Friday, August 5, 2016

Purported EMV Flaw

You've no doubt seen the news stories about hackers discovering an alleged flaw that allows EMV chips to be compromised.  I don't believe this is cause for much alarm.  The stories I've read indicate that the mag stripe on a card can be re-written to effectively turn off the chip.  I'm sure this is possible, but it would require physical possession of the card.  Ideally, your fraud detection, combined with the customer hopefully reporting a lost or stolen card, would serve to protect you.  In addition, the bulk of the story seems to be about merchants not encrypting transactions, chip or otherwise.  That is a very different matter - and you would think that merchants would have learned from the Target breach that encryption is important.

So let's keep our heads straight, and continue to deploy good fraud technology, including the feature that allows customers to temporarily disable a misplaced card - while we plan for partial or full EMV implementation down the road.  Meanwhile, a good dose of employee and customer education about card fraud and safety is probably in order.  You may get calls about this perceived EMV flaw.  Make sure you are ready to respond.

Remember - you control the message or the message will control you.

Sunday, July 17, 2016

Managing Strategic Risk in Core Vendor Relationships

There’s been a lot of attention around core system selection, contract negotiation, and related matters recently.  I want to remind you that I have extensive experience in these areas, and generally have open projects involving new system selection, contract negotiation, and re-negotiation of existing contracts.  I have two things that will be of great value to you: extensive experience over the last 30 years, and a proven methodology designed to get you the very best outcome.
This time, I want to discuss contract negotiation (and renewal negotiations).  Next time, we will discuss system selection.
Just like contingency planning, vendor management is more than a regulatory requirement.  It is a prudent business practice. The failure of banks to properly manage their relationships with vendors caused banking regulators to impose vendor management guidelines. Poor vendor management costs money, plain and simple, and creates issues of exposure and liability that may be hidden until some sequence of events occurs that brings such liability to the forefront. 
Essentially, you should organize all of your vendor relationships in such a way that you know who you are doing business with, what the terms of the relationship are (time frames, service levels, bank obligations, vendor obligations) who the proper contacts are (normal involvement, escalated involvement) and have in place a methodology for tracking existing contracts, and getting new contracts into the same organized system so that they are also properly tracked. In many cases, a simple spreadsheet will do, but you will find numerous vendors who offer both desktop and web-based solutions for managing vendor relationships. Again, this is just common sense. Make sure that someone has central responsibility for vendor management. 
I want to spend some time on the specific exposure and liability involved with your large Information Technology contracts. Primarily, core processing, item processing, EFT services, and perhaps Internet banking. Especially when you outsource these services, you will find these contracts to be extremely specific, and virtually loaded with pitfalls to navigate during the course of their lifespan. Over the years, these contracts have grown in size and complexity, and I can assure you that the additional language is primarily to protect the vendor's interests, NOT yours. Below are several clauses that are most critical, as examples of how serious these matters can be. 
1) Natural Termination or "deconversion" fees. You will find that your IT contracts contain language detailing the vendor's responsibility when you choose to move to another vendor at the end of the contract. Most read something like this: "we will provide reasonable deconversion assistance at our then current rates" - or as I like to call it, a blank check. In practice, I am seeing fees that are the equivalent of an extra 6 to 12 months of processing fees. 

All that, for providing one or two sets of “tapes” or files to your new vendor for the conversion process. Note that the word reasonable, in the sentence above, is not modifying the word cost. When renewing these contracts, or signing new ones, insist on a reasonable fixed fee for the deconversion charges. Move on if a vendor won't agree to fix these costs. 
2) Early Termination fees. Let me be clear - I don't ever advise a client to arbitrarily break a contract and attempt to walk away without penalty. You wouldn't allow customers to do that with loan covenants or corporate resolutions. That being said, there is nothing wrong with attempting to negotiate a better deal when you renew or negotiate a new contract. Most of the time, early termination clauses provide for you to pay 80% of the current monthly fees, for the remaining life of the contract. First, this is too high a penalty. The vendor's margins are just not that good. Second, you will find that the vendors often include in the calculation of this 80%, pass through charges (such as telecom, or other third party fees like card production, postage, etc.) that you will still have even when you move to a different provider. I try to negotiate a true cost of the monthly fees from the processor, and then implement a sliding scale as the contract ages. I've seen a number of M&A deals fall through because the selling bank's early termination fees were simply too high. 
3) Auto-Renewal Clauses. Many contracts contain such a clause, basically saying that if you don't serve notice in advance (usually 90 days to 180 days) the contract will automatically renew, at the same terms, conditions, and pricing. First, try to take the clause out. If the vendor won't agree, simply serve notice, via a letter, at the time you sign the new contract that you will not auto-renew. This does not mean you will not renew the contract, it just means you want the opportunity to negotiate terms, conditions, and pricing prior to renewal. 
4) Refunds of Incentive Payments - especially when you move to a new vendor in the core and EFT areas, it is not uncommon for vendors to give you either hard dollars up front, or a significant credit that you can use against the purchase of goods and services. Understandably, if you break the contract early, they will want some or all of their money back. Again, I suggest a sliding scale, so that your liability decreases over time. Probably 100% the first year, then 20% reduction per year for each year after. 
I believe I've made my point that there is significant exposure in contracts for Information Technology services. It's important that you address your situation relative to existing contracts, and that you educate yourself so that future contracts are negotiated not just on price, but also on terms and conditions in order that the contracts are more favorable to your bank. 
Because of the complexity of these contracts, you will likely need help. I have extensive experience in reviewing and negotiating Information Technology agreements, and would be pleased to help you should you need assistance. My methodology includes a checklist of items for review, along with a thorough reading of every contract, addendum, and extension, and provides significant value in helping you manage this important risk area, and negotiating better contracts going forward.
Upcoming Speaking Engagements
July 27 - Advanced School of Banking at Penn State University 
August 5 - Kansas Bankers Association CEO Forum, Colorado Springs
August 11 - Graduate School of Banking, University of Wisconsin
August 13 - Alabama Bankers Association, CEO Conference, Point Clear, Alabama

