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Failure to Renegotiate Card Contracts Has Consequences

Thu, Apr 30, 2015

Columbia, Maryland

As the old saying goes, timing is everything. Having the right products and services in place when members need them can be critical for credit unions in today’s ever-changing environment. Likewise, as the October deadline for transitioning to new, more secure EMV (Europay, MasterCard and Visa) fraud-protection technology nears, credit unions should be taking a serious look at existing credit and debit card provider contracts to make sure they are getting the best price, contract terms and service available.

When I began talking to credit unions last year about the importance of reviewing their credit and debit card provider contracts in anticipation of the transition to new pin and chip technology, I discovered that many are losing out on significant savings, revenue and service upgrades by failing to renegotiate credit and debit card provider contracts that have been in place for years. In one instance, a credit union was still operating within the outdated terms of a contract that originated in the 1990s.

Since this initial contract was signed, no efforts had been made to review the cost and terms, or to shop other providers to see if they were getting the best prices and services for their needs.

The time spent to review contract terms has many rewards. And while I understand that the cost and time involved in switching card vendors can be daunting, making the decision to simply stick with what you have had for years can have consequences, such as losing out on significant savings potential, improved contract terms, opportunities for increased revenue and updated services.

In addition to ensuring that members are receiving the latest in fraud protection, a review of your existing credit and debit card provider contracts can give credit unions the opportunity to benefit from:

  • lower fees;
  • discounts, signing bonuses and other incentives;
  • reduced processing costs;
  • higher interchange revenue;
  • updated service offerings;
  • quicker response to providing new member cards; and
  • increased net revenue over the terms of the contract.

For example, our team was recently involved in contract negotiations for a financial institution in the Southeast U.S. that was using two different vendors for its debit and credit card processing services. The goal was to combine the services under one provider to reduce expenses and streamline the process. Through the RFP, the two existing vendors provided bids on both debit and credit card processing services. After successful negotiations, the institution selected the vendor that offered improved serviceability, a $150,000 signing bonus, plus more than $200,000 in annual cost savings.  

Additionally, negotiations with the debit and credit card provider led to over $100,000 per year in rebates/bonuses, plus increased interchange income of $115,000 annually by switching card brands. The vendors also agreed to pay for the mass reissuing of the institution’s new EMV cards, a value of more than $40,000.

Keep in mind that by not paying attention to the details, you could potentially pay higher rates much longer than necessary.  Not only has improved technology substantially lowered the cost of card transactions, there are likely other competitive offers to consider as well. If you don’t ask for a contract review, the vendor isn’t obligated to offer better rates or improved service.

Plus, failure to conduct a review of the contract services and terms can put an institution at risk of failing to meet its due diligence requirements for maintaining industry standards and practices regarding regulatory compliance and account holder protection. In today’s highly regulated environment, this seemingly simple oversight can lead to costly violations.

Timing is everything when it comes to contract reviews.  In my conversations with institutions, it is apparent that the time needed to review and renegotiate service contracts with providers, as well as the anticipated costs involved in re-issuing new cards from a different vendor, are two major concerns. Unfortunately the outcome means they are potentially leaving thousands of dollars in savings and revenue opportunities on the table.

If the time required is an issue for your credit union and you have different providers for credit and debit cards, and card processing, look for ways to simplify the process.  From my experience, offsetting the additional costs to keep your organization efficient, while maintaining the latest technology, is always up for negotiation. 

Another problem is waiting too long to even start the review or renegotiation process.

Typically, negotiations on a credit or debit card contract should begin 12-18 months before the contract is set to auto renew. A non-renewal notice is usually required between 90-180 days in advance to avoid any possibility of the contract renewing automatically. If notice is not provided, the credit union could be locked into the original price and contract terms of the past agreement.

Put time on your side with a proactive review of your existing card contracts.  Before your current contracts for credit and debit cards, as well as core processing expire, take the time to audit your existing agreements.  Consider renegotiating with current providers and looking at alternatives to make sure that you‘re getting the best service at a competitive price.

With the upcoming EMV integration deadline approaching, now is an opportune time to negotiate cost savings and increased revenue possibilities. And if your current vendor doesn’t offer the best deal, maybe it’s time to look for one that does.

About JMFA

JMFA is a leading provider of profitability and performance-improvement consulting. For more than 35 years, JMFA has been recognized as one of the most trusted names in the industry for earnings enhancement and expense control programs, training and development, and recruitment services, as well as product, service, pricing and technology-improvement consulting. JMFA is proud to be a preferred provider among many industry groups including MDDCCUA and CUNA Strategic Services. To learn more visit www.JMFA.com or contact Michelle Fox at 704.877.3323.