Strategies for Selecting Financial Institution Systems

Developing strategies to select financial institution systems is important for successful outcomes. Choosing a new system for your financial institution is one of the most significant decisions your team can make. A quick decision based on internal or external pressures can directly affect your ability to meet strategic initiatives at your financial institution. By following a carefully planned process, you can secure favorable contract terms, reduce costs, and set performance expectations.

Before starting, review current contracts and understand your contractual commitments, terms and conditions, cost structures, and expiration dates. If replacing a current system, plan to begin 18 to 30 months before your current contract expires.

1. Perform a needs assessment

An important strategy when selecting a financial institution system is a needs assessment. A needs assessment examines the current performance of your system and its potential for future scalability and sustainability. It helps you identify and address system weaknesses or potential threats. A thorough assessment helps you make informed decisions and avoid costly mistakes.

Engage stakeholders

Involve key stakeholders at your financial institution in system selection decision-making. Addressing their needs and concerns can lead to better acceptance and a smoother implementation.

Hold a kickoff meeting

Provide an overview of the selection approach, including strategy and anticipated timelines.

Gather your data

Review current contracts and supporting documents, including invoices and related information. Document overall system and vendor expectations.

Analyze strategic initiatives

Analyze your current system and consider how a change could allow you to address system weaknesses or potential threats. Form a foundation for implementing and achieving your desired strategic initiatives.

Define functional requirements

Identify requirements like simplified reporting, integration/interface needs, or advanced access controls. Align requirements to functions supporting initiatives like increasing efficiency, enhancing controls, and streamlining workflows.

Set expectations

Pinpoint critical issues and areas for improvement. Consider how a system change could affect organizational changes or other projects. Concise expectations help everyone stay focused throughout the process.

Contact your current vendor

Issue a letter of nonrenewal to your current vendor and request a quote for deconversion costs and early termination fees. Review data storage on your current system, determine what can be purged, and request a quote for conversion of your data to a new system.

2. Complete a system analysis

Another key strategy when selecting a financial institution system is a system analysis. Data from the assessment can be used to determine the right system — both functionally and financially — by thoroughly evaluating various options.

Conduct vendor pre-selection

Initiate contact with vendors fitting your defined requirements and expectations to gather preliminary information like timeline and implementation dates. Identify systems that closely align with your requirements and finalize the vendor participant list.

Develop a Request for Proposal

Issue a Request for Proposal (RFP) to the selected vendors. An RFP is a critical communication tool outlining requirements and expectations from the assessment phase and should clearly define your selection criteria.

Establish vendor requirements

Determine specific guidelines to discuss with vendors and go over requirements and expectations. Gather follow-up questions and provide any requested background materials.

Evaluate proposals

Carefully analyze proposals to confirm they meet your business objectives, pricing expectations, and functional requirements. Assess viability, determine system flexibility, evaluate performance, and review program management.

Conduct a cost-benefit analysis

Assess the benefits and drawbacks of different system options by developing a systematic cost-benefit analysis to base decisions on a clear picture of all options.

Conduct onsite demos

Hold vendor demos on site and evaluate functionality. Complete an evaluation of each system and prepare follow-up items for discussion. Give the list to the vendors and resolve all inquiries.

3. Perform due diligence

Incorporating due diligence is an essential strategy when selecting financial institution systems. Due diligence serves as a verification and analysis tool, providing financial institutions with assurance the vendor finalists meet your needs and you understand any risks posed by the relationship.

Examine due diligence materials

Assess the system’s data security features, such as encryption, access controls, and data backup processes to make sure it meets relevant industry standards and regulations.

Conduct reference calls

Complete reference checks with external organizations and agencies and conduct calls with the vendor’s clients to evaluate depth of resources and experience, including history of complaints or litigation.

Perform site visits

Conduct client site and data center visits. Review the vendor’s website to verify their statements align with your expectations and don’t overstate or misrepresent activities and capabilities.

4. Select a system

A thorough system selection process helps financial institutions make strategic investments supporting their long-term success, improve critical issues identified during the assessment, and avoid negative impact or adverse conditions that would hinder strategic initiatives.

Select vendor finalist

Review the results of your vendor due diligence and determine your preferred system.

Perform a risk assessment

Assess the selected vendor and system for possible risks, then create plans to address those risks.

Finalize any questions

Discuss questions, concerns, or required changes and request an updated proposal. Develop a list of key points for negotiation.

5. Negotiate

Negotiating is an important strategy when selecting a financial institution system. A well-negotiated contract is crucial for maintaining a long-lasting vendor relationship. With market data and your trusted advisors, you can secure a comprehensive contract with acceptable terms and conditions at a fair price.

Review pricing

Evaluate the vendor’s proposal and appraise pricing as it relates to market value, growth, strategy, and future expenses. Confirm the proposal contains the most appropriate pricing method for your financial institution’s needs. Identify pricing requests and negotiate with the vendor.

Appraise terms and conditions

Review contract language carefully. Pay attention to security and risk management issues and make sure you understand service-level agreements. Also, consider backup and recovery services and technical support. Work with your trusted advisors to discuss contract language considerations, performance and functionality, and overall relationship expectations. Identify contract requests and negotiate with the vendor.

Address training and implementation

Understand training and implementation requirements for resources, timing, and expectations. Review personnel and technology requirements and request a training and implementation plan from the vendor.

Finalize the agreement

Continue to negotiate until you and the vendor agree on pricing, contract terms, and service levels. Clearly defining the expectations and responsibilities of the vendor helps warrant the contract’s enforceability, limit your liability, and mitigate performance disputes.

Manage the contract

Conduct periodic performance reviews and service-level agreement tracking to determine whether the vendor is delivering the required services and meeting the standards outlined in the contract. Consistently assessing vendor performance enables effective risk management.