More From Your Core

sliced avocados with pit intact on a wooden background
Contributing Writer

14 minutes

Need for additional features, value or connectivity may drive credit union core system evaluations.

The core processing system still sits at the center of credit union operations, but it is becoming increasingly intertwined with other essential technology and subject to the ever-quickening pace of innovation. A variety of factors may lead your credit union to assess current system functionality and decide whether to begin a search for a new core provider. 

Your current contract is set to expire in about three years. 

That time frame is typically when executives start asking, “Are we going to renew with our core vendor, or are we going to look?” says Brad Smith, managing director with CUES strategic partner Cornerstone Advisors, Scottsdale, Arizona, CUES’ strategic partner for technology services. “And then a bunch of other technology decisions end up going back to, ‘Well, that depends if we’re going to stay with our core or replace it.’”

Three years may seem like a long lead time—more or less halfway through the term on a typical five- to seven-year contract—but that’s how long it could take to conduct a thorough evaluation of system options and go through the conversion. “And if you decide to renew, you may renew well before your contract comes up to take advantage of better pricing,” Smith adds.

Another consideration is that examiners and auditors often encourage credit unions that have been on the same core for 10 or more years to “just kick the tires and look at their options,” he notes. “Some portion of the credit union leaders doing that end up saying, ‘We like what we’re seeing. Maybe we will make a change.”

Your credit union is heading in a new direction. 

Contract expiration is not the only trigger for investigating a new core system. In assessing current and future needs, Teri Van Frank, president/CEO of CUES Supplier member Share One, Memphis, Tennessee, a CUSO and core processing system provider, suggests that credit unions take a big-picture view: Where are you growing? What are your plans for your markets? What member-facing products do you plan to introduce or enhance? How stable is your current core system and ancillary products? Are you considering a merger, as either the continuing or merging institution? Are you changing your charter to SEG-based, community, federal or state?

“You have to bring the core along on all those changes, like adding new SEG groups or changing forms and websites in the case of a new charter,” she notes. “Your core system has to be right there with you to make you more successful.”

Big-picture market trends require credit unions to be more nimble in responding to significant shifts, says Ranganathan Sathianarayanan, chief product officer for Temenos North America, Malvern, Pennsylvania. That leads to an important question: Could your core system facilitate a strategic shift on the technology front? 

“You can’t lose sight of your current needs while thinking about the future—and vice versa. You start by looking at the pain points,” Sathianarayanan explains. “The driver for change can be functionality, if your core system doesn’t meet your requirements. It could be around [new] technology. Everyone’s talking about open APIs, cloud-native tech to increase agility and continuous deployment. The leaders in the new era of banking will innovate faster, with shorter innovation cycles—so short they become continuous. Credit unions should ask, how does the current core support these requirements?”

Matt Lefler
VP/remover of road blocks
Enhanced Software Products
Very few cores don’t meet the baseline of functionality. ... So the differentiating factor comes down to how proactive they are in the relationship. Are they by your side in strategic planning? Are they willing to offer the flexibility to come to the table with questions and suggestions, beyond meeting service standards?

In assessing current core performance and future needs, the vendor relationship is a key consideration, suggests Matt Lefler, VP/remover of road blocks with CUES Supplier member Enhanced Software Products, Spokane Valley, Washington. “Very few cores don’t meet the baseline of functionality, like supporting real-time ATM and debit transactions and mobile applications. So the differentiating factor comes down to how proactive they are in the relationship. Are they by your side in strategic planning? Are they willing to offer the flexibility to come to the table with questions and suggestions, beyond meeting service standards?”

You’re curious about what other providers have to offer. 

Recent changes by the major core systems in the credit union sector, Fiserv’s DNA and Symitar, include upgrades in both core systems and associated product offerings, Smith says. Meanwhile, Corelation, a third major credit union core provider that premiered a decade ago with a model that emphasizes user experience and third-party integration, “is now competing effectively with the two bigger vendors.” 

The evolution of core processing system capabilities, architecture and capacity to provide data and facilitate data analysis warrant careful consideration of each provider’s current and future direction in supporting CUs to compete and maintain a sustainable business plan, says Bret Weekes, CEO of CUES Supplier member CUProdigy, Layton, Utah.

“The requirements of adaptability for delivery have changed a lot over the last couple decades. I have been [working with] credit unions for 30 years on the technology side, and that cycle of innovation continues to accelerate,” he reports. 

Weekes suggests three major areas that credit unions should consider in assessing core systems and providers: (1) the technical architecture and functionality of the system, (2) the road map for continuing development of services, and (3) the provider’s business model. Publicly held companies have a different model than a CUSO’s commitment to cooperative ownership, he notes.

