VBA 2019 Secrets Revealed: 10 Things Your Core IT Supplier Will NOT Tell You- Redacted

SECRETS REVEALED
10 Things Your Core IT Supplier Will NOT Tell You

2
DEFINE: “CORE & IT”
Account & Data
Processing
Item Processing
ATM/EFT Services
Internet Banking
Bill Payment
Card Services
Network (WAN)
Monitoring
Server Management /
Protection

3
DEAN BROWN
EVP – Chief Information Officer & Head of Bank Operations
“Loves” to negotiate vs. Core
& IT suppliers. Really loves his
new merger-ready deal with FIS.
Bank IT turnaround specialist
Joined Golden Contract Coalition
October 2016
$16B+ Post Merger
With Access National

4
UNION BANKSHARES CORP, OVERVIEW
Headquarters: Richmond, VA
Founded: 1902
Locations: 155 (VA, MD, NC)
Total Assets: $16.8 Billion
Total Loans: $11.9 billion
Total Deposits: $12.2 billion
Exchange/Ticker: NASDAQ: UBSH
Number of Employees: 1,800
Stock Price: $33.40
Price to TBV: 1.9
Market Cap: $2.7 Billion
Average Daily Trading Volume: 385,000

5
AARON SILVA
CEO of Paladin fs & The Golden Contract Coalition
Professional Negotiator & Industry Disrupter
$108 Million in Merger
Value Accretion
$346 Million in
Cost Reduction
138 Wins / 0 Losses
Paladin Blue Book
Launched June 2016
Group “Offensive”
Negotiations
100+ Institutions
$500 Billion + 30 years
IT Contract Negotiations

6
WHY SO HARD TO NEGOTIATE CORE IT DEALS?
MARKET PENETRATION: OLIGOPOLY
93%
institutions ABOVE $1 billions assets
85%
institutions BELOW $1 billion assets
American Banker May 2018

7
IT’S NICE TO BE THE OLIGOPOLY!
Market Performance, Penetration & Control
2012
68%
2014
74%
2016
85%
DOW, NASDQ, S&P
Launched in 2016
Information redacted due to confidentiality limitations. Please request full version by filling out
the form, or contact Paladin @ info@paladin-fs.com

8
THE UNION BANK & TRUST SITUATION
Snapshot as of April 2017 (pre-merger Xenith)
PALADIN PRE-MERGER ASSESSMENT
$3,654,854
$5,274,903
$0
$1,000,000
$2,000,000
$3,000,000
$4,000,000
$5,000,000
$6,000,000
Overpayment & Net Savings Opportunity
Next 5 Years Next 7 years
Union Bank & Trust
$8 Billion
FIS Horizon – exp. July 2020 (35 mos.)
Account Processing
Item Processing
EFT / ATM
Commercial Capture
AI Managed Services
Digital Insight – exp. July 2020 (35 mos.)
Retail Online Banking
Bottomline – exp. July 2017 (1 yr. auto)
Business Online Banking
Information redacted due to confidentiality
limitations. Please request full version by filling out
the form, or contact Paladin @ info@paladin-fs.com

9
NEGOTIATION RESULTS
Focused on economic relief and key business SLAs.
Combined cost reduction $17.4 Million
over contract term
UNION acquired a bank 40% of their asset
size and increased Core IT cost by less than 1%.
Dramatic impact and rebalancing to
commercial terms, SLAs and future M&A incentives.
Information redacted due to confidentiality limitations. Please request full version by filling out the form,
or contact Paladin @ info@paladin-fs.com