Trent Fleming advises executives on strategy, management, and technology issues.  Reach him at or on Twitter @techadvisor

Thursday, June 2, 2016

Vacations and Succession Planning

Inevitably, the topic of succession planning arises during strategic planning sessions with my clients. Often, the discussion is focused on executive management and the board.  I submit to you, however, that you should address succession planning across all levels of management, in all departments.

In a typical organization, there exist what I call “concentrations of knowledge.”    Generally, only a handful of individuals hold a complete understanding of processes, practices, and procedures.  Overcoming the absence of these individuals is generally a collaborative effort of those who have partial knowledge, along with the occasional “emergency” phone call, text, or Facebook message to that person who is on vacation, home sick, or out of the office for a meeting.  The better way to address these concentrations of knowledge is an intentional program of cross-training, succession planning, and overall training and education designed to increase knowledge and understanding of all employees.

This is my annual reminder to you that vacation season is a great time to assess the extent to which you are impacted by these concentrations of knowledge.   Evaluate the efforts of your staff when managers or other key employees are on vacation.  Do errors increase? Are there compatibility issues that come to the fore? Is the staff reaching out to absent employees for help during the day or in the evening?.  One key to a high performing organization is a level of cross training that anticipates and overcomes the temporary and permanent loss of a key employee. 
Here are three things you can do to reduce the potential impact of concentrations of knowledge, and prepare for both short and long term absences.  First, insist that departmental policies and procedures are well documented, properly audited (practices versus written procedures) and that employees are trained well.  Second, insist that employees within a given department are cross trained on other tasks and duties, and that actual rotation of duties occurs throughout the year.  Finally, strictly enforce vacation absences, including communications via any method.  This not only pays dividends from improving your bench strength, it ensures that the internal control benefit of required absences is fully realized.

I’m eager to hear what you learn from your efforts and observations.  As always, I stand ready to assist you in these or other areas. 

Trent Fleming advises executives on strategy, management, and technology issues.  Reach him at or on Twitter @techadvisor

Wednesday, March 16, 2016

Ready to Give up on Free Checking? Not so fast . . .

I’m hearing a lot about the demise of free checking in the bank and credit union environment.  Rising costs are cited, among other issues, but I think that consideration has to be given to the profile of customers who have free checking accounts.  If you are doing even rudimentary profitability analysis, you should be able to assess the impact of free checking on customer profitability.  A properly configured account will serve to modify consumer behavior in ways that reduce the costs of servicing the account.  This can be done without fees directed to the consumer.  Increased debit card use, email statements instead of paper, mobile or Internet access (instead of phone calls and voice response systems,) and automatic deposit of payroll or other credits are commonly thought of as components of a successful free checking account. 

One source I saw recently indicated that rising transaction volumes were a reason for FI’s to eliminate free checking. While per account volumes are rising, the increase is almost entirely attributable to electronic transactions, and these are not increasing your costs.  Debit card activity is eclipsing check writing, and virtually all debit card transactions are not only cheaper than checks, they often generate interchange revenue.  You want customers to use their debit cards, and a properly promoted free checking account will encourage such use.

If consumer accounts are important to your institution, free checking remains a great way to attract and leverage such relationships.  As always, understanding your costs and revenue opportunities is the basis for configuring and pricing accounts.   I’m available if you want to review and discuss these or other matters.

