Journal Reader Question #1:
We are a $43-million credit union. Our board was told recently by a consultant that at our asset size, our ability to grow will always be limited because we can't afford the technology needed to compete. We're very concerned about this. Does your panel concur?
Dick McConnell, AFTECH, Malverne, Penn.
We do not concur. AFTECH has helped many clients of similar asset size implement technology to compete, grow and prosper. We recommend the credit union map strategic growth and operational plans with a technology plan that supports direction.
Once the plan is identified, most of the quality vendors servicing credit unions are fully capable of providing investment numbers that will align with the plan. At that point the credit union can determine if the funding and board support is available to move forward.
Kristi Lowell, Director of Marketing, RDS, Indianapolis
While there will always be basic costs of doing business (structure costs, staff expenses, hardware, etc.), it is not accurate to say that a $43-million credit union cannot afford the technologies needed to compete successfully in today's financial services marketplace.
The key for all credit unions, and especially for smaller institutions, is to use technology wisely and in a way that enables you to offer more value for less money. Examples of implementing technology wisely include using ASP services versus building an expensive in-house IT structure and carefully evaluating communications alternatives, such as VPN connectivity in place of more costly frame relay connections.
Questions to answer before making strategic investment decisions are: whom are we competing with, and what is the market we are competing in? Know your members and their needs and clearly define your market niche. Focus technology efforts toward services that specifically meet the needs of your defined market and members instead of trying to implement the latest fad in financial services. By focusing technology efforts and leveraging ASP services available from vendors, even small credit unions can successfully serve their defined FOM.
John Schooler, President, USERS, Valley Forge, Penn.
We don't agree at all. Advances in technology now make it possible for the same robust software to be viable and affordable for credit unions ranging from the smallest institution to the "billion-dollar club." One reason is the availability of reliable, feature-rich online systems (formerly known as service bureau). Unlike their predecessors, today's on-line systems don't limit functionality; in fact, at USERS, our core processing solution offers the same range of functionality, whether it's deployed in-house or online. The same holds true for our Internet banking and optical solutions. An online system will enable you to enjoy the most current technologies needed to stay competitive, without requiring a large capital investment in hardware or the ongoing expense and challenge of retaining highly skilled IT staff. If you prefer the control of in-house administration, keep in mind that even an in-house solution can be configured cost-effectively for a small credit union, without sacrificing the functionality needed to attract and serve members. So there are many options for a credit union of your size to gain the technology required to compete effectively.
Gary Daniel, SVP & General Manager-Credit Union Group, Open Solutions Inc., Glastonbury, Conn.
At Open Solutions, we have many clients that are your size or smaller and they are taking advantage of affordable technology in order to grow and compete.
It is our belief that there is a technology solution for any size credit union. A credit union should view technology as an enabling tool to help meet the overall goals of the organization. Furthermore, technology should be viewed as an investment in the future and not as a limiting factor to growth. Credit unions of all sizes are constantly assessing new technologies in order to better compete in the market and serve their members. More and more, credit unions need to be able to add new product and service offerings to address the growing needs of their membership.
The key point is for your credit union to strategically determine the underlying market strategy that will allow your credit union to continue to succeed in your marketplace. Any technology decision should be based on a clear business strategy and how you want to serve your membership. Once this is determined the next step is to look at the current technologies that are in place at your credit union.
A good place to start is to look at your core data processing system. Does your current system allow you to effectively compete and achieve your credit union's overall business goals? If not, then is the first place you should seek to invest your technology dollars.
A well-designed core system based on newer open and relational technology can be used to serve members more efficiently, eliminate the need for costly add-on systems and promote greater use of your credit unions offerings.
This technology may be more affordable than you think when you factor in your growth objectives and the fact that this type of technology operates on less expensive open platforms and equipment.
In addition, the technology can be delivered as an in-house or outsourced solution which could also affect the cost so that a credit union of your size can implement it.