10
Don’t Underestimate Contract
Impact on M&A (today and future)

11
ACCELERATING RESULTS THROUGH FUTURE MERGERS
Impact of a smart negotiation is significant if done correctly prior to M&A
$0
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
$12,000,000
$14,000,000
$16,000,000
$18,000,000
$20,000,000
$22,000,000
Core Business OLB Consumer
OLB
Union x Xenith
Bank
Union + Zenith Bank Merger
Union & Xenith Combined (Old Contract) Union & Xenith Combined (New Contract)
Monthly Savings Annual Savings
5 Yr Savings
$0
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
$12,000,000
$14,000,000
$16,000,000
$18,000,000
$20,000,000
$22,000,000
Core Business OLB Consumer
OLB
Union x
Access Bank
Union + Access Bank Merger
Union & Access Combined (Old Contract) Union & Access Combined (New Contract)
Monthly Savings Annual Savings
5 Yr Savings
Reduced processing costs by
$20.6 Million 5 year
(before growth)
Bonus:
$1,754,796 to $600,000 (cap) =
Conversion costs reduced from
$1,154,796
$17.4
M
+$3.2M = $20.6M
Information redacted due to confidentiality limitations. Please request full version by filling out the form, or
contact Paladin @ info@paladin-fs.com

12
THE PROBLEM WITH SILENT SHAREHOLDERS
An FIS bank buys a bank processed by Fiserv
$1,860,000
PAID TO FISERV
(Termination, de-conversion expense)
$960,000
PAID TO FIS
(Conversion, programming and interface
fees)
FIS
Bank 1
FISERV
Bank 2
BANK PROCESSED BY FIS BUYS AN INSTITUTION PROCESSED BY FISERV
Information redacted due to
confidentiality limitations. Please
request full version by filling out the
form, or contact Paladin @
info@paladin-fs.com

13
An FIS bank buys a bank processed by Fiserv
RESULT: $2.5B Merger
FIS Unfairly Rewarded
SUPPLIER REVENUE
doubles as competitor eliminated
$2x
NO CUSTOMER
acquisition cost
$0
SHAREHOLDERS PAY
a bonus for supplier conversion effort
$$
BANK PROCESSED BY FIS BUYS AN INSTITUTION PROCESSED BY FISERV
Information redacted due to confidentiality limitations. Please request full
version by filling out the form, or contact Paladin @ info@paladin-fs.com

14
Wake up to being punished for lowering their operating costs
Bank 1
36 Months
Remaining on Contract
Bank 2
24 Months
Remaining on Contract
Jack Henry
Bank 1
Jack Henry
Bank 2
BANK PROCESSED BY JACK HENRY BUYS AN INSTITUTION PROCESSED BY JACK HENRY
info@paladin-fs.com

15
Wake up to being punished for lowering their operating costs
RESULT:
Combined Entity Must Do Either of the Following
PAY 24 MONTH
TERMINATION EXPENSE
(even with same supplier!)
1
PAY Jack Henry
for all “lost profit”
2
EXTEND AGREEMENT
by a term equal to value of lost profit
3
BANK PROCESSED BY JACK HENRY BUYS AN INSTITUTION PROCESSED BY JACK HENRY
Information redacted due to confidentiality limitations. Please request full version by
filling out the form, or contact Paladin @ info@paladin-fs.com

16
TERMINATION, CONVERSION AND INTEGRATION REVENUE
$223M
to
$261M
$281M
to
$320M
$360M
to
$410M+
Bank shareholders will pay Core IT
Suppliers more than $410M in 2019
for services they will never provide.

17
Demand SLAs that align with
YOUR GOALS, NOT theirs

18
OTHER CRITICAL TERMS UNION BANK TARGETED
Negotiating is more than just cost reduction
Demand SLAs that aligned with
current business goals
Implemented sanctions
that had real TEETH
Core Uptime SLA Core Batch Nightly SLA
99.5% - 100% = HAPPY
1-3 Misses = Increasing
% credits
Absolute
Termination Rights
0-2 Misses per Month = HAPPY
3-4 Misses = Increasing
% credits
Absolute
Termination Rights
Information redacted due to confidentiality limitations. Please request full version by
filling out the form, or contact Paladin @ info@paladin-fs.com

