Buying technology at a bank can be a frustrating, even intimidating, experience. But it can also pay off handsomely, if you know the pitfalls to avoid and the right questions to ask.
In this episode, Jim Young and Dallas Wells discuss why vendor management is a lot like credit underwriting.
Jim Young: Hi, and welcome to The Purposeful Banker podcast, brought to you by PrecisionLender. Where we discuss the big topics on the minds of today’s best bankers. I’m Jim Young and I’m sharing co-hosting duties today with Dallas Wells. Thanks for joining us. Dallas and I are back again to talk about the book we’ve been co-writing along with PrecisionLender CEO, Carl Ryden. It’s called Earn It: Building Your Bank’s Brand One Relationship At A Time. We’re releasing it in sections one month at a time and it’s all available at TheEarnItBook.com. Again, there’s a “The” in front of EarnItBook.com.
This week, we’re going to discuss our latest chapter, chapter 9, choosing the right tool. Dallas, let’s start off with the opening anecdote to that chapter, in which you display your total incompetence when it comes to buying groceries. I have to confess, I wanted to laugh at you, but really, I identified with you on that. That could so have easily been me out there buying all the wrong items and leaving out the only one that mattered. I want to start off by giving you a moment, if you’d like, to defend yourself on your performance there.
Dallas Wells: I could try to defend myself, but really, I think just displays my general incompetence with the Honey-Do List at home. Let’s just leave it at that and move on.
Jim Young: All right, but you did not share that anecdote to illicit sympathy and empathy from our readers. What does that experience, the whole snafu and shopping gone wrong, have in common with the tech-buying experience for banks?
Dallas Wells: I think just that it’s one of the most common struggles that we hear bankers telling us about. It’s something that they all know should be a top priority. How do we upgrade technology and how do we use technology to best serve our customers? They’re just simply overwhelmed by it. It’s like poor Dallas going to the grocery store. There’s thousands of choices, and I’m supposed to find the exact things that we need, and that overwhelming level of choice, and I inevitably come back with the wrong things. I think banks feel the same way. There’s a lot of ways that they can tackle the problems that they have, but they’re expensive, they’re time intensive, and even when they get something up and running, they always have this lingering doubt in the back of their mind of, “Did I pick the right thing or did I make a very painful, expensive mistake?”
Jim Young: That’s really what this chapter is about, is trying to ease that, walk them through that experience. We start off by saying, let’s start off with the things you should not do. How not to buy banking technology. We list five of those. Is there one that sticks out in particular for you? One maybe that you have some personal experience from your banking days with?
Dallas Wells: I think probably the most important one. The one that if you get it wrong, none of the others really matter. The whole process just has to have an owner. I think that was the fourth thing down on our list. It really is the critical one because it’s going to be what takes the other four and makes them right. The buying by committee thing, I’ve been down that path so many times on both sides of the table. I’ve never seen it really work effectively. Somebody has to own it.
What we figured out now at PrecisionLender is when we go into conversations with a bank, everybody loves to have a potential client approach them and say, “Hey, we’re interested in looking at this.” We’ve learned the hard way if it’s … We say, “All right, well who’s running this project?” They’re like, “Well, it’s just kind of all of us.” We’ve learned that that’s going to be an incredible time suck for us and them. We are a lot of times reluctant to engage in those. It’s simply because there is no clear path home. Nobody is going to be pushing that through the inevitable road blocks that come up.
Whenever you’re buying a meaningful system of any kind, writing a decent sized check for any new tool, there’s going to be road blocks. There’s going to be internal struggles. There’s going to be the other things on this list that we talk about. Somebody has to be the one who’s responsible for it and who also has the authority to kind of push that thing through and make it happen. Otherwise, you’re doing what most banks are doing, which is you’re sitting in committee meetings talking about technology for hours everyday. Very few things are actually getting done.
