Third parties are essential in today's financial services landscape. According to the Ncontracts 2025 Third Party Risk Management Survey, 63% of midsized institutions — those with $1 to $10 billion in assets — manage 100 to 500 vendors. With every new third-party relationship comes new risks, including operational, financial, and cyber risks.
Is your financial institution's (FI's) vendor management program robust enough to address current risks and adapt as your institution grows? Let's explore ways to elevate your vendor management program, foster better vendor relationships, and improve your overall risk management strategy.
1. Practice due diligence continuously
Vendor sprawl is real. From payment processors and mobile applications to materials suppliers and cybersecurity services, today’s financial institutions have many third parties to manage. While vendors can improve your services, products, and workflow, they can also add more tasks to your employees’ full plates. Tasks — including proper due diligence and ongoing monitoring — can get lost in the shuffle.
Due diligence is the cornerstone of healthy vendor relationships and a critical step in the third-party risk management lifecycle. It’s the phase where your institution collects information and evaluates whether a potential vendor is financially stable, ethical in its business practices, and capable of safely and compliantly fulfilling the required tasks.
Not all vendors require the same level of scrutiny. Critical vendors — especially those with access to customer data or other nonpublic information (NPI) — demand a deeper review. When evaluating a vendor, due diligence may include reviews of SOC 2 reports and other evidence of strong data and information technology (IT) security practices. Other common review areas include consumer complaints filed with the FTC and CFPB, prior litigation and outcomes, and business continuity and disaster recovery plans.
Remember, due diligence isn’t a one-time activity. Vendor relationships can and do change over time. That’s why ongoing monitoring is just as important as your initial assessments. Stay alert to red flags, such as missed SLAs, poor communication, frequent organizational changes, product failures, or lack of documentation. By continuously monitoring your third-party relationships, you can stay in proactive mode rather than reactive, taking immediate action to address potential risks before they escalate.
What you can do
Start due diligence assessments early — at the request for proposals (RFPs) stage — and review them on a set schedule, with critical vendors getting more frequent reviews. Review vendors when you learn of changes, such as leadership shifts, legal issues, or increased risk. Real-time alerts from your vendor management software help you stay on top of key developments and strengthen oversight.
Related: Vendor Management: What Banks Need to Know About New Guidance
2. Establish solid contracts
Contracts are the foundation of vendor relationships. They outline key terms and provisions, such as costs, critical dates, risk controls, remedies, and termination processes.
Like due diligence, contract management isn’t a one-and-done task. It consists of three phases:
- Onboarding new agreements. Effective contract onboarding requires thoroughly reviewing terms, risks, and regulatory alignment. Pricing, renewal dates, approvals, audit rights, and other critical information should be documented and monitored to ensure compliance and reduce risk. Redlines in contracts should align with your institution’s risk appetite.
- Managing agreements. Issues like auto-renewals and undocumented changes lead to billions in losses each year. Set regular check-ins to ensure you get the necessary documents and spot any performance issues early.
- Terminating agreements. When an agreement ends, a smooth transition is crucial. Effective contract management means understanding termination terms, such as required notice, early termination conditions for unmet service levels, and any termination fees. Contracts should also detail data sharing and termination processes, if applicable.
Related: How to Break Up with Your Vendor
What you can do
Streamline your contract management to improve efficiency, stay compliant, reduce risk, and save money through better organization and captured discounts. AI can help you move even faster by reviewing large volumes of contracts and quickly spotting key clauses and potential risks.
Related: Save hours on contract reviews and better understand vendor contracts with AI-powered vendor contract management software.
3. Establish a clear tone from the top
Vendor management is a team sport. Stakeholders across many departments should contribute to the third-party risk management (TPRM) program.
The board and senior management team have a regulatory and ethical responsibility to ensure the program runs effectively. They establish an FI’s strategy, determine its risk tolerance, and offer high-level guidance for the governance of third-party relationships. By setting the “tone from the top,” they actively support and communicate the importance of vendor management, cultivating a culture of compliance and accountability.
Related: Risk Culture vs. Compliance Culture: What’s the Difference?
What you can do
Because board members don’t oversee day-to-day operations, they depend on periodic reports to make crucial decisions. Include new vendor contracts, monitoring results, and termination updates in vendor board packages. Keep it focused and actionable — your board needs insights, not exhaustive detail.
4. Integrate TPRM into wider risk managment
Only about one-fourth of FIs have fully integrated third-party risk management into their broader risk management framework with continuous monitoring and updates. While not every institution uses the same risk management approach — GRC, ERM, or IRM — incorporating TPRM into your overall risk management program is non-negotiable. It leads to:
- Holistic risk visibility: Gain a complete view of internal and third-party risks across the organization.
- Enhanced vendor oversight: Ensure vendors align with your institution’s mission, vision, and risk appetite.
- Proactive risk mitigation: Identify and tackle vendor risks early to avoid disruptions.
- Improved risk response: Enable faster, more coordinated action when vendor risks emerge.
- Stronger regulatory compliance: Align with regulatory expectations through unified risk governance and documentation.
- Thoughtful decision-making: Support institution-wide strategic decisions with the latest vendor data.
- Improved operational efficiency: Avoid duplicative efforts with enhanced department collaboration and transparency.
What you can do
Vendor management is a key part of operational resilience, which helps your institution stay resilient, agile, and competitive. Ensure your team has robust continuity management practices, disaster recovery plans, and resilience testing for critical vendors so you can recover quickly when a disruption occurs.
Related: A Guide to Operational Resilience for Financial Institutions
5. Streamline vendor management with automated technology
As vendor risks — including fourth, fifth, and nth parties — continue to grow, managing TPRM becomes increasingly complex. Rising concerns about cybersecurity, artificial intelligence, and other emerging technologies amplify this challenge. Cyber threats are the top TPRM concern for 50% of financial institutions. Nearly half (49%) reported experiencing a low- or moderate-impact third-party cyber incident in the past year.
Automated technology can help FIs store, track, and manage every aspect of vendor management. From centralizing data and automating due diligence to streamlining contract and risk management, leveraging the right solution can save FIs time, money, and human resources.
What you can do
Don’t know where to begin when choosing a vendor management solution? Narrow your search by ensuring your partner has industry-specific experience and aligns with your institution’s strategic and operational goals.
Download the Whitepaper: The Vendor Management Solution Buyer's Guide
Ready to take your vendor management to the next level? Register for the TPRM Bootcamp to learn tips and solutions for common TPRM challenges.
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