Journal Reader Question #2:
I noticed your panel includes companies that serve banks as well as credit unions. Given credit unions' penchant for following, could they share with us where banks are investing their technology dollars and where credit unions are lagging?
Todd Zerbe, COCC
In general I cannot agree that credit unions have a "penchant for following." While there are areas where credit unions do follow, there are other areas where credit unions have led the way. For example, credit unions have benefited from integrated systems with ancillary services interfaced via real-time connections ahead of many banks.
Banks are investing their technology dollars in service delivery and efficiency. New branches, expanded web functions and more ATM locations are examples of banks' service delivery investments. In the larger banks, these investments are driven by analysis of customer relationships and profitability. Investments in efficiency focus on meeting new regulatory requirements at the lowest reasonable cost. System integration and process re-engineering work hand-in-hand to improve performance.
Credit Unions have actually been ahead of banks in terms of technology investments to improve service delivery and efficiency. Recent credit union investments in member business services and loan servicing are bringing credit unions to the same level as banks in these areas.
Jim Hutchins, VP-Systems Development, RDS
Indianapolis
The first point to make is that in almost all cases, credit unions do not have a penchant for following banks and are not lagging behind. In fact, credit unions have historically led banks in their adoption of new technologies.
This is evident by comparing the software used by most banks with credit-union designed software applications. Credit unions have used integrated, CIF-based software packages that present a holistic view of members and all of their accounts since their inception. Many banks, on the other hand, are still using systems written using old technologies that store information in silos. The holistic view that credit unions have of their members is a key advantage that allows them to provide the more personalized service many banks have traditionally lacked.
Credit unions have also led the way with their Internet-based technology investments, deeply penetrating their membership bases with electronic services. This has resulted in an improved level of service and greater accessibility. Banks are still investing in expensive and proprietary technology that is heading in a direction that credit unions, who strive to "serve the underserved," do not want to go. Banks continue to invest in ATMs and brick and mortar, versus more technologically oriented ways to provide services. Credit unions, which are better positioned to spend wisely on technology, are able to achieve growth using shared branching, surcharge-free ATMs networks, and electronic services that increase member convenience without the hefty price tag.
Dick McConnell, AFTECH, Malverne, Penn.
Although AFTECH is not a bank servicing provider, we have an opinion on what is important to our Clients that we will share with you. We see a continued growth in Internet based membership servicing due to the growth in broadband and WiFi access. We see emphasis on the elimination of paper with a clear movement toward imaging and digital signatures.
The integration of CRM functions into the core servicing platform is becoming increasingly important across the enterprise. We foresee an emphasis on security, privacy and compliance, including a more focused need for credit unions to comply with the spirit of the Patriot Act.
Due to the community charter migration that implies more face-to-face transactional traffic, we believe a teller platform for rapid and accurate service delivery will be increasingly important. Successful vendors will need to provide their clients with interfaces to best-of- breed products that go beyond financial transactional support. And commercial account servicing, an area where bank vendors have the lead, is another area where we are investing our technology dollars.
Gary Daniel, SVP & General Manager-Credit Union Group, Open Solutions Inc., Glastonbury, Conn.
As a company that separately services the credit union and banking markets, we at Open Solutions have observed that both credit unions and banks continue to invest more in technology year after year. Both credit unions and banks are facing competitive challenges such as pressures on margins and competition from non-traditional players such as insurance companies and brokerage firms. Even some of the larger retailers are trying to enter the financial services market. Credit unions and banks, now more than ever, need to be able to launch new products and services more quickly to address the growing needs and wants of their members or customers. In addition, there is the whole issue of channel proliferation where consumers are demanding more and more ways to access their accounts, whether it is through the traditional branch, the Internet, ATM or voice response system.
Credit unions, like banks, need to look at tying their technology decisions to the strategic goals of the credit union and reinforce their brand and value propositions. Credit unions and banks are also looking for more efficient ways in which to service all distribution channels and to serve consumers better and more profitably.
We find that credit unions have been very competitive in how they are investing their technology dollars. We have further observed that many credit unions are very technology savvy and progressive. This is one of the reasons why banks view credit unions as such strong competitors.
With that said, we have observed that banks, like leading credit unions, are spending technology dollars on CRM/business intelligence tools that allow them to better focus and understand their markets, target product and service offerings, increase productivity and customer satisfaction. These tools allow them to track marketing campaigns, predict consumer behaviors and make targeted, timely and relevant offers across all delivery channels. Banks also have a head start on offering business services and continue to spend technology dollars on providing these types of commercial product and service offerings to small, medium and large businesses. More and more credit unions are now looking to provide their membership with small business services and exploring how to add this functionality to their product mix.
Banks are also looking to automate traditional functions that have been performed by branches by introducing more self- service terminals, kiosks, OCR/imaging devices. Web enabled call centers are also emerging that allow bank employees to interact with customers via web chats. In addition, banks are looking for ways to move from paper-based transactions to electronic transactions (i.e. ACH, debit cards, Internet, voice response, call centers, etc.). Other areas for technology investment also include imaging solutions, payment technology to reduce fraud and technology to handle new Check 21 legislation. In addition, banks are investing in new relational core systems to improve efficiency and customer service.
These types of systems are designed to be open, flexible and able to adapt to ever-changing needs. The good news is that credit unions have access to the same types of technologies that banks do and are just as, if not more, proficient in adopting these newer technologies to better serve their membership and embrace their long standing attributes of superior service, trusted relationships and member affinity
John Schooler, President, USERS
One of the greatest areas of focus for banks is the struggle to move their legacy systems to the real-time environment demanded by today's consumers. It's no small task, since banks typically use separate systems for functions like deposits, loans, mortgages, etc. Most are busy applying new front-ends and overlaying other applications to modernize their legacy systems. In contrast, almost all credit union systems were architected as real-time solutions from the start.
In addition, many banking systems are dependent upon older proprietary hardware and operating system technologies, so they are faced with massive rewrite efforts to move to modern, open systems that many credit unions have already implemented.
Credit unions have some unique opportunities today to leapfrog ahead of banks rather than follow, if they use their unique position and ability to be more nimble with technology wisely.
John Edwards, XP Systems, Corvallis, Ore.
We only serve credit union customers, so we may not be fully qualified to answer this question. However, we do not agree that credit unions follow banks. Credit union technology has led the banking market for years.
As far as services, credit unions have had regulatory constraints in the past that did not allow the introduction of services at the same pace the banking market could. That, of course, has changed in the last few years.
