Defining Vendor Management as a Community Bank Priority

Community banks seeking to diversify their technology stacks and optimize customer and operational experiences are increasingly turning to bank technology companies and other solution providers. According to Cornerstone Advisors, 57% of banks already have partnered with at least one fintech, and 45% report plans to deepen that activity this year.

This partner-to-thrive approach serves as a multiplier that allows community banks to modernize operations and scale at a much faster pace. But with every new opportunity comes additional complexity, making vendor management essential.

Vendor Management Components

Think of vendor management as an ongoing process that requires an understanding of the vendor’s business models, their affiliated network, and their operational and security considerations. Below are seven distinct components for effective vendor management:

1. Planning and scoping of the relationship, factoring in the critical business functions the vendor supports, and how to manage the associated risk.

2. Due diligence, including collecting and evaluating the financial stability, legal compliance, and cyber policies of potential vendors.

3. Risk assessment, including reviewing vendor risk levels, controls and mitigation procedures before contracting and throughout the relationship.

4. Contracting and onboarding, including negotiating risk mitigation procedures, explicitly defining service level agreements, detailing data handling and ownership protocols, and outlining compliance requirements.

5. Ongoing monitoring, including tracking vendor performance and compliance; conducting periodic reviews, audits, and reassessments; and monitoring for new and emerging risks.

6. Issue and incident management rapid response to data breaches and service failures. Be sure to document and remediate issues as they emerge and update risk profiles and controls accordingly.

7. Renewal, renegotiation or termination decisions are a natural part of the contract lifespan. Depending on the decision, community banks also will need to determine if data transfer or destruction is required.

Supporting effective vendor management

At its core, vendor management is about safeguarding the bank while creating avenues for innovation and growth. To help you get started, ICBA offers a curated list of 300+ companies as part of the ICBA Solutions Directory.

All our Preferred Service Providers and featured solutions are carefully reviewed before inclusion.

These solutions are selected by community bankers for community bankers, helping bridge the gap between innovation and risk management by providing banks with a pathway to identify, research, and select suitable offerings that approach innovation through a banking-centric lens.

Further, our Preferred Service Provider vetting process is grounded in the same governance, security, compliance, and operational expectations that regulators place on community banks, giving community bankers greater confidence as they adopt new technologies and services. Innovation is important, but trusted innovation is what ultimately drives sustainable growth.

We’ve also launched a third-party risk management portal with links to the latest interagency guidance on third-party relationships. And we offer a space for community banks to dive deeper into tools, resources, and information and connect with their peers (via ICBA Community) on a diverse range of vendor management topics.

Because in today’s environment, having a robust vendor management program is not only necessary, it’s a strategic priority. As community banks continue growing their relationships with solution providers to maintain their competitive advantage, they must do so with clarity on how these solutions fit into an overall compliance and risk management program.

At the end of the day, the responsibility falls on community banks to ensure they understand what their vendors are doing, so having the right vendor management program in place will set them up for success.