Trent Fleming serves as a trusted adviser to financial institutions on matters of technology, strategy, and management, and as an industry speaker. In his advisory role, he has helped hundreds of banks make good decisions about technology from a business perspective. Fleming’s presentations on technology, management, and strategy consistently get the highest marks from his audiences. He serves on the faculty of the Graduate School of Banking at the University of Wisconsin, and regularly contributes articles to industry publications. More information at ,, or @techadvisor on Twitter. 

Tuesday, March 1, 2016

Essential Speaking Topics from Trent Fleming

As you work to complete your conference planning for this year, I hope that you will consider the attached presentations as options for your groups.  I've included topics directed to CEO/Director audiences, as well as operations/technology, and marketing.  It would be my pleasure to work with you on any of these topics.

I'm grateful to the many of you who have already booked me for this year, and hope to add many more engagements to my 2016 calendar.

CEO and Director Focus

Four Ways CEOs Can Better Manage Technology
Technology has found its way into every aspect of your institution.
It’s no longer a “back office” only solution.  The successful CEO will embrace technology, and seek to actively manage it.  This session is designed to show you how: drawing on four key pillars: People, Strategy, Business Focus, and Security.  Participants will leave with a better understanding of how technology can be integrated into the organization, and managed as well as any other business unit.

Director Liability in a Connected World
Increasingly, bank customers, both business and consumer, are choosing electronic delivery channels over traditional branch banking. To support these demands, banks are investing in sophisticated delivery systems to provide real–time access for customers. In addition, banks are finding it increasingly important to manage their Internet and social media presence, as well as their Internet reputation across other platforms. Payment methods ranging from wire transfer to ACH to debit cards create the potential for significant fraud loss and also must be managed to mitigate risk. For business, corporate account takeover is a major threat. On the consumer side, card data breaches and identity theft loom large as sources of loss for banks. Finally, the increasing reliance on outsourced data–processing solutions means that banks are signing contracts that represent significant liability and exposure for early termination clauses, annual price increases, and de-conversion costs. This session will guide Directors and Executive Management in understanding the risk and exposure presented by today’s online environment and will also provide guidance to them as they seek to offer advice and oversight to bank management in addressing and managing such risks. 

The New Face of Strategic Planning:
Integrating Technology Into Your Enterprise Strategy
Historically, banks have had two strategic plans: an enterprise, or business plan, and a separate technology plan.  This is no longer tenable, as technology now becomes the driving force behind most strategic initiatives.  This session discusses methods of integrating technology planning into your enterprise planning efforts, providing insight to senior managers and executives as to the increasingly visible and important role technology plays in the banking environment.  Topics include selected new technologies, negotiating and managing vendor relationships, merger and acquisition planning, managing operations and technology staff, and engaging with customers to maintain strong relationships via electronic channels. (this session can be tailored for CEO/Director audiences, or Senior Operations staff.  I can also provide this as a Director Education or Planning Session, privately for individual banks)

Rural Economic Revitalization
Drawing on my volunteer work with various university-level economic development efforts, I have developed presentations to address how small towns can initiate efforts to revitalize their local economies.  One component of my work is a targeted presentation called “Small Towns and Small Banks” that is focused on CEOs of community banks and talks specifically as to how these banks can be catalysts for change that results in stronger communities

General Topics

Preparing Your Bank for the Next Decade
While the day to day pressures of managing balance sheets and regulatory requirements seem overwhelming, smart banks sense that the weight of competitive pressures make it even more important to develop and execute on strategies that will ensure their banks’ success going forward. this session will look at emerging trends in banking products and services, and provide keen insight into developing the infrastructure, tools, and staff needed to deliver them successfully. 

Managing Your Core Vendor Relationships
Your contract for services with your primary banking software provider defines a very important third party relationship with your bank.  Issues of exposure, liability, service levels, and yes, cost, are all in play.  Many banks have signed contracts with dozens of pages, without a careful review.  In some instances, the bank's attorney has been asked to review and comment on the contract, but absent specific software expertise, such a review may be cursory at best.  This session is not a legal review, but an operational one, of the implications of committing to selected aspects of the contract.  Participants will leave with insight into how to evaluate contract terms, and what areas to ask the bank's attorney to look into in further detail. These skills can then be extended to other third party contracts, further enhancing the benefits.   Today's focus on reducing expenses, and controlling costs, makes this session especially timely. Ideal for Operations audiences and CFO Conferences.

Alternate Branching Strategies: Leveraging Technology to Efficiently Serve Existing and New Markets
While community banks offer a wide range of electronic delivery channels, branch footprint remains a key component of service delivery.  This session will look at smarter ways to branch, including limiting physical plant investment, and utilizing a wide range of technologies to provide outstanding service across all of your markets. 

