Pub. 4 2014 Issue 1

20 www.azbankers.org O u tsourcing is popular. In- fact, it is often necessary as the support systems for products and services grow too complex to manage inside the bank. And suddenly, we are talking about third-party vendors. Third-party vendors have been much in the news of late and the news has not been good. There have been deviations from marketing scripts to put purchase pressure on consumers or to deceptively describe a product. There have been problems with timely transactions-and even data hacking. When the vendor has a problem, the bank’s name makes the news.Outsourc- Outsourcing without controls is like driving with a blindfold Do you really know what vendors are doing? By LUCY GRIFFIN , Contributing Editor, ABA Journal ing a function does not mean that responsibility and liability have been outsourced. No matter how carefully a contract imposes liability on the ven- dor—and most contracts don’t do this effectively enough—the blame will fall on the bank. Directing and monitoring vendor practices is therefore critical to the bank’s reputation. Take steps before you outsource There are five basic questions to ask when deciding to outsource a function and additional steps to take when select- ing a vendor. 1. Do vendors share bank culture? Banks must be sensitive to the needs and concerns of consumers and small businesses who rely on banks to handle their financial transactions. This includes protecting privacy as well as assets. It also means managing transac- tions correctly and promptly. Vendors, on the other hand, do not have the direct dependence on consumers that banks do. Instead, banks and other large businesses are their customers. This buf- fers their exposure to consumers. This difference can allow a very dif- ferent set of corporate ethics and values to prevail in vendors than in banks. Compare the service requirements and expectations of consumer customers and commercial customers. Anyone in com- mercial lending will tell you there is a significant difference in customer needs and expectations. Any vendor should be reviewed for its willingness and ability to support the bank’s customers in the same way that the bank would. As closely supervised entities) banks adhere to high standards of performance and customer service, generally, vendors are not supervised. As unsupervised en- tities, they can operate quite differently from banks, The problem for banks is that some vendors want to provide banking services without being held to bank customer-service standards. Both the bank’s policy and the due diligence of potential vendors should stress the importance of the bank’s relationship with it’s customers and the ability of the vendor to seamlessly main- tain that relationship. 2. Are vendors willing to share conse- quences? Every contract with vendors should hold the vendor fully responsible for providing the service in a manner consistent with the bank’s service to cus- tomers. Every contract should hold the vendor fully responsible for compliance with all applicable laws and regulations. Particularly when dealing with customer information, the vendor should adhere to the bank’s requirements for protec- tion of that information and customer privacy.