Strategies for Managing Vendor Relationships with Davis Stewart and Gene Kirby

INTRO: Helping community bankers grow themselves, their team and their profits. This is the Community Bank Podcast.

CALEB: Well, hey everybody, and welcome back to the Community Bank Podcast. Thanks for joining today’s conversation. Hope everybody is having a wonderful holiday season. I’m Caleb Stevens, with SouthState Bank’s Capital Markets and Correspondent Banking division. Here with another episode today talking about the art of managing vendor third-party relationships. There’s a lot that goes into it. If you were to pull a list of all the third-party vendors that your bank works with, even if you’re a smaller community bank, I would imagine that that list is probably pretty long. And so, what does it look like to effectively manage those relationships in light of your bank’s long-term goals? That’s the topic we’re talking about today. To help us wade through it is Davis Stewart and Gene Kirby with Heitmeyer Consulting. They specialize in these kinds of topics and issues, helping community banks think through their strategic partnerships. So, we’ll jump into that in just a minute. I always want to remind you though real quick, over the past few weeks, we’ve been talking about our brand new e-book: “12 Winning Strategies for Community Banks in 2025.” We’d love for you to grab a copy if you have not yet done that, so click the link in the shownotes of this episode to get your free copy. We wrote an e-book that is all about helping you navigate the uncertainty of 2025. We want to help you win and succeed as you go into next year, so click the link in the show notes to grab that e-book. And now here’s my conversation with Gene Kirby and Davis Stewart.

CALEB, continued: Well, Davis and Gene, it’s a pleasure to have y’all on the podcast today. How are you?

GENE: Doing great.

DAVIS: Very good, thank you. Happy Holidays.

CALEB: Happy Holidays. Well, Davis, you and I go way back. You are a family friend, friend of my father’s for a long time in the banking world. So, grew up seeing you there at the Atlanta Athletic Club off and on as a kid, so it’s fun to say that we’re fellow colleagues in the banking world. But for folks that are not familiar with you, tell us about your background, and then would love to hear about Gene’s as well.

DAVIS: Yeah, we do go way back. And it’s just a pleasure to be here and continuing to further the relationship. So, my background is—is it 35 years now, Gene? How long have we been doing this? 35 years in the banking industry. I have always been on what I would call the third-party or the vendor side, selling to banks and building relationships with executives at banks like the one that you are with and the one that your father is with. I started out my career at the John Harland Company, which was a payment check printer. And I started there in 1980, so checks were still king at that time. You know what’s happened to him since. I left there because I really wanted to pursue the payments industry, so I left there in 1998 and joined KPMG and started their Internet banking practice.

DAVIS, continued: My favorite thing to say is I stood up in front of 500 bankers and told them that all their customers were going to be doing business with them over the Internet and the computer and they laughed me off the stage. And then after the KPMG, I went back into the third-party vendor world and worked for FIS for a number of years and helped them with their digital or payment strategy. And then in 2007, I started my own company around helping banks understand how to negotiate terms with third-party vendors for long-term success creating win-win situations. And then about 2008 or 9 is when Mr. Kirby entered the picture, and it’s a good way to transition over to him.

GENE: Yeah. We actually met back before that, but I hired Davis when I was at SunTrust, to help us renegotiate our check contract. So, that was my first experience working with Davis, and I tell people he was one of the most persistent that ever called on me. But quick background, I was 25 years at SunTrust. I left there to go up to the Connecticut market to be president of New Alliance Bank, which was a regional bank with about 8 billion in assets. We sold that bank in 2011 to First Niagara, which was then acquired by KeyBank. So, I came back to Georgia and settled in at Lake Oconee. Ended up joining the board of directors at Bank South, so, it has given me a new appreciation for the community banking segment. Bank South is a little over a billion 1 or billion 2 now, in assets, and really have enjoyed being involved with the board. And have to say I do like community banking better than big banks. Now that I’m closer to it. But Davis and I joined up officially in 2011 and began working together in our consulting practice, helping banks negotiate all types of contracts. So, that’s it.

