NEW YORK — The National Federation of Community Development Credit Unions is in the midst of a long-term project to help small credit unions reduce expenses around core banking systems and find efficiencies though collaboration.
Blake Myers, a Federation consultant working with CUs $250 million and below, told Credit Union Journal the Federation received grant funding in the last year from both the Citi Foundation and the Ford Foundation to explore core banking and technology solutions at credit unions.
"Rather than looking specifically at individual core issues, the