Five Questions Every Bank and Credit Union Should Be Asking About Their Vendor Relationships
Vendor management has matured significantly across the banking industry over the past decade. Most banks and credit unions have formal programs in place: dedicated oversight functions, documented processes, regulatory compliance. The infrastructure exists.What often lags is the quality of the questions being asked.
Strong vendor management programs are built on more than policies and procedures. They're built on the right questions, asked consistently, at every stage of the vendor relationship. It's a theme we explore throughout The Upside of Third-Party Risk Management. The institutions that get this right are the ones whose oversight connects directly to how they operate, regardless of team size or technology investment.
These five questions are a good place to start.
1. Which of our business processes depend on this vendor?
Most vendor assessments focus only on the vendor itself, including financial stability, security controls, and compliance posture. Those are necessary inputs. But they don't answer another important question: how deeply does your institution depend on that vendor to execute its core functions?
Dependency isn't always visible at the contract level. It builds over time as integrations deepen, workflows adapt, and institutional knowledge concentrates around a single provider. A vendor that started as a single-function tool five years ago may now sit inside multiple critical processes, and the oversight program may still reflect the original relationship, not the current one.
Mapping business processes to vendor relationships, rather than evaluating vendors in isolation, gives institutions a clearer picture of where exposure sits. That clarity changes how oversight resources are allocated and how contingency planning gets prioritized.
2. Where are our single points of failure?
Every institution has them. The question is whether they've been identified or if they'll surface for the first time during a disruption.
Single points of failure emerge when a critical business process depends on one vendor, one integration, or one system with no viable alternative. They also emerge at the ecosystem level when multiple processes share a common vendor or infrastructure layer that individual assessments don't reveal.
Identifying them requires looking across the vendor portfolio, not just within it. Which vendors support multiple critical processes? Where do dependencies concentrate? Which relationships, if disrupted, would ripple across several functions simultaneously? Institutions that map these concentrations before a disruption occurs are far better positioned to make informed decisions about redundancy, contingency planning, and operational resilience.
3. Can our vendors support the competitive commitments we've made to customers and members?
Most vendor assessments stop at risk. Those are necessary questions, but they rarely ask whether vendor performance meets the specific commitments the institution has made to compete.
If leadership has committed to extended service hours or loan response times that match the best players in the market, those promises carry upstream requirements. Vendors embedded in those processes either support the target or they don't — and an assessment that never asks the question won't catch the gap.
4. How would a significant disruption with this vendor affect our members or customers?
This question reorients vendor management around outcomes rather than processes. It's straightforward to confirm that a vendor has met its contractual obligations. It's harder and more valuable to think through what the member or customer experience would look like if that vendor's performance degraded significantly or failed.
Which vendors touch the customer experience directly? Which ones support the infrastructure that experience depends on? What early signals would indicate deteriorating performance before it reaches the point of visible disruption?
Community financial institutions have particularly strong reasons to center vendor oversight around this question. Service quality and relationship depth are core to how they compete. Keeping that customer and member lens active throughout the vendor management lifecycle, and not just during incident response, is what separates programs that protect the business from programs that merely satisfy it.
5. How quickly could we continue operating if this vendor became unavailable?
Exit planning is one of the most consistently underdeveloped areas of vendor management. Contracts often include termination provisions. What they frequently lack is a realistic plan for what happens in the days and weeks that follow.
This question forces a practical assessment of operational resilience: Can the institution migrate to an alternative provider within a timeframe that protects customers and members? Are the data portability provisions in the current contract sufficient to support that transition? Has the institution tested its assumptions about how long a transition would take?
For community banks and credit unions, this question carries particular weight. Smaller institutions often have few alternatives and long transition timelines, which makes the cost of an unplanned vendor exit significant. Planning for that scenario deliberately, before it becomes urgent, is far less expensive than managing it under pressure.Asking Better Questions
The goal of vendor risk management isn't to satisfy an examiner. It's ensuring an institution can execute its strategy, serve its members and customers, and respond to disruption without being caught off guard by dependencies it didn't know it had.
These questions require deliberate effort, cross-functional collaboration, and a willingness to look beyond individual assessments toward the broader ecosystem of relationships that supports how the institution operates. The institutions that do that work well discover that stronger vendor oversight and better business performance aren’t just compatible. They’re inseparable.About Author:
Co-authored by Ncontracts Founder and CEO Michael Berman and VP of Risk Management Michael Carpenter. The Upside of Third-Party Risk Management is available on Amazon in both softcover and eBook formats.
Co-authored by Ncontracts Founder and CEO Michael Berman and VP of Risk Management Michael Carpenter. The Upside of Third-Party Risk Management is available on Amazon in both softcover and eBook formats.