CALEB: Fantastic. Well, that’s a great overview and segue into what we want to talk about today, which is managing third-party relationships and building strong third-party relationships at your bank. It’s funny, I was filling out a vendor questionnaire, vendor management paperwork, just recently. And it was staggering how many vendors that even I work with at the bank, as a marketing guy in the Capital Markets division. A pretty specialty kind of niche group. And we’re just one department out of who knows, dozens at the bank. So, to tally up the number of vendors at SouthState, you know, works with, it’s got to be who knows how many? So, I’d love to just kind of hear from you all. As you look at the vendor landscape today that’s serving the bank ecosystem, what are some trends that bankers, specifically community bankers, need to be paying attention to? Because it seems it seems pretty overwhelming out there right now.

DAVIS: Gene, you want me to go first?

GENE: Yeah, go ahead.

DAVIS: Okay. It’s a great question, Caleb. If you look at the number of fintech vendors that have come to the market, especially over the past three years, we would normally see probably 3 or 4,000 new fintech vendors sort of hit the market. In the past couple of years, that has grown significantly to over 15,000 fintech vendors that have come into the market. And so, you have to ask yourself: “What is going on?” And what’s happening is the banking industry, especially in community and large bank, is changing drastically. Probably the biggest change that I’ve seen in the in the banking industry since the Internet came around. So, what we’re seeing out of the market is a lot of fintech vendors who are trying to approach the market with a value proposition mostly around Cloud-based solutions that drive customer deposits, that drive loans, and drive other treasury management type of services.

DAVIS, continued: The key that you have to be aware of, to answer your question directly, is you have to validate the competency of those vendors and understand that they have to deal with compliance and regulatory issues that banks are held to. And so, there’s a tremendous amount of due diligence that we would recommend that needs to take place in order to understand which vendors are viable in this space and which are not. So, I think that’s a that’s a big key going into this space.

GENE: Yeah, I was gonna dig a little deeper into the digital space, because I think that’s the one that the community banking market is really focusing on and needs to. And it’s such a critical part of meeting the needs of the customers and how things are changing in the industry. And when you think about those vendors in the fintech space around digital banking, there are a lot of different choices that you’ve got to evaluate, especially when it comes to how they price, you know. Some places want to do a per customer, some want to do a flat fee per year. Some of them want to do tiered pricing. And the reality is, most of the fintechs are so focused on getting new business, that they’ll negotiate just about anything. You know, that’s where I think Davis and I have found a lot of opportunities when we’re working with our partner banks. Is looking at the full picture and understanding the business case of what the bank’s trying to achieve and then helping them negotiate the terms. And it’s more than price. All kinds of SLAs that need to be approached and be very thoughtful about what you put in the contracts, because there’s a lot at risk when you’re working in the digital space. That’s all I’ve got to add on that.

CALEB: Yeah, I was talking with a friend of mine not too long ago, who is on the fintech side. These are his words, not mine. And he’s part of this industry but he said something to the effect of, “You’d be shocked how many of these fintech founders don’t actually speak the language of banking. They’re really bright. They’re very smart, they understand technology. They found a need that they can serve. But when it comes to the overall picture of how bank operates, many of them don’t have a lot of experience in that arena.” I’m not saying that’s every founder, and that’s again, those are his words, not mine. Curious your take on that, do you see that being the case as well? Where sometimes there’s maybe a disconnect between how a bank operates and maybe fintechs need to understand a little bit of the bigger picture.

DAVIS: So, I think you have to back up from that question a little bit and understand who does talk the banking language in the vendor space. Most of the audience that you will supply this to do business with either Jack Henry, Fiserve, or FIS. Those are the three major vendors in the space, and I think it’s worthwhile to talk about. They do talk the banking language. They understand the banking language. However, they are in transition also. They’re in transition to try to create a core in the Cloud. They’ve gone to market and have failed drastically with some of the stuff. Sometimes they overpromise and underdeliver in the market, which I think is the key fact that the community banks need to understand. The second piece of this, which is kind of interesting, is if you look at those three vendors, Jack Henry is about the only one that is obviously a software developer. They develop a lot of their own stuff in-house. Both FIS and Fiserv are more what I call Fintech “acquire-ers” or vendor acquires. So, they go out to the market and the fintechs that are doing really well in the market today are looking to sell at some point. And the most likely candidate for them to sell to is either Fiserve, FIS, or Jack Henry. So, I think that market is very interesting to sort of figure out, you know, what’s being offered. We deal with several vendors that address your question directly that have incredible—they’ve worked very hard to come up with a solution for the banking market and they just think that a bank will say, “Yeah, I’ll take it.” Without really understanding how to solve a problem or create a solution that will help them drive to the outcome that they’re looking for. So, most of these type of people are technology wizards. They really don’t understand how to talk to banking language.

