SCOTTSDALE, Ariz.—The price tag for new technology can be high, but savvy credit unions are finding ways to remain on the leading edge of financial services delivery without breaking their IT budgets.
A new report from Cornerstone Advisors--which delved deeply into 16 operational areas of 62 credit unions with assets of $250 million and greater—found that CUs are spending more on electronic delivery channels today.
But the top performers in the study—those with the lowest percentage of IT spend to overhead—are offsetting the increased costs by aggressively bringing down spending in more mature offerings, like core systems and telecom.”
“We have found that among the top-performing credit unions, IT spending is not moving up. It’s the same,” said Sam Kilmer, senior director at Cornerstone, a financial institution consulting firm here. “They are simply shifting the spending to emerging services like mobile, payments and analytics.”
The key, explained Kilmer, is that these CUs are finding ways to not overpay for IT products and services that have become commodities, and offer commodity pricing, such as core systems. The report reflects the change, as CUs in the latest study are spending 1.04% as a percentage of overhead on data communications, 2.12% on core systems and 2.45% on electronic delivery.
“The 2.12% figure for core systems is down from our last Cornerstone Report, which we published in 2008,” said Kilmer. “Spending for electronic delivery services is critical, as we know. This is an area of IT which has a high impact on the business.”
Cornerstone Managing Director Bob Roth explained that savvy CUs are persuading their IT vendors to share in the higher cost of the new technology. He said these credit unions are pulling out their current contracts, looking at every detail, and asking, “If we are spending more for electronic delivery today, which we realize involves R&D costs, then how about reducing what you charge for your core systems, which have not received a lot of changes in the last several years?”
The approach is working, said Kilmer, particularly when the credit union comes to the negotiating table prepared with an understanding of market pricing across all areas of IT.
“This process does not happen overnight,” said Kilmer, who recommended working with consulting firms familiar with IT pricing. “If the credit union is just following its intuition, and does not have a clear sense of what the market is bearing for these services, it could end up paying the same for their IT commodities and more for new technology.”
While larger asset-size CUs have a negotiating advantage, Kilmer said smaller shops can win as well.
“Larger credit unions with larger contracts may have more cost negotiating leverage on a per-contract basis, but they also tend to spread their cost across more vendors,” he said. “One common way smaller credit unions have adapted is by consolidating more of their spending to fewer vendors for greater total relationship leverage—for example, getting their core system, web, mobile banking, and most payments processing from one provider.”
