When a vendor decides to no longer support a key piece of technology, it often leaves bank and credit union technology leaders in a frustrating and disruptive predicament.
The impacts can reverberate across the entire organization, affecting everything from the customer experience to day-to-day operations, risk management and employee morale.
The Justifications
Technology vendors may decide to sunset a solution for any number of reasons. Sometimes, it’s to shift away from older technology in favor of cutting-edge tech using AI or blockchain, for example. Or they may be moving from on-premises solutions to cloud-based Software as a Service (SaaS).
And in some cases, the current software may just not be up to snuff. “A provider may offer the technology as a component of an overall package that includes core banking, digital banking, and a variety of different products, but this particular solution is not yet ready for prime time,” says Steve Cosentino, partner at Stinson, LLP. “I’ve had that issue come up a number of times.”
Also, industry consolidation plays a role. The number of fintech M&A deals fell 41% in 2023 to 261, as valuations fell, down from 443 the year before and a record 572 in 2021, according to S&P Global Market Intelligence. Often, those transactions represent a strategic “merger of equals,” where two comparably sized competitors combine to gain market share and achieve economies of scale. The two companies may have overlapping solutions that meet similar market needs, and the surviving organization must decide which solutions they will continue to support.
Community FIs Feel Greater Impacts
Institutions faced with a change in key software or hardware confront a variety of challenges.
For example, when a company purchased a vendor Corning Credit Union was using and announced it would sunset an essential internal communication tool the credit union used, the impacts of this decision were felt throughout the team.
“The product had been bought out and folded into a larger offering, and we were given the choice to migrate to that product,” says Chad Hassler, manager of platform and integrations at Corning Credit Union. “We evaluated it and found that although we were offered an off-ramp, it still would have been a compromise.” Instead, the $2.4 billion asset credit union based in Corning, New York, chose to migrate to another solution that offered more comprehensive and versatile functionality.
Once a replacement solution is identified, the institution often faces unbudgeted costs related to implementation, training and change management. “It was an investment of time to evaluate the new tool, build it, and roll it out to the team,” Hassler says. “Handling the change management is one of the heavier asks of the whole process.”
According to Cosentino, community financial institutions often feel greater impacts from the loss of a key piece of technology. “It’s clear that larger banks can negotiate much more favorable sunset provisions with their vendors,” Cosentino says. “In addition, community institutions are more likely to have legacy hardware and software that isn’t compatible with the replacement software. They’re also likely in their agreements to have shorter notice provisions, and may not have the budget to spend on new hardware and software to make the replacement solution work.”
Telltale Signs Include Declining Service and Support
According to Bobby Matthis, vice president of digital innovation at Blue Federal Credit Union, a $1.9 billion-asset cooperative headquartered in Cheyenne, Wyoming, software vendors don’t typically announce the immediate discontinuation of an existing solution. More often, those transitions are carefully planned and communicated, offering institutions sufficient runway to deploy replacement technology.
“Typically, it’s never really stated that they’re moving away from the product,” Matthis says. “But gradually you’ll begin to see support tickets and custom requests take a little bit more time to be resolved, or key contacts transition to other roles in the organization. Eventually, some years later after the solution had been officially sunset, you’ll realize the writing was on the wall.”
Matthis emphasizes the importance of maintaining a regular dialogue with key vendors, to gain a full understanding of their product roadmap and plans for supporting their current set of solutions. “I think the key thing to look for is whether the solution is on an innovation path versus a life support path,” Matthis says. “Are they still spending money on improving the product, or are they just keeping it alive for you and only providing security updates?”
Preventing Worse-Case Scenarios
According to Cosentino, the two best times to identify potential issues that could increase the likelihood of a vendor sunsetting their software are during the initial vendor due diligence period and at contract renewal.
“One of the biggest issues I see — especially in the digital banking space — is when a vendor oversells the software at the beginning of the process,” Cosentino says. “That’s the time to be asking for references and speaking with similar institutions to see whether they’ve had any transition and conversion difficulties with that product.”
“References are invaluable,” says Mark Hufnagel, chief information officer at Corning Credit Union. “If you talk to a current client, in five minutes, you’re going to have a good sense of what’s real. And I put a lot of stock on that, especially in the credit union industry, because we’re so collaborative and willing to share and work with each other.”
Cosentino notes that it’s standard for software contracts to include service level agreement (SLA) provisions with relatively low financial penalties for the provider, a situation he likens to “death by a thousand cuts” when service levels begin to decline. These penalties don’t offer sufficient motivation for the vendor to maintain high service and uptime levels, so he recommends negotiating your software contract to include the right to terminate not only for service level failures, but also lack of responsiveness. “Most vendors will agree to give you the right to terminate without paying a fee if there are a number of monthly service level failures in a row or a larger number in any rolling 12-month period,” Cosentino says.
It’s also important to maintain an open line of communication with key vendors, both through scheduled checkpoints and frequent, impromptu engagement. “We have periodic reviews included as part of our vendor management processes,” Matthis says. “We review all of our partners at least annually on both their performance and service.”
“I find that in all relationships, more frequent communication that isn’t as lengthy is better than really long sessions with large swaths of silence in between them,” says Hassler. “I’d rather have 30 minutes every couple of weeks than I would a formal quarterly check-in.”
Choosing a Path Forward
Of course, even the best-laid plans won’t prevent a vendor from deciding to sunset a software solution. When it happens, banks and credit unions do have a few options to help ease the burden.
“If it’s a negotiated contract, you likely have a sunset provision that requires some significant period of notice,” Cosentino says. “It may even have some transition services associated with it. In the initial contract, a lot of vendors will provide a relationship credit that you can spend on different services they provide or apply to future invoices to help reduce the cost of transition.”
According to Hufnagel, when faced with an impending product sunset, it’s important to balance negotiating your contractual rights with speed of action.
“It’s easy to get caught up in, well, our contract says this, and you can’t do that,” Hufnagel says. “But none of that matters at the end of the day because the contract is just a piece of paper, and you can lose precious days and weeks that you might wish you had back to implement a new solution. It’s important to work through the stages of grief and get to acceptance as quickly as possible, so you can rally your team around selecting a new solution and moving forward.
“Sometimes, you can’t fight the narrative — you just have to figure out a path forward.”
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