GENE: Yeah, I was gonna add on more, shifting gears a little bit because I think we can spend the whole morning talking about digital. But I think, big picture wise, when you’re thinking about contracts and spend at the bank, you really have to start off by getting the inventory of all the vendors that you have and who are the biggest ones. And the, you know, the core provider’s typically going to be up there. But if you rank order what your spend is, you can begin to zero in on where should you focus your cost savings efforts. And, you know, people sometimes underestimate the check contracts. We do a lot of those. And even though checks have, you know, become much less used in the marketplace, everybody that opens a checking account still gets a set of checks. And there’s a lot of money spent in that area. So, I think it’s important to prioritize where you’re going to focus your cost savings efforts. Real estate, obviously, is a big one that you can dig into. All the facilities management. So, we’ve done some comprehensive cost reviews for some banks in the past. And zeroing in on, you know, the top 10 or 20 is really where you get the big savings.

CALEB: Yeah. Any guidance for community banks and any metrics that you recommend that they zero in on in terms of looking at their spend on vendors, if you will, as a percentage of operating expenses? And then any guidance on a principle of how to effectively cut costs, but in such a way that you’re not cutting so deep that you’re actually hindering future growth as we move towards a digital—I mean I say move towards, we’re in a digital world—but as with as that becomes more and more ubiquitous across the board, across all customer segments? Any advice? Because it certainly could be easy to cut, you know, a number of vendors, but if those vendors do play a critical part of your strategic long-term plan, you know, that’s something you got to consider. So, any advice there? And then any advice on ratios or metrics that kind of measure the health of a bank and their spend on vendors?

GENE: I don’t know if there’s any metrics right off the top of my head. I’d have to go and look at those, and it really varies from bank to bank, but when it comes to cost cutting, I think it’s pretty obvious that the—especially in the community bank segment—the most valuable competitive advantage that we have in the community bank segment is our people. And I think that when people get into the cost cutting mode, a lot of times they focus on people as an easy way to cut costs. And you’re much better off finding a way to reduce the spend on your vendors and continuing to invest in your people. So, I think that’s the simple answer to me about managing your cost cutting. Is to focus on things that don’t impact the personnel at the bank because those are the ones that really—the feet on the ground, they’re the ones that really allow community banks to differentiate themselves.

DAVIS: Caleb, that’s another really good question. I would guess that most of the community banks that will hear this podcast don’t have what I would call a strategic sourcing department. They might but for the most part, that comes into play with some of the bigger banks that actually have a sourcing organization, right? That actually deals with the vendors directly. So, that being the case, I think it’s very important for the business owner of the vendor in the bank to have a full understanding of what his requirements are to be successful in his market. And to be able to identify those things and write them down as what I call requirements and then be able to deliver those to the vendor and say, “Here’s what I’m looking for. And if you can meet these requirements, then I think we’ve got a path to success.” Oftentimes, the opposite happens and that is that the vendor comes in and says, “Here’s a new contract. Here’s a new pricing model. Here’s the terms of the contract and, you know, we’ll sign up for five more years.” And it’s just a matter of—Gene, says the people are the most important, and they are—but community banks usually don’t have those the FTEs to be able to manage that.

DAVIS, continued: So, that’s kind of the framework of the way that that I would look it. Now, to solve that problem or to address that problem is not that difficult. It’s looking at—there’s really four things that we would suggest, okay, that could help them. And they can do all this on their own. The first is to not just look at the cost of the service that they’re providing. You actually have to look in order to take cost out and to manage cost effectively, you have to look at what I call the full supply chain. So, how does the customer use it? How does the banker use it? And then what are the results and how does it tie into the core and settle in the GL and the core data processing? Does it connect in? So, that’s the first thing. An example of that would be we had a client. There’s a big client, so it was almost a $30 million contract. And we look through the entire supply chain and found that they were paying $1,000,000 a year for a custom product that they never used.