Developing Your Bank’s Call Center
Today, even small banks need a plan for centralizing customer contact and support.  As delivery channel options increase, customer demands for timely, knowledgeable support will increase.  A call center is the key, allowing you to offer a seamless, consistent experience when customers choose to call, email, tweet, or FB for help.  To augment this policy, banks must move to a “universal associate” model, whereby each employee with customer service responsibility is cross trained on all products and services.  This allows quick, accurate responses, and raises customer satisfaction, which in turn increases customer loyalty, along with the adoption of new technologies.  This session will guide participants in mapping out a plan to move to a call center model from wherever they are now.

Developing Your Bank's Mobile Strategy
Mobile Banking has quickly become an expected service offering for bank customers.  Consumer's desire to do more on the mobile device, combined with extensive advertising at a national level, have driven awareness and rapid adoption. In addition, our society is rapidly moving into a “Post PC” stage, where the mobile device (tablets and larger smart phones) will become the primary end user device.  In spite of this, there are banks who are yet to invest in this technology.  Many who have deployed Mobile Banking have done little beyond offering the basic product.  What is needed?  A strategy.  One that encompasses five pillars: technology, operations, compliance, promotion, and innovation.  This session will provide banks with the information and techniques necessary to select, implement, promote, and manage a broad Mobile Banking delivery channel, both now and in the future. 

Social Media's Place in Your Marketing Strategy
Often, social media channels like Facebook, blogging, and Twitter are talked about as if they exist in a vacuum.  This session is designed to provide overall guidance for marketing, public relations, and advertising for financial institutions, including traditional and  social media channels.  The session is offered with two options: a focus on tactical issues, including implementation, security, compliance, and management, or a CEO focused presentation to provide background, risk management advice, and guidance to management as they seek to oversee the bank's marketing, public relations, and advertising efforts.

Attracting and Retaining Profitable Small Business Customers: 
Packaging and Promoting Your Bank's Services
For many years, I've spoken to banks about the real battle in financial services – the fight for the profitable small business account.  This session looks at recent trends, including “free” business checking, and commercial cash management technology, and provides insight into ensuring that your bank has a plan to attract and retain business accounts.  Often, community bankers find that they have all the tools needed to compete on feature/function with the regional and national players.  What is lacking is packaging, promotion, and sales training.  Participants will leave with ideas that will allow them to address an overall strategy for the commercial marketplace.

Please contact me today to schedule one or more of these presentations for your group!


Tuesday, February 23, 2016

Thoughts on Fee Income: Merchant Processing Services

Virtually every bank I speak to feels the pressure to increase earnings.  In advising banks on such matters, I try to focus on items that are relatively easy to implement, and will generate a stream of earnings with minimal ongoing effort.  Merchant Processing Services fall into this category.  It’s this simple, really: every one of your business customers that accept debit and credit cards (and digital wallet payments) need this service.  Too many banks have the attitude of “we can provide that if they need us to” instead of very intentionally trying to be the primary provider of such services.

It is exactly this type of thinking that prevents you from collecting all the fee income you should.  Begin now to assess your current program in terms of pricing, functionality, and marketing support.  If it is not what you need to be competitive, look at renegotiating with your current vendor, or evaluate alternate vendors.  Get a program in place that you can be proud to offer.  Then, incorporate this service into all your sales training, calling officer preparation, and marketing materials.  Leverage the relationships you have to sell more Merchant Services to your existing customers, and make the product you offer a selling point for prospective customers as well.

Properly executed, this plan will generate fee income in two ways: signing bonuses for new accounts, and per transaction fees monthly.  A third benefit is a stronger, more exclusive relationship with your business customer.  These benefits alone should make you invest the time to focus in deploying a Merchant Processing Services program.

Tuesday, February 9, 2016

Comments on Fiserv Acquisition of ACI

A number of you have asked me about implications of the ACI acquisition by Fiserv.  Here are some thoughts.

By now you have seen news of the acquisition by Fiserv of ACI’s Internet Banking solutions group.  I want to address this at a macro and a micro level.  First, let’s take on the macro side.  The banking software industry has mirrored the banking industry itself, by consolidating.  We now have an oligopoly in banking software - three firms control a majority of the market.  In such an environment, further consolidation is almost inevitable, as the big players seek to drive more revenue from ancillary products.  You will see more of these types of acquisitions, as it becomes harder for third party, best of breed solutions to sell product into banks directly.

At the micro level, this is a win for Fiserv.  It gives them an integrated product that works across all platforms, and includes both business and personal Internet banking capabilities.  As mobile becomes increasingly important - to both consumers and businesses - demand for enhanced capabilities will increase.  Fiserv’s current setup features distinct products for consumer and commercial, creating an unnecessarily complex delivery channel.  If you are an ACI customer using a Fiserv core today, you may find that your product becomes the main Fiserv offering, rather than being replaced.  When you consider that Fiserv acquired fewer than 600 customers, many of who are Credit Unions, you will see that this was more than just an effort to buy customer base.  The product is important, and that’s good news for ACI customers.