Jim Young: Absolutely. One sort of side note to that is something that Carl and I in writing a white paper that’s coming out this month called Innovate or Die, made the point that someone has to own the status quo, too. I think when it comes to these sort of things, if you don’t have someone basically who says, “Yeah, I’m good with us doing nothing.” That can be one of the things that can keep you from ever getting off of square one when it comes to buying technology. If you have somebody that says, “Yeah, I’m willing to own that. I’m willing to say, yes, I’m good with that.” That may tell you don’t … If that person feels that confident, maybe you don’t need to be adding tech. Most likely I think what you’ll find is people saying, “Whoa, whoa. I’m not comfortable with that.” That’s your signal that yeah, you need to move forward in this process and find someone to then own that process.
Dallas Wells: Absolutely. You have to have somebody who, if the current situation sucks, then somebody’s name is attached to that, too. Rather than just, well, the only way I can get in trouble is by going out on a limb. I just won’t be that person. I’ll just stick with what we’ve got. That’s kind of everybody’s shared pain and no worries. Ownership really does change the process.
Jim Young: Of course, you can have a fantastic process set up with someone owning that process and all that sort of things in there. It’s not going to help you a whole lot if you pick the wrong vendor at the end of that process. That’s something that Carl set out to rectify a few years back. I think he had run into some frustrating situations and he felt like banks weren’t asking the right questions, essentially. It lead him to write what he calls The Five C’s of Vendor Management, which I think will probably hold the record that will never be broken for longest blog post ever published. There’s a lot of ground to cover. Can you talk about the general idea there? In particular, how he ties it in to the concept of underwriting.
Dallas Wells: I think that’s kind of Carl to a T. When you get Carl coming by saying, “Hey. Do you have 10 minutes?” You’re like, “Maybe, but I don’t think I have an hour and 10 minutes.” I think this blog post, like most times when Carl says, “Do you have 10 minutes?” It’s well worth the time. There’s a lot of great stuff in there. Really, what he’s talking about is he’s relating vendor assessment to something that banks are already really good at and something they’ve been doing for a long time, which is underwriting credits. You have the five C’s of credit, he translates that to the five C’s of vendor selection.
Really, it’s a very similar process. When you’re taking about a credit, you have a borrower who’s coming in who’s making all sorts of promises. Here’s what I need the money for, here’s this grand new project that I’m going to put together with it. Here’s the money, the cash flow streams that I’ll have available or that I do have available to be able to repay you. Underwriting is verifying that all those things are true and believable and likely to actually happen.
A vendor assessment is much the same way. You’re going to have sales people coming in and making you all these grandiose promises. Vendor assessment should really be checking all of those, verifying that they are possible and that they are the most likely outcome before you actually do sign a contract and send a check.
Jim Young: It is one of those classic Carlisms where it’s kind of brilliant in its simplicity. When you think about it, you’re like, “Well, yeah.” Underwriting is the same exact concept. As banks, why don’t we put the same time, care, and attention to it that we would with a loan? Carl is also, and we all are, to be honest, fond of finding to make connections outside the world of banking to sort of explain some of the concepts. In the next section of this chapter, we bring in Fantasy Football into it, which is painful to me right now because I’ve got so many injuries in my starting line up, but that’s another story. What does Fantasy Football here have to do with a pricing tool?
Dallas Wells: I’ll take what may be my one opportunity ever to just point out for the public record that I am leading the PrecisionLender league at the moment. Just so everyone who is listening knows…
Jim Young: I’ll point out that I’m not in that league, or otherwise I’d be leading.
Dallas Wells: Fair enough. The point here is that it takes bankers aback a little bit when you think about the millions of dollars that they’re putting on the books and that they’re asking their relationship managers, their lenders to deal with. To say, “Go generate the bulk of the revenue for the bank, and the tools that we’re giving you, in some cases, are a legal pad and an ink pen.” In other cases it’s like this sort of clunky, old antiquated system that is really even worse than the notepad and the ink pen because it slows them down. Then those same RM’s sit down at their desk and login to Yahoo! or ESPN, or wherever to set their Fantasy Football lineup. Here’s this super simple, easy to use, very intuitive interface that gives them tons of information and analytics and expected stats over the next X number of weeks. The very jarring contrast there. Multi-million dollar decisions, or this free fake football game where we pretend to be general managers. It’s like, why can’t we bridge that gap a little bit? Why can’t we give our lenders some tools that more closely match that?
