Technology is Always on the Offensive
Should CU core data processors shore up the industry's defense?
Without fail, technology brings forward a new tool, concept, or consumer trick each year that encourages us all, both solution providers and solution consumers, to get busy. Go active, spend to learn, spend to develop strategies and tactics around what's hot, spend to implement, and prepare to earn. Technology is always on the offensive and we must always be ready to expand the margin. The big picture question is, "Whose margin, and how does that add up for a long-term healthy credit union network?
Expanding Core Competencies
Historically, the credit union industry has been a good environment for technology, especially core processing providers. When you marry the expansion of both technology solutions plus corresponding demands by members for more stuff with the evolving business plans of credit unions, you have a great space for vendors.
Credit unions have been on a tear for the last decade around adding more and more core competencies to their base operations. They have expanded their intent, their offerings, and their investment in expertise. The results have been a broader base of core expectations and a hunger for solutions that have made credit unions a willing market for vendor solutions almost to the point that many credit unions feel behind the curve, and are constantly focused on spending more, doing more, and . . . well, we'll get to that.
At the same time, the market has been pumped up on best-of-breed thinking and an environment of specialists that have made every change in regulation, consumer technology appetites, and scale benchmarks overly complicated, too expensive, and potentially more about a credit union competitor's business plans than their own.
Traditional core processors (vendors with the intent of covering the basics of credit union core competencies and operations) have given up far too much to these best-of-breed specialists' concepts. They have often sold solutions for expanding credit union core competencies as someone else's responsibility. Many have chosen to just give up expanding their core products and have simply moved to connecting the pieces.
Connecting the pieces can be far more lucrative for many vendors. Doing so shifts development costs, integration costs, and education/support costs from vendor investment to customer concerns. In many cases, credit unions have followed the models of banks and larger competitors and have struggled to absorb these expenses. Or they simply locked in on yesterday's solutions and failed to effectively expand their core base competencies. What do you do when your core processor decides that accounting is something best bought from an add-on vendor?
Whether offense or defense, the industry needs more balance between vendor responsibility and client partner needs.
Fostering Environments with a Competitive Advantage:
Where Have all the Clients Gone?
Who is responsible for market development, utilization rates, and consumer success? Classically, tool providers believe that their customer knows what is best, and if they buy the tool, they know how to earn from it. From the vendor's perspective there is no need to worry:Our solution gives a competitive advantage to our customers, and when properly implemented will be a winner for everyone. But if that perspective is correct, then why would 8 out of every 10 commentators cite the fact that credit unions are at a competitive disadvantage in comparison to their biggest competitors?
Whose responsibility is it to gain a marketplace edge in this case? If truly vested credit union core processing vendors do not start investing in marketplace development for their solutions at the member level, then we may see vendors having to move away from credit unions to another market.
The world has changed, and vendors should see their need to be a partner in member marketplace development and utilization of their mutual products with credit unions. It matters little if we are talking about back-office solutions or member-direct ones. Credit union core processing vendors need to invest, foster, and defend the competitive advantages of credit unions if they are to be successful.
Defending the credit union marketplace means going on the offensive and investing to make sure credit unions have an advantage with the general consumer. Vendors need to shift their goals from proactive sales to organizations, to proactive alignments with the same organizations to build a market. Can they set goals for every credit union member to go active? What is the difference between serving the customer and partnering to serve the customer of the customer? Vendors had better find it.
Now shift from members to regulations. How could core processing vendors take on the challenge of ensuring that credit unions have the lowest cost of regulatory compliance of all of the financial service charters? While you may say that sounds like a trade organization's focus, I wonder if vendors might all be cutting off their own opportunities by constantly earning more on a regulatory change than credit unions save. What is the cost to a credit union for a safe and sound environment, and are core processors vested to save their marketplace as well?
What Do 3rd Party Risk Assessments Say About Vendors?
While there may be many reasons for NCUA's new focus on Third Party Risk Assessments (NCUA Supervisory Letter No. 07-01), I have to wonder if the core processing vendor marketplace has not contributed to the sense that regulators must now push credit unions for better contracts, more diligence about the intent of their vendors, and more skepticism about whether vendor business plans are in alignment with the credit unionâ€™s best interests.
Whether it be vendor mergers, or high entry and exit barriers, or the charge-what-you-can attitude of many of the core processing vendors serving credit unions today, something is afoot. While it might be called a risk assessment, it feels like consumer beware pushback from Washington.
Do core processing vendors truly understand the concept of member capital? Or have they all simply become desensitized to the fact that as credit unions are traded from one vendor to the next, or merged out of business, or pay to move to new situations (as they should), they have taken more than their fair share of their members legacy for the next generation?
This is not to say that vendors should not nurture their own business models, build equity, and reap the reward of being able to sell their firms. It is only to ask,Have they gone too far? It is only to ask,Are they truly vested in the forward business plans of their customers?
Defense of vendor clients might be the vendor's best offense.
I started by mentioning the consumer trick without much elaboration or definition. The phrase is in the spirit of all of the new television shows that start with Trick. It is easy to excite both consumers and credit unions about neat gadgets that will trick their experiences.br /> The issue for all of us that are truly vested in the credit union industry is to make sure we do not trick ourselves right out of business, clients, partners, or a future.
Now back to offense. Buyers beware.