January 25, 2012

Credit Union Management magazine’s Web-only “Tech Time” column runs the fourth Wednesday of the month.

Changing core processing systems is not something to be taken lightly.

From a capital investment standpoint, switching to a new core system is going to be the biggest financial decision a CU makes (other than a new bricks-and-mortar facility). And, changing the core affects almost everybody in the credit union—so there’s little choice but to look at it as an enterprise-wide project.

All that said, Scott Hodgins is seeing a lot of core shopping activity among credit unions right now.

A senior director at CUES Supplier member Cornerstone Advisors Inc., a CUES strategic provider based in Scottsdale, Ariz., Hodgins says the No. 1 reason CUs have for changing is that they are not running their vendors’ flagship product.

“There are a lot of issues tied to not being on the flagship product of your vendor,” Hodgins told participants in a recent free CUES Webinar. “After a while, these CUs start to feel like redheaded step-children” because they’re just not getting enough attention from their core provider.
 
Hodgins said credit unions running a vendor’s secondary product will quickly (and rightly) find themselves asking these sorts of questions:

• How long will the vendor continue to support my product?
• Where is the real development and support talent?
• Can the vendor afford to support my product and the flagship at the same time?
• Is a conversion just a matter of time?

Hodgins offered these seven key ways to know if you are using an “also-ran” core product:

1. High-performing employees at the vendor company are either leaving the company or going to divisions within the company that don’t serve your core system

2. Development projects start and stop for no obvious reason.

3. New sales of your incumbent product are all but nonexistent.

4. You have had more than two new account reps in the past five years.

5. Your vendor announces the availability of a new product designed for larger, more complex or “more progressive” CUs.

6. Your product’s development timeline is devoid of specifics – dates, specific features, etc.

7. A chart of the average asset size of CUs running your core system shows sharp downward movement

Some other common reasons CUs are currently choosing to jump ship on their current core processors include:

• poor service;
• gaps in needed functionality, especially when a significant change in strategy (such as adding businesses services or mortgage) is planned;
• financial condition of vendor is shaky;
• ridiculously bad integration between core and other systems at the credit union;
• normal best practices due diligence; and
• regulator/board insistence on examining core to better manage the risk of such a large financial investment.

Interestingly, Hodgins said credit unions almost never really switch core systems for better pricing.

“The incumbent will almost always cut margins enough to keep the deal,” he said, noting that “sometimes it takes a formal selection process to push the vendor to see the error of its pricing ways.”

If you do decide it’s time for your credit union to go core vendor shopping, take Hodgins’ strategies for success with you:

• Early in your process, decide what is important to your credit union (not just functionality) and how you will objectively rate each vendor.
• When doing a request for proposals, spend plenty of time beforehand talking to peers and analyzing RFP responses after you get them back from vendors.
• Carefully manage onsite demonstrations so you can see exactly what you want to see about the products you’re considering. Make sure you’re not being shown features that have not yet been released into general production. And grade these sessions using a numeric scale.
• Take time to do due diligence—that is, have in-depth, peer-to-peer conversations with others who use the systems under review.

Lisa Hochgraf is a CUES editor.