The notion of basic transactional data processing as just another plug-and-play module in the back shop of the modern credit union gained ascendancy for a while, but the core platform still beats as the heart of the infrastructure.
In other words, it’s still more than a commodity, perhaps as much because of relationships between people as databases. Credit unions, typically except for the largest, still generally rely on their core processor to provide the integration of software and strategy needed to compete, survive, and thrive.
“The working partnership between the core processor and the credit union is not a commodity,” says Robin Kolvek, senior vice president and interim CEO at EPL, a Birmingham, AL-based software solutions CUSO that serves approximately 80 credit unions. “The credit union’s partner — the core processing company — and the support behind the system are what credit unions rely on to help them solve their business problems through core and ancillary solutions.”
That’s why they’re called “core” processors in the first place, and that relationship remains a fact of life in credit union land.
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"Credit union technology is becoming increasingly important,” says Preston Packer, longtime sales and marketing director at CMC FLEX. “We see this with mobile wallets and P2P, but these technologies do not move forward without this fundamental element: a debit/credit card or checking account.”
Referring to core processing as a commodity is like referring to air travel as a commodity, adds Packer, whose Utah-based company provides core processing and other services to approximately 250 credit unions.
“Any airline you choose will get you to your destination, but the experience and cost of travel — including luggage — will vary greatly,” Packer says.
Corelation president Theresa Benavidez, whose San Diego, CA, company now has 39 credit union clients live on its KeyStone platform, puts it this way: “It’s table stakes because every credit union needs to have it.”
But the similarities often end there. According to Benavidez, core systems are like smartphones in that they all do basically the same thing but have different features and functions that “excite the users.”
Basically, They’re Different
“We all do the basics but differentiate ourselves based on what our users want,” Benavidez says.
That includes look, feel, enhanced integration to ancillary systems, and the ability for the end user to customize the applications. Those basics also include meeting the expectations of the digital consumer.
“All credit unions want to serve their members, add new ones, make more loans, encourage higher adoption rates for credit union products, etc.,” says Teri Van Frank, president and CEO at core processor Share One. “The challenge today is doing all that through a 5-inch screen.”
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Indeed, the further a credit union pushes beyond basic transactional functionality, the more the institution is demanding of its core processing system.
“This is particularly true for credit unions presenting an offering based not only on products but also a range of services,” says Kolvek at EPL. “A system’s capability to answer these requirements is essential.”
Answering that bell means being able to efficiently and affordably add new functionality.
Core processors and everyone else involved in pushing fintech forward have been working for years to make the software that drives services as integrated as possible. Indeed, reaching for that brass ring of seamless integration was what drove the idea of the core as a commodity in the first place.
And core as a commodity could yet happen.
“The idea of a modular core that could easily be swapped out is an intriguing one,” says Van Frank, whose Memphis, TN-based core processing CUSO serves approximately 100 credit unions.
But to make that a reality would require a level of Big Data crunching not yet there in the movement or the marketplace.
“Before a modular core could become a reality, credit union data would need to be stored in a standardized way throughout the industry,” Van Frank says. “There would be a great deal of work to create and maintain that standard, and there would have to be a motivating factor that doesn’t exist today for core vendors to get on board with the effort.”
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Who’s In Charge
On that note, don’t forget who ultimately calls the shots.
“I always smile when I hear credit unions comment on what is or is not ‘core processing’,” says Randy Karnes, president and CEO of CU*Answers, the Michigan-based CUSO and provider of the CU*BASE platform to approximately 170 credit unions. “That’s mostly because they seem to take no credit for the fact that they forge the responses of vendors more than vendors force their market strategies on them.”
Credit unions are paying to move forward instead of simply existing with yesterday’s solutions.
In fact, Karnes says, if a credit union does see core processing as a commodity, that’s a regrettable development.
“That means they have lost the ability to match strategy to tactics in a way that renewal is the key, that innovation is expected,” Karnes says. “They are paying to move forward instead of simply existing with yesterday’s solutions.”
All these core processing executives see integration and adaption to consumer-first applications continuing to advance. Karnes, in fact, says the most significant change so far has been a change in perspective that places the member as the ultimate core processing end user.
Member experiences now rival employee experiences, the CU*Answers CEO says. That means most key services now offered by credit unions today are based on designs that are B2B2C — business-to-business-to-customer — instead of large, retail solutions around plastics and self-service delivery.
“Close on the heels of the B2B2C evolution is the move from data around transactions to the focus on the intelligence of the story around transactions and the non-transaction data movement,” Karnes says.
That holistic approach should help lead to a seamless member experience, one now driven primarily by the expanding expectations from the mobile channel — including remote deposit, loan applications and funding, and card controls.
“Mobile technology alone has impacted the function of core systems as much as all other recent technologies combined,” says Packer at FLEX.
According to Packer, providing a core ecosystem that allows credit union staff to navigate the member view within a single platform is essential to responding to that market imperative.
“Integrating from within the core will provide the surest path to credit unions looking to achieve that ideal member experience,” he says.