when it comes to single- or multi-vendor relationships. However, it is important to weigh the pros and cons before investing in a third-party solution. The price tag you see isn’t always the price that you get. Be diligent in vetting out potential vendors and find simplicity in implementation when you can. Ultimately, these relationships should offer your institution greater efficiency and scalability, so consider these points when determining whether or not a vendor is right for you.

About the Author

Kylee Wooten

Media Relations Manager
Kylee manages and writes articles, creates digital content, and assists in media relations efforts

Full Bio

About Abrigo

Abrigo enables U.S. financial institutions to support their communities through technology that fights financial crime, grows loans and deposits, and optimizes risk. Abrigo's platform centralizes the institution's data, creates a digital user experience, ensures compliance, and delivers efficiency for scale and profitable growth.

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