Tom Glatt, Jr., VP, Counter Intelligence Associates
San Juan Capistrano, Calif.
Absolutely not! To begin with, the true cost of technology is decreasing, making proven technology more affordable for small to mid-size credit unions. Another factor to consider is that technology outsourcing, once an unreliable route for critical technology needs, is now a stable and less expensive alternative to building an in-house tech infrastructure. In fact, many of the major core system providers offer hosted solutions.
What you will have to consider, perhaps more so than larger credit unions, is where to invest your technology funds. This means that for your credit union, the strategic planning process is of critical importance. You must know, with precise certainty, how much you want to grow, in what areas you want to grow, and how you will manage that growth. These items should be discussed in detail during annual or bi-annual planning sessions.
After you set your strategic growth objectives during the planning process, you then need to evaluate technologies that will help facilitate that growth. You might also note that where larger credit unions can make investments in multiple technologies-and make mistakes in their judgment (see wireless investments in 1999)-your CU does not have that luxury. You must make every dollar spent count towards attainment of your growth goals.
I am guessing that the consultant you mention is an IT consultant, or has an IT background. The reason I believe this is that IT people without a sound business background believe that technology investments drive growth. They couldn't be more wrong in their beliefs. Technology is a support function/process and nothing more. Sound strategies, a defined and vibrant membership pool, effective marketing, and efficient business processes drive growth.
An illustration to drive the point home: one high-flying tech company at the height of the "dot-com" era made the statement that formal strategic planning was a waste of time and energy. That the "new economy" moved much too fast to engage in formal planning. That technology investments and being first-to-market were much more important. Needless to say, that company no longer exists. The had obscene amounts of cash at start-up and invested it heavily in their technology infrastructure. According to the theory of technology investment as a barometer of growth and future success they should still be here today, a thriving business. Why did they fail? Because they put technology investment before sound strategies.
You can, and will, succeed and grow as a small credit union if you follow the formula of vision > strategies > objectives > budget.
John Edwards, XP Systems, Corvallis, Ore.
We have many customers whose asset size is smaller than this credit union that are growing aggressively and expanding their areas of service without increasing their physical plant or personnel. At XP Systems we have developed lots of tools to help. Products like Home Banking, MTS, Kiosks, Shared Branching, Debit and ATM cards, and Call Center interfaces help credit unions grow and retain their membership by providing great service and convenient access to funds. Growth is really a function of how much work you want to put into it as a credit union.
In the future, more and more financial processing will be done electronically, which is a very cost effective means of processing transactions. A CU of that size shouldn't have any problem investing in new services. They may always have a slight cost disadvantage compared to a larger CU, but not enough to put them out of business. In addition, the cost of entry into technology is dropping faster and faster. Computing power is faster and much less expensive than even five years ago.
Faster computing means the price of cutting-edge services also declines.
All of this adds up to less capital investment to bring the services you'll have to offer your members to grow in both assets and profitability.
Todd Zerbe, COCC, Avon, Conn.
While it's tempting to equate "growth technology" with large credit unions, the two are not synonymous. I believe that virtually any size credit union can access the majority of the technology and services available through the use of a service bureau or ASP.
Service bureaus offer the advantage of eliminating much of the research and implementation tasks typically associated with new technologies. Start-up costs are often greatly reduced since hardware/software solutions do not generally need to be purchased. They also optimize the efficiency of the ongoing operation and updating of the technology by using resources which are dedicated to and highly skilled in such tasks.
Many service bureaus offer several product levels, enabling the smaller CU to use the technology that best suits their needs and upgrade as those needs evolve.
Our company for example, has a number of credit unions smaller than $43-million that, through outsourced offerings, have access to Oracle Corp.'s E-Business Suite of financial applications, Internet banking, bill payment, online ATM/Debit card programs, etc. These "best of breed" products are typically out of reach for institutions of that size in an in-house environment.