With the momentum and pace of change in the market, credit unions should take a look at new products and trends in the digital marketplace at least annually, with a core system review every three to five years, Sathianarayanan recommends. That’s not to say digital or core solutions should be replaced often, but credit unions will likely reach a tipping point where it makes sense to change. By instituting periodic checkpoints, they can ensure they’re not late to the game. 

Changing digital banking systems that facilitate online and mobile access may also influence decisions about whether to stick with or switch core providers. For example, if managers think they’ve outgrown their current digital banking solution that came packaged with their core system, they may consider switching both systems at the same time. 

Credit unions should go into a core search with clear expectations about what they’d like the system to do but at the same time be open to the possibility that vendors “often do things differently and those differences may be better than what you envisioned,” Smith recommends. “Sometimes incremental improvements are perfectly fine, and sometimes you may be ready for something revolutionary. Be open-minded going into the process, without losing the discipline of making sure that your baseline is covered.”

You want to be on the leading edge of technological shifts.

As one example, cloud-based systems are not only feasible today, but may offer an operational advantage, Weekes says. And in the near future, credit unions should expect their core providers to be working toward predictive analytic capabilities that combine data from the core and other systems. 

Though no U.S. financial institution has migrated entirely to cloud computing, that could well become a future standard, Sathianarayanan notes. “When you decide to replace your core provider, you’re not looking out over the next five years. You’re looking out 10 or 15 years, and definitely in that period, most financial institutions will have some aspect of their core processing happening in the cloud. We need to embrace these changes.” 

This technological evolution has implications for hardware infrastructure and software costs. Credit unions can’t match the revenue base of national banks to support big technology buys, so they need to be more efficient with their investments. Cloud solutions reduce the need for infrastructure, allowing credit unions to do what they do best—serve their members. The more they can leave infrastructure management to their core provider, the more they can focus on growth strategies, he says.

In addition, cutting-edge core systems should support real-time account monitoring “so that we understand what members are trying to do and send the right messages to the right members at the right time,” Sathianarayanan adds. “Artificial intelligence can be built into the core to better understand members’ transactions and interactions in a way that makes future interactions easier and more efficient.”

You want a core that comes bundled with key systems …

Some credit unions favor core providers that bundle digital services, item processing, payment processing and other systems as a package deal. An “all-in-one solution” often offers discounts and is especially attractive to credit unions with small IT shops and those that don’t want to manage multiple vendor relationships and integrations. 

When selecting a new core, one of $230 million Sunbelt Federal Credit Union’s requirements was that the provider handle all basic functions, from accounting and deposit accounts—including IRAs—to loan origination and in-house credit card processing. The Hattiesburg, Mississippi, credit union is set to switch core processing to Share One in March 2020.

“If you have more robust needs and need a separate lending system, then by all means, but a core should be able to handle loan processing efficiently,” says Sunbelt FCU President/CEO and CUES member W. Christopher Hammond. “And Share One hosting our credit cards makes it easier for members, because they can see their up-to-date credit card information and make real-time payments … alongside their other accounts.”

The upcoming conversion will be the second since Hammond joined Sunbelt FCU in 2011. At that time, “the board was interested in offering some new services and products to the membership,” he says. “I told them, ‘… On our current core system, we just can’t afford to do some of the things you’d like to do, based on the price per member and the way our online systems are structured, and … we don’t have the ability to customize the system the way would like it to be.’”

That first core search came down to two providers, CBS and Share One. Sunbelt FCU went with the former’s CAMS-ii, a browser-based system, which Hammond describes as “a very efficient system for credit unions that are not trying to do outside-the-box things. But we’re not your average credit union.”

Sunbelt FCU plans to automate some manual processes through its main system. While its current core system could accommodate most of those plans, the provider “couldn’t keep up with the custom programming we were looking for,” he explains. 

When the credit union went back to Share One in its most recent search, a key question was, “You’ve had several years … What have you done since then?” Hammond notes. “We were very impressed that they had taken a lot of our original suggestions and incorporated those into their system. That was how we came full circle and went back to Share One. They will be providing the custom programming we need going forward.”

One example of that customization is integrating both check and cash deposits through the CU’s ATMs. The current system scans checks, submits those images for deposit, integrates the deposits with the core system and consolidates them into the credit union’s cash letter. With the new core, the system will recognize cash deposits as well as checks through a more efficient, integrated system and allow immediate funds availability to benefit members.   

Sunbelt FCU’s new core provider is also working on programming for adding collateral protection insurance monthly premiums to auto loan balances and for automating the posting of deposits or loan payments made with other financial institution debit cards either online or through the call center.

Brad Smith
Managing Director
Cornerstone Advisors
Sometimes incremental improvements are perfectly fine, and sometimes you may be ready for something revolutionary. Be openminded going into the process.

Among the bigger core providers in the industry, Smith notes, CUES Supplier member Fiserv has made several investments in its digital suite with the recent addition of Architect, a digital banking and payments offering, and Originate, a web-based account creation offering, and is rebranding its digital product portfolio around DNA as Digital Edge. And with its acquisition of First Data Corp., Atlanta, Fiserv is expanding its payments business, bolstering a struggling credit card platform and adding merchant services. Jack Henry/Symitar recently acquired Ensenta, Redwood City, California, to expand its mobile payments offering and BOLTS Technologies to integrate its digital account opening solution.  Fiserv and Symitar “make significantly better margins in payments, so they really want to connect payments with their core systems,” Smith says. “This is interesting and a little concerning, because the market of third-party competitors is shrinking pretty quickly as the big core providers are grabbing them up. We’ll see what the long-term implications of that are. But the big-picture strategy for the core vendors is to try to bundle in payments, digital and core with as many customers as they can.”

… or Vice Versa

Other credit unions adhere to a “best of breed” strategy—choosing different providers for their internet and mobile banking, payment processing and lending solutions—and figure out “how to cobble those systems together,” notes Smith. 

Contending that “all cores basically offer the same functions,” Lefler suggests that the greater evolution in this area “is in the integration and the opportunities to grow the credit union’s technology ecosystem. Core systems really should be giving credit unions the ability to plug in whatever other products they need to be successful.

“The idea that one core can provide all the technology to compete in the fast-paced fintech space of today—we don’t believe that’s realistic,” he adds. “We know we can’t be all things for everybody. We need to provide an efficient core that supports the integration of other systems.”

Toward that end, ESP has worked in recent years “to make more of the core available to the outside” by offering more integration opportunities available to third parties through APIs and web services and allowing vendors to have more control into the credit union’s core business logic, Lefler says. 

The vendor landscape is continually shifting to give credit unions more options and flexibility in the products and services they offer their members, and Van Frank agrees that core providers need to keep pace in their capacity to integrate with those systems.

For example, Share One’s NewSolutions core system recently integrated an interface to the FDIC to support mortgage lending and new capabilities from Topaz to facilitate members signing legal e-documents on mobile devices and signature pads. While about 85% of Share One’s client credit unions use its proprietary NS3 line of digital solutions (NSHome, NSMobile and more), it also offers APIs to help credit unions interface with other systems if they decide those products are a better fit, Van Frank explains.

Contract terms for the core and other systems are major determinants for “unbundled” credit unions in the timing of a core search, Smith says. If a financial cooperative’s contracts for core and digital services are set to expire about the same time, it can coordinate those searches more easily—even if the conversion timing gets a bit ambitious. 

“But if your digital vendor contract expires two years after core, then you’re probably going to change core first and then change digital later, so it can be challenging to line that up,” he notes. “But most of the time, executives—if they’re looking at their core vendor—at least want to hear about that vendor’s digital strategy and product road map. Even if they’re perfectly happy with their third parties, they’ll at least hear about their core provider’s digital and payments product functionality and pricing.”

Technology requirements are shifting.

Credit unions need to keep an eye on regulatory and market requirements that affect core processing, Sathianarayanan says. The Federal Reserve Banks will be migrating to the ISO 20022 standard for real-time gross payment clearing and settlement over the next few years, so credit unions may need to change their payment systems—and their core systems will need to integrate with any new payment rails.

The European GDPR rules and the open banking system of providing consumers with a network of financial institution data through APIs will have an impact on U.S. financial institutions as well, he adds. Credit unions need to start preparing for those changes now and study the potential to monetize the sharing of transactional data. 

Vendors may also change their priorities over time. For example, a CU’s core system might be bought by another company or go from a leading product to one that’s more secondary. Both scenarios could lead to decreased support.

A final across-the-board consideration in assessing core performance and future needs is pricing, says Smith. Some credit unions might be focusing on cost containment fueled by pricing pressures in the current rate environment, leading them to look for ways to contain core costs and/or get more value from those systems.   cues icon

Karen Bankston is a long-time contributor to Credit Union Management and writes about membership growth, operations, technology and governance. She is the proprietor of Precision Prose, Eugene, Oregon.

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