DAVIS, continued: So, right out of the bat, we cut $1,000,000 a year out of their spend. And that’s the example of how you have to look at the entire supply chain. It was down in the branches. It was sitting in the branches. The customer service reps weren’t using it and nobody knew that it was not being used until you go through that entire supply chain. The second key is writing contracts or reviewing contracts to prevent what I call “runaway cost.” And so, the terms in the contract have to be scheduled in such a way that you don’t allow for advances in cost just because of a new service that the vendor adds that automatically comes in. You have to think ahead on that. The third piece of this is what I call “cost modeling.” So, there is reason to do benchmarking in the market. There is reason to, if you’re looking at a digital solution from Encino or you’re looking at a digital solution from other vendors, it’s important to take the time to go out and look in the market and see who else actually provides those services. It’s hard for community banks to do that, they’re more inclined to just jump in 100% with FIS or Fiserve or Jack Henry. Nothing wrong with that but you need to make sure that you model that in and benchmark it.

DAVIS, continued: The last one, the fourth one, is I think the most important, and I think the thing that probably most people don’t see. And that is a lot of times the way the banks approach the vendors is it’s a competitive, it’s a negotiation and it’s not pretty all the time. And so, what has to happen is you have to look for win-win solutions, right? The vendors want to charge you a price for something, and you want to lower that price. So, you got a natural negotiation issue that you have to deal with. And so, looking for win-wins, and some of those things are length of contract for the vendor. Yeah, how long can they extend? Some of those things are will you serve as a reference for us? Those are just a couple examples that play into this. So, those are those are really four things, and you can dive down into lots of details under each one of those. But I would say the biggest one that we see is that nobody really looks all the way down the supply chain to the end user to see that. If I could leave you with one piece of it, that would be a key.

CALEB: Yeah, that’s fantastic. And just to go back to point number four, Davis, that reminds me of a story. So, one of my mentors and friends is David Salyers. He’s the former VP of Marketing for Chick-fil-A. And he was asked one time about vendor relationships because at Chick-fil-A they’re all about adding value to everybody. To their clients, to their employees, and to their vendors. And someone asked him one time about vendor management. And he said, “You know, one of our biggest vendors was Coca-Cola. We sell Coke products in every Chick-fil-A store. And what’s interesting is Coke is more expensive than Pepsi. And so, when we were negotiating our contracts with Coke, we would always look for ways that we could add value but also receive value beyond just the price and the product.” And he said, “Okay, we’ll pay you, you know, full price or whatever the term was, for our relationship with Coke. But we want to get access to your marketing team, and we want to come spend time with your team, and we want your team to come speak to our team at our headquarters. And we want to tap into your knowledge and what you all know behind the scenes at Coca-Cola.” So, I thought that was a great example of finding ways to make the relationship beneficial two-way street, beyond just the price. And that takes it from a transaction to really a relationship. Any thoughts on that? Do you see banks trying to tap into that?

GENE: I think that’s a great example, Caleb. We do see, I would say, not necessarily those fintechs that are out there. They’re just trying to sell something, right? But you get to some of these larger vendors, and while they have, in many cases over the past three or four years, not done a very good job of reaching out and doing that, we are seeing that play out. And what’s happening, I’ll give you a good example of FIS. FIS just hired a former banker to be the president of their banking operation. His name is John Durant. He was an executive at CapitalOne, and what he’s in installed into FIS is a model which says we have to be a partner with our customers more than we have been in the past. And “partner” is an overused word, but you get what I’m talking about. And they have to reach out. They have to do solution-based. They have to have brainstorming sessions. So, we are seeing more of that happen. It’s not enough but the warning is that if you deal with when some of these fintechs are calling in to sell you something, they aren’t in that category.

DAVIS: Yeah, I’d add on to your story, Caleb, about the Coca-Cola/Chick-fil-A joint marketing. Again, it depends on the vendor, but we definitely work with banks that are negotiating contracts where both parties have the same goal. They want more people using that service, whether it’s an online banking or a mobile banking or a bill pay or some payments tool. And we do see in the negotiation process marketing credits where the vendor will say, “You pay our full price, but we’ll give you marketing dollars that you can use to spend specifically to promote our product and service.” So, it’s a way both parties win, right? Because you’re paying for the product at the full price, but you’re getting dollars from the vendor to spend to promote that product. So, it definitely is a great way to partner in that negotiation process.

