Strong profit margins for bank tech vendors - Wall Street loves them, stockholders get richer, CFOs get a dose of job security, but customers wonder if it's at their expense

By Art Gillis

It was about a year ago that I read a vendor's press release about their ability to generate higher profit margins than any other competitor. Any student of P&L 101 could make a fair analysis of the cause and effect. Keep prices high and cut costs to the bone. And even though deserved from an accountant's point of view, the press release was a stronger demonstration of boldness than Rod Tidwell screaming at Jerry Maguire - "Show me the money." The only people I heard from after the release were a handful of customers who complained about the high cost of doing business with the vendor, and their inability to deliver new solutions to their banks. They came back months later as they were searching for a new core vendor.

For tech vendors, my advice, although not requested, is be careful of the proverbial double-edged sword. And know who you're working for. It's a very tough job for vendors to satisfy everyone and still perform. But the good guys do it. This year, none of the prime core vendors will impress anyone with the price increases of their stocks, and I think that's a good sign. For bankers, the right advice starts with, "Avoid press releases, conference chatter and peer group gossip. Do your own analysis the way you would review a loan."