That’s really what the aim should be. Make it easy. Yes, there’s tons of information, there’s lots of analytics, there’s data everywhere, but that doesn’t have to mean that it’s complicated and cumbersome. Most of these kind of tools, the big breakdown in them, and this is not just pricing. This is underwriting tools, this is CRM systems. It’s almost everything a banker touches.
They’re really, really complicated. They’re hard to use. They’re designed by the back of the bank to say, “Hey, we really need all these different types of data to generate all the reports and all the analysis and stuff that we have to do, so you guys at the front of the bank, put that stuff in there for us.” It’s imposed upon them. Instead of starting where the Fantasy Football tools starts, which is, “How do we make this easy, intuitive, fun, and useful for the user? How do we give them valuable stuff?” Yes, behind the scenes, there’s really complicated databases and projection engines and stuff going in there, but to the end user, it’s really simple.
Bank tools, the ones you need to be shopping for, again, for pricing, underwriting, CRM, all the things that you’re doing, start at that user and work backwards. It doesn’t mean you cross things off your list and say, “I guess we can’t do this complex, sophisticated thing.” You still can, you just have to make it where they can actually get done in an efficient way by those end users.
Jim Young: That is a really good point and you’re absolutely right. I had said pricing tools, but that is certainly not limited to that. Pretty much any of those tools you spoke of applies there.
Finally, the good folks at Gonzo Banker wrote a blog post recently called Is Your Vendor A Partner? We decided that sort of question was very relevant to what we were writing and we used some of that to anchor some of our last section of chapter 9. What’s your main takeaway there from that basic conversation of Is Your Vendor A Partner?
Dallas Wells: I thought the post was a really good one. We’ll make sure that there’s a link to it in the show notes of this episode. It’s work your time to read it if you have any interaction with vendors at all. The big takeaway is basically that you’re not done once you sign the contract. One of the things that you’ll be sold from just about every vendor on the front end is what a great partnership it’s going to be. How they’re going to work with you to do all these great things for your bank. Your job is to hold them to that. Make sure that they really do live up to all those promises that are made.
Especially as more and more banking tools and services start being offered like ours, like PrecisionLender where it’s a subscription basis. Where it is this long term ongoing relationship. That’s what we’re doing as a company. We’re betting on that recurring revenue. We’re betting on the fact that you’re going to re-up next year and the year after, which means we have to be that partner to earn that. The banks job is to make sure that they come to the table as well.
If it really is going to be a partnership, there’s a few things that the bank is going to have to do there. You’re going to need to look for vendors that are going to play their role. Your vendor should be bringing you new ideas. They should be bringing you research, and new thoughts, and ways to get better and what you’re doing. They need to push you. They need to challenge you and not just take the “customer is always right” attitude. If they see you using the tool wrong, or even some other part of your business that doesn’t look like it’s as it should be, they should call you on that. That’s a true partnership, is where they’re actually helping you get better.
We have clients where we try to do that and they’re not always real receptive. I think that’s the banks job, if it’s really going to work, is understand what that relationship is going to look like going in, and once the contract is signed, live up to it. Make the vendors do their part. Make sure that they stay engaged, and do that by making sure that you stay engaged with them as well.
Jim Young: Again, to go back to the underwriting analogy from before, you don’t structure a deal and sign off on it with a customer and then just say, “All right. That’s it.” I hope they end up eventually paying it. Ongoing relationship there.
That’ll wrap it up for this episode. Thank you again for listening. As a reminder, you can go to TheEarnItBook.com to read each section of the book as it’s released. You can also sign up with your email to have those new sections sent straight to your inbox each month. The first 500 who sign up will receive a free copy of the print version of the book when it’s released. Those details and more will be in the show notes for this episode which you can always find at explore.precisionlender.com. If you like what you’ve been hearing, make sure to subscribe to the feed in iTunes, SoundCloud or Stitcher. We love to get ratings and feedback on any of those platforms. Thanks for tuning in. Until next time, this has been Jim Young and Dallas Wells. You’ve been listening to The Purposeful Banker.