GENE: Yeah. Let me if I could, let me give you some real data here or some real points that that could help the community banks. When you’re talking about win-win, you’re talking about concessions on both sides of the value chain. And there’s really four pieces. Big on four these days. So, number one is meeting your high value objectives and ensuring the supplier feels good about the relationship that you got. So, that’s the goal, right? Is that you don’t leave angry or you don’t leave mad. The second one is that if you do that, if you do leave in a situation that’s not exactly healthy, bitter vendors can and will find a way to get that revenue back. And that’s when, you know, that they may give one place but then watch out. Here it comes. So, the third one, the third piece of this is allowing vendors to win while still meeting your objectives, the bank’s objectives. And it’s an art form.

GENE, continued: I mean, it doesn’t just happen by sitting down and saying, “Okay, what’s your price?” Right? You really have to dig into what the vendor’s trying to achieve. Most of the vendors, the larger vendors that community banks will deal with, will be publicly held companies. That’s the case with Jack Henry, Fiserve, and FIS. So, you can easily go out and look at what they’re trying to do in the in the market from a public standpoint and learn something. And I would encourage you do that. So, the fourth one, the last one. The best way to do that is for the bank to give concessions that are low value to the institution. You know, don’t give away the things that are most important, but look at the things at the bottom of the list that don’t mean as much. And those are the things you can give on that might be high value to the vendor. So that’s four key things I think that are important as you look for a win-win situation.

CALEB: Well, that’s a great list. As we wrap up, we always try to frame these conversations on our podcast around the idea of helping community banks stay independent and relevant in the future. We believe in community banks here at SouthState’s Correspondent Division. We want to see community banks, not just survive, but really thrive in the coming years. Part of that’s going to be establishing high quality relationships with third-party vendors. You can’t get there on your own, and you’ve got to be strategic and thoughtful about how you’re, you know, how you’re establishing these relationships. So, any final thoughts on just what community banks need to be paying attention to in this arena to stay independent long term?

DAVIS: Gene, you’re on one, so you go first.

GENE: Yeah, I’ll go first. And again, I think that there’s a lot to focus on and again, number one, that we’ve talked a lot about today is understand your vendor spend and prioritize where you can make cuts without impacting the customer. And then the other piece, a very specific issue that I think is a risk for the community banks right now, the business banking segment. The big banks are really putting a hard press to capture that. Typically the small business segment has been really the win for the community banks, because the big banks were too big, and they didn’t want to mess with the small dollar loans. And they are investing heavily in technology that’s focused on helping the small businesses. One in particular I’ll mention is a company called Monit. M-O-N-I-T. It’s a cash flow forecasting tool and business insights that the big banks are making investments in that and really trying to capture the business banking portion that has traditionally been a great spot for community banks. I would say make sure you’re zeroing in on the business banking segment and your strategic planning for the coming two to three years.

DAVIS: That’s a great point, Gene. Just to wrap up, Caleb. I mean, I think there is long term viability for community banks. I do think really, really small community banks need to think about how to what’s the best way to partner with other banks to get to a meaningful size in the market. So, that they can utilize some of these digital tools that are coming out. A great example is Monty Watson, who you probably know. Just recently, Piedmont Bank just recently sold to a bank in West Virginia. And I had lunch with Monty, and his comment was, “Davis, in order for us to stay relevant in the market, we needed to grow to a new size.” Now they were about a billion, I think, or a billion and a half. And the bank they merged with it was a good bit larger, so it allows them to really grow and offer services to their customers. So, I don’t know. There’s probably some of that that community banks are thinking about. Some of them actually do want to merge with others, others want to stay independent forever. But I think that the goal is to think through that as you look at growing your bank.

CALEB: That’s a great place to end it. If folks want to learn more about the services that you all provide, if they want to get in touch with you guys and maybe get some help on this, on, you know, on all these discussions, how can they find you guys?

GENE: You can us at Heitmeyer Consulting if you look us up on the web. We’re got a full service set of offerings beyond just the contracts. We do consulting and staff augmentation, but look us up on the Internet. Heitmeyer Consulting.

DAVIS: Yeah. Gene and I are both on LinkedIn too. So, Davis Stewart and Gene Kirby. Both on LinkedIn. So, happy to support any efforts that are underway. We do a lot of that today, and we’d be honored to help any client, but the reality is when it comes to third-party vendors, Caleb, just pay attention. Pay attention.

CALEB: Yeah, well, how much of life advice could be summarized with that piece right there? That’s a good word for sure. Pay attention, no doubt. Well, Gene and Davis, thanks again for joining us. Hope you all have a wonderful time over the holidays, and we will hope to see you back soon.

GENE: Alright, thank you.