When architects draw up plans for multi-level hotels, offices, or apartment buildings, they typically start by establishing a central space to build around. Over time, different owners and occupants might alter and update a building's exterior and interior to accommodate different needs, but altering the central space often requires a more difficult, complete reconstruction.
Credit unions frequently find themselves in similar situations when it comes to their core systems: They buy a product designed by a specific architect, usually a large company serving hundreds or even thousands of clients in both the bank and credit union space, only to find themselves limited by that core as their needs change.
But it doesn't have to be that way.
Many modern cooperatives are taking an active approach when it comes to building their core systems — developing core applications and other solutions themselves, partnering with providers who offer customizable products, and banding together to create a personalized core all their own. In the technology realm, these credit unions are truly becoming the architects of their own destiny.
There's an app for that, and if there isn't, you should create one. That is the philosophy at Fairwinds Credit Union ($1.7B, Orlando, FL).
The credit union has been developing applications and core improvements for its own in-house needs since its 2006 conversion to DNA from Open Solutions Inc. — a highly customizable platform that was eventually acquired by another core company, Fiserv, in 2013.
One of the drivers for us to move to this technology was for us to control our destiny and be progressive [but] we want to be light on efforts on the back end and not put a lot of time into something that’s not going to get traction.
"One of the drivers for us to move to this technology was for us to control our destiny and be progressive," says Charlie Lai, chief information officer at Fairwinds.
With four members of its 23 person IT team working in either a full- or part-time time development capacity, the fruits of Fairwinds' initial core customization experiments have been significant. In fact, one of the credit union's first projects was an app that reduced the time required for in-branch account openings from 45 minutes to approximately three.
In 2010, OSI introduced a formal app development environment for its platform, DNAcreator, as well as an online storefront, DNAappstore, which allowed credit unions to sell and buy in-house created applications. Fairwinds was one of the first to take advantage of the opportunity and in 2011 it released a new reporting tool app designed specifically for sale to other cooperatives. "I think that was one of the first published apps in the store," Lai says.
CU Quick Facts + Technology Profile
Fairwinds Credit Union
HQ: Orlando, FL
12-MO Share Growth: 3.71%
12-MO Loan Growth: -0.20%
Data Processor: Fiserv DNA
Data Warehouse: Custom built/in-house
Home Banking: Digital Insight
Online Account Opening: Harland uMonitor
Bill Payment: Fiserv Checkfree
eStatement Custom built/in-house
Mobile Banking: Digital Insight
In addition to successfully developing for this marketplace, the credit union has also purchased two applications developed by other cooperatives.
Fairwinds' foray into application development has not been foolproof. Yet giving staff the ability to get their hands dirty in the core space, drive new efficiencies, and generate additional income without incurring extra bills from its core provider is a benefit the credit union is not looking to give up any time soon.
For David, Not Goliath
Something interesting happens when an institution exceeds $1 billion in assets — its voice gets louder and vendors become more accessible and flexible. But small institutions don't have to get lost in the noise. In aggregate, institutions with less than $20 million in assets make up more than half of the industry. This means even the tiniest credit unions have the right and power to excise their voice and seek out options that are tailored to their needs.
"I would call, would never get a live person, and always had to leave a message," says Monica Marchant, CEO of Valley Wide Federal Credit Union ($471K, Vernal, UT), in reference to the institution's previous core provider. "I was lucky if I got a call back within an hour or even by the end of the day. There were times when I'd have to call them back again."
This unhappy relationship continued until February 2013, when the core provider discontinued the credit union's product. Valley Wide realized it was time for a real change and started looking for a partner who better understood the mechanics of small institutions.
CU QUICK FACTS + TECHNOLOGY PROFILE
Valley Wide Federal Credit Union
HQ: Vernal, UT
12-MO Share Growth: 14.38%
12-MO Loan Growth: 2.78%
Data Processor: FedComp
Valley Wide has 160 members and a limited set of needs — but of those, accessibility and user-compatibility are front and center.
That's why the credit union chose a new core provider, FedComp, whose scalable platform skews predominantly toward smaller credit unions and who is popular among institutions with less than $50 million in assets.
"So far, whatever I need, they have it," Marchant says. "They were good during the conversion, they're flexible, they answer my questions, and they're friendly and willing to help."
According to Callahan & Associates' Peer-to-Peer analytics, Valley Wide has lowered its efficiency ratio by nearly 40% since this conversion, and it is likely the credit union will continue to reap the benefits of enhanced vendor support and accountability in the future.
Collaborate To Create A Core
Community financial institutions, including credit unions, on average pay approximately 24% over fair market value for core systems, according to a 2013 joint-study by consulting firms Business Performance Innovation Network and Paladin fs.
The study is recent, yet the phenomenon is anything but. That's why many credit unions have chosen to collaborate and form CUSOs as a way to minimize core costs. Examples of core solutions built by credit unions, for credit unions include CU*Answers, Credit Union Data Processing, and EPL, among others. And many more wholly or multi-owned CUSOs provide turnkey solutions that either complement or replace key systems that fall short.
By pooling their knowledge and resources in this way, credit unions are effectively competing against larger opponents, driving additional income, and creating a better technological future for their industry.
The Perils Of Supply And Demand
The potential of in-house development is exciting, but don't try to reinvent the wheel, especially if you want to sell your solutions to others, says Charlie Lai, chief information officer at Fairwinds Credit Union. Focusing on easy, small-scale core fixes and improvements will allow credit unions to stay nimble and be more productive, as well as hedge against the risk of a large-scale investment falling flat.
"When DNAcreator came out, we had the idea we would retrofit our branch account opening process into that mold and make that available for sale to other clients," Lai says.
The credit union spent 12 months adapting the application to meet that core provider's standards and published the app in 2012 at a price of $25,000.
"We've gotten a lot of interest, but we have not had anybody buy it," Lai says.
Apps typically start at $1,000, so the account opening app's $25,000 price tag was likely too high for the market, Lai says.
Additionally, Fiserv also had its own improvement in the works for that part of the core system.
Moving forward, the credit union is focusing most of its time and resources on solutions to meet its own needs, with development for the app store occurring only as a secondary consideration.
"We want to be light on efforts on the back end and not put a lot of time into something that's not going to get traction," Lai says.