A New Age For Core Expectations

Why credit unions are holding core technology providers to a new standard of innovation and engagement.


The core systems marketplace is a different playing field today than it has been in the past, and evolution within the industry is bringing about both new opportunities and unforeseen frictions. With this in mind, Callahan & Associates designed the 2014 Market Share Guide to Credit Union Core Processors to help credit unions navigate and benefit from the changing marketplace.

Currently, 32 companies serve the nation’s 3,562 credit unions that have $20 million or more in assets. Slightly more than half of those companies, 18, provide service to credit unions with assets that range from $250 million to $1 billion. Just six of these providers serve the nation’s 211 largest credit unions — those with $1 billion or more in assets.

Many of these companies are growing their market share by single or even double-digits; however, activity such as mergers, purchase and assumptions, and liquidations in the credit union space has decreased the number of financial cooperatives by nearly 300 in the past year.

This distorts market share figures over time, creating the impression of negative growth, and covers up another important trend. As larger providers increasingly acquire their small and mid-sized peers, the same process of consolidation that is responsible for shrinking the credit union industry is also shrinking the number of core providers.

Notably, consolidation among technology providers does create many advantages — such as new capabilities or product lines, expanded expertise and support, and better pricing — for their clients. However, in addition to obviously reducing choice for credit unions, consolidation can also marginalize or complicate existing core relationships.

Cooperatives don’t expect successful core companies to stop growing, but they do want to decrease the number of missed opportunities that result from a shrinking marketplace. Here, two chief technology decision makers — CJ Daiker of Maps Credit Union and Connie Finch of Provident Credit Union — talk about the often-unforeseen impacts these shakeups have on credit unions and highlight the key elements they look for among technology partners.

Wanted: Choice, Not The Illusion Of

“As an IT person, you don’t want your core, or any provider, to be the ceiling to your technology,” says CJ Daiker, vice president of IT at Maps Credit Union ($467.1M, Salem, OR).

But more frustrating than technological limitations is a limbo bar that changes over time. Unfortunately, core acquisitions can create this type of environment.

“The majority of our vendors have been acquired by someone else over the past couple of years,” says Connie Finch, vice president of IT at Provident Credit Union ($1.9B, Redwood City, CA). “We’ve also seen it happen to companies we were looking to go with in the future.”

For example, on the same day in February 2013, Provident learned its home banking and mobile banking providers had been bought out by different companies.

The transfer of key technology relationships over the course of a few months, weeks, or even days can put a credit union’s ability to provide seamless service and plot a successful course for its future in real jeopardy.

Wanted: Local When You Can, Accessibility When You Can’t

Credit unions need allies, not adversaries, in the regulatory space. Yet some common core practices and business models, coupled with a lack of communication, can make that peace of mind harder for cooperatives to obtain. For example, remote operations provide a host of valuable benefits for credit unions, such as 24-hour support and nimble backup and recovery capabilities. But the fact many offerings are now based in the cloud raises questions among regulators and members as to where all that sensitive data ends up.

“Especially in the case of acquisitions by international companies, there are concerns about security and regulatory compliance as well as potential language barriers and other support issues,” Finch says.

Whether they extend across state lines or across the ocean, open lines of communication are always a basic requirement for success in complex arrangements. But the ability to access the right people at the right time can be an issue, particularly with large technology companies that have hundreds or even thousands of clients. And although core companies typically reach out to their larger clients directly, Provident has found companies often keep smaller institutions in the dark — even when they try to solicit meetings

“Too often we hear about acquisitions or other big changes by reading about it in the newspaper. We have no idea what it means for us.” Finch says. “In some cases, we end up having to go to client conferences just so we can get the information we need.”

Wanted: Investments That Last

Rapid-fire changes in a partner company’s business model can be another major roadblock for credit unions, especially among those who have invested their own employee time and members’ dollars into shared initiatives or an otherwise complementary trajectory.

For example, in the past, Provident worked as a data partner with one of its key vendors to co-develop a solution that would work better for both parties’ needs. But when that company was acquired, the fruits of this collaboration quickly fell to the chopping block.

“The work we had done together is basically being dropped, and they’re not going to continue that solution,” Finch says. “When you make that type of investment, you want to know you’ll always have access to the resources and knowledge you’ve invested in.”

Likewise, many credit unions are wary of making changes at the behest of core providers when these companies’ own implementation strategies are still in flux. This was the case in 2004, when a large core vendor asked all of its clients on a then commonly used legacy platform to acquire a brand new solution or risk losing the vendor’s support. After several credit unions made the switch, the provider announced it would instead implement a chip switch option to upgrade legacy units into a more maneuverable, UNIX-based system.

“If we’d jumped on that bandwagon too early, we would have been on a platform that was almost immediately discontinued,” Finch says.

Wanted: A Core That Plays Well With Others

During any core upgrade or conversion, it is an all too common experience for credit unions to discover that some key modules will no longer be available to them on their new system.

When the core itself becomes the gatekeeper to — rather than the enabler of — important and innovative capabilities, institutions are forced to go one of two directions:

  1. Become a development shop and try to build out new resources themselves, often at a significant cost for talent acquisition and knowledge development.
    — OR —
  2. Increase their reliance on third-party vendors to fill in the gaps, in some cases continuing to pay maintenance contracts on core services they no longer receive.

For a majority of institutions, neither approach is ideal or foolproof. The first option requires an investment that many institutions simply cannot afford to make. And in the second option, unfortunately, many incoming third-party vendors find that certain core providers won’t support their products or services, which creates an education burden for the credit union.

“The third party will come in and think it’s a slam dunk,” Finch explains. “But they haven’t had the experience of dealing with the more antiquated systems you see in the industry.”

Maps has firsthand experience dealing with this complication. When a complete core conversion failed to yield the type of real-time, analytical results it was hoping for, it had to forge its own path to collect and distribute member information.

“When possible, we decided we’d rather use our own resources than go to the core and say, ‘We need 80 hours of development time. What’s that going to cost us?’” Daiker says. “By investing in the right people, who can build the right infrastructure, we’re hoping to turn what is normally a cost center into a profit center.”

When it comes to fueling innovation, Finch does not believe the burden lies solely on credit unions, yet she does think small changes at the client level can shape the direction of future research and development among core companies.

“We were way ahead of the curb with implementing a SAN solution,” Finch says. “We had initially tried to work with our core provider, but it wasn’t willing to address that need. So we did some work on our own to implement it, and now we have our provider’s support because it has started seeing the value there as well.”




Dec. 2, 2013


  • Most core providers are either public traded or closely held private companies, which are interested in one thing only an that is increasing their shareholder/owners. Where is the incentive for core providers to invest their profits into rewriting their core system(s) or making meaningful enhancements as long as credit unions are willing to put up with the status quo? With all of the consolidation of core providers and the fact they are sun setting core systems at an ever increasing rate, perhaps it's time for credit unions to turn to a credit union solution created by credit unions. A core system developed and owned by credit unions within a CUSO gives credit unions real control over the future of their core system.
    Robert V. Taylor, President/CEO, ISU Credit Union