19
DO YOU HAVE RIGHTS WHEN THEY FAIL?
20,000 statements accidentally sent to wrong bank customers
by an Item Processing supplier
The outcome
A major GLBA violation Hundred hours of customer
support to repair disaster
Incalculable
reputational damage
OLIGOPOLY OVER SERVICE LEVELS

20
DO YOU HAVE RIGHTS WHEN THEY FAIL?
RESULT: NO FINANCIAL PENALTY OUTLINED
IN SLA FOR GLBA VIOLATIONS
TOTAL PENALTY TO SUPPLIER = $0.19

21
DO YOU KNOW THE DIFFERENCE?
SERVICE LEVEL OBJECTIVES
(what you ACTUALLY have)
SERVICE LEVEL AGREEMENTS
(what you think you have)
Commitment to perform (subjective).
Processes or functions that are not critical
nor can be measured easily.
Not defined or described.
If a ‘miss’ continues – buyer can ‘redial’.
They fix the problem using ‘best effort’.
If buyer is harmed you must beg for compensation
or pay great penalties to leave.
Guaranteed performance standard.
Tied to meaningful defined processes or functions.
If a ‘miss’ occurs – a credit is issued.
If a ‘miss’ continues – buyer gains certain rights.
If a ‘miss’ occurs too many times – buyer may leave
the service or contract with no penalties.
info@paladin-fs.com

22
Core IT Suppliers are
NOT Technology Companies

23
9.15% 8.77%
10.71%
0.30%
3.75%
15.08%
13.75%
19.76%
12.78%
8.67%
2014 2015 2016 2017 2018
PercentIncrease
Total Non Interest Expense Data Processing Expense
TECHNOLOGY & RISING
Technology cost rising faster than other non-interest expenses
Source: Financial Information Systems
Core IT
Solution Market
Competitiveness

24
TECHNOLOGY & RISING
Technology cost rising faster than other non-interest expenses
Core IT Suppliers are essentially Hedge Funds…
They haven’t innovated or invented anything new in many years.
They buy, bluster, bolt-on and then make their clients pay
to convert their really legacy services to the outdated solutions
they just acquired…
Because they can!
Aaron Silva (Me)

25
FIS Fiserv Jack Henry
Free Cash Flow $1.6 Billion (+$100M) $1.2 Billion (+$100M) $228 Million (-$3M)
Capital Expenditures 7% of revenue 5% of revenue 2% of revenue
Product Development 8% of revenue 8% of revenue 12% of revenue
Focus Modernization of Core
and Payments platforms
User experience updates Treasury services
ERM
Biller Direct
Code-Connect (gateway) Enhancements to platforms Banno Mobile
Data center consolidation Payments integration Faster payments
Secure cloud

27
Did Union Bank have
clawbacks in their contract?

28
RESULTING FROM A MERGER
A $700m bank planned to terminate their agreement
three months early
Why?
To allow conversion after 9 years
with FISERV
Estimated Termination Fee
$120,000 at 80% value X
remaining term
CLAWBACKS

29
CLAWBACKS
$1.1 MILLION TERMINATION PENALTY
(+ conversion, de-conversion and integration fees)
RESULT:
Hidden “Golden Handcuff” Provision

30
Suppliers Obstruct Access to
FinTech Alternatives

31
IT CHASM
COMPETITIVE TECHNOLOGY “CHASM” IS LARGE
Friendly FinTech is moving to fill the IT CHASM created by Legacy Core & IT
Loan
Origination
Systems
Robot
Process
Automation
Online
Banking
Artificial
Intelligence
Advanced
Payments
Mobile
Banking
Decision
Intelligence
Block
Chain
Voice
Banking
Chat
BOTs
Crypto-
Currencies

32
CONTRACTS ARE LIMITING FINTECH ACCESS
RESULT:
SMALL INSTITUTIONS ARE UNABLE TO COMPETE
WITH LARGER COMPETITORS
Major barriers to change
Significant cost constraints
Implement fintech at their leisure
Toll roads, not highways

33
BARRIERS TO FINTECH ACCESS
Contractual and Financial Penalties designed by Core IT Suppliers
Your
Data

34
UNION BANK FINTECH OPPORTUNITY
Made FIS guarantee that Horizon
would perform
Implementation of data
warehouse
Limited or eliminated exclusivity
on certain products
Pre-defined cost of APIs

35
They bank on common
negotiating mistakes

36
Accepting only
ECONOMIC BENEFITS
Outsourcing to your
LEGAL COUNSEL
Allowing your SUPPLIER
RELATIONSHIP MANAGER
to negotiate for you
Relinquish the POWER SEAT
COMMON NEGOTIATING MISTAKES

37
Are YOU prepared to risk millions of
franchise value and make long-term
mistakes on a GUESS?

39
“There is an 86.5% probability
of failure captain.”

40
IS MY BANK CONTRACT & PRICING VULNERABLE?
8 of 10 contracts
are 13.1% - 43.1%
above FMV
Average impact
is $ 1.38 Million per
institution or more
99% of contracts
have critical
business & legal
term defects
Vendors do not volunteer benefits (you must demand)
Information redacted due to confidentiality limitations. Please request full version by filling out the
form, or contact Paladin @ info@paladin-fs.com

41
Lock in Future costs
using Today’s leverage

42
AVOID BUYING PRODUCTS MID-TERM
THE COMPROMISE:
bank extended their agreement
by 3 years. supplier reduced
setup fee by 50% ($50,000).
a supplier quoted $100,000
as setup fee for 3 new products.
the bank needed the products to
compete, even without the budget.
OLIGOPOLY OVER PRICING

43
AVOID BUYING PRODUCTS MID-TERM
An extension cost of
$625,000
The same 3 products
were installed across the
country for a setup fee
< $10,000
Already overpaying
$17,000/month
(processing fee)
RESULT: BANK PAID 6X FAIR MARKET VALUE

45
Early bird Red zoneSweet Spot
36 30 24 18 12 0
Least
Good
Most
CostReductionOpportunity
TURNING TIME INTO AN ADVANTAGE
Begin research
24-30 months
Sign in the
“sweet spot”
Switching leverage
erodes quickly
in RED ZONE
Months Remaining on Contract
Sweet Spot 18
months
24
months
Negotiations
Start
Decision
Deadline
Merger /
Conversion
Decision Intelligence:
IF No deal with FIS è
Begin conversion to Fiserv
immediately after merger.

46
THE SUPPLIER SHELL GAME
Month 2 Month
2 Years
1 Year
4 Years
5 Years
3 Years
3 Years 6 Months
0 1 2 3 4 5 6 7
Managed Services
Network / WAN
ATM / EFT
Bill Payment
Internet Banking
Item Processing
Account Processing

47
It’s Time to Change the Game.

48
UNLEASH YOUR
COMPETITIVE
ADVANTAGE
NEVER let your trust for
a vendor get in the way
of your critical thinking,
business sense and
fiduciary responsibility.
Your vendor will NEVER
volunteer something that
benefits you more than
them – you have to
know what to ask for.
NEVER go into a
multi-year, multi-million
dollar negotiation
without doing your
research and having
hard market intelligence
in your pocket before the
negotiation!

49
$0 COST REDUCTION AND CONTRACT ASSESSMENT
EMAIL US
Call Us: 877.746.4859
paladin-fs.com
3 Current Invoices
+ Contracts
Completely
Confidential
No Cost
No Obligation

50
Join now
@ GoldenContract.com
Footer
The only national banking coalition fighting for Banks against
the Core IT oligopoly for a fair deal.

paladin-fs.com
THANK YOU
Aaron Silva
877-746-4859 x 704
asilva@paladin-fs.com
asilva@goldencontract.com
Dean Brown
804-327-7500
dean.brown@bankatunion.com

VBA 2019 Secrets Revealed: 10 Things Your Core IT Supplier Will NOT Tell You- Redacted

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