Core Technology Vital to Credit Union Growth, But Proceed with Caution
It's no seceret at this point that the NUCA board approved the asset ceiling for “small entity” credit unions from $50 million to $100 million. Some suggested the asset ceiling should be much higher: CUNA, for example, supported a threshold of $500 million. Either way, the benefit of this approval is that 4,869 federally insured credit unions may be eligible for future regulatory relief and other cost-free assistance from the NCUA Office of Small Credit Union Initiatives.
Since the "small entity" asset ceiling was raised, there has been much discussion about what "small" credit unions should be doing with their potential "cost-free" assistance. Many core processors have written about and suggested investing in credit union core technology, making arguments such as innovation being a catalyst for growth or new techology reducing cost. Buyer beware!
Credit union core processing technology is vital to credit union growth. However, credit unions large and small must be aware of potential pitfalls relating to changing core systems.
Data Processing CUSOs
They are often sold under a banner of community and oneness. Ironically, many who are drawn toward a DP CUSO rarely ask what they can do for the CUSO but rather, what can the CUSO do for them? In the final analysis, a solution offered from a DP CUSO may be your best option. However, DP CUSO’s are frequently sold as something more than can be realistically delivered, and serve as an example where people may begin to lose their common sense. Rather than make product the focal point of their review, it mutates into a seductive narrative outlining the benefits of ownership and collaboration. These tenets can benefit only so many before the natural laws of critical mass impose significant diminished returns. Moreover, prior to reaching this point of critical mass or economies of scale, credit unions that are vested will likely spend far more than expected in order to achieve this end, generating even greater pressure on its executives to realize a return on that investment.
"Big Box" Vendors
Many of the so called "Big Box" vendors make arguments that their size by itself will reduce cost and risk to smaller credit unions. No matter which credit union technology providers you speak with, make sure you can justify those claims. Technology has the power to reduce cost if it is designed properly. Risk can be managed through technology as well, and it doesn't necessarily require multiple third-party software solutions to make it happen (this would nullify the cost argument). The best core processing software solution is the one that matches your credit union's culture and your members' needs. Big isn't always best.
Credit unions that entertain the use of a data processing consulting firm should understand that most are in the business of mitigating risk instead of finding the right long-term solution. In my experience, many consulting services create a time-consuming process designed to project value, while yielding a predictable brand name result in order to achieve a risk adverse objective. Consequently, many highly-qualified core solutions are not extended an invitation to participate. Limiting your field of potential vendor candidates is a common consultant strategy of distancing credit unions from seeing and selecting any vendor beyond the consultant’s small pool of preferred core systems. Due diligence demands that you discover any pattern of behavior or practice that may undermine a complete and thorough review.
While assistance may be coming to many credit unions that will allow investment and even changes to their technology and technology providers, remember that cost-free assitance doesn't mean thought-free spending. When seeking a new core system, be vigilant in reminding yourself that no one understands your needs better than you, and none are going to look out for your interests more than you. Don’t forget that the most important person in this equation is your member and the level to which they must navigate various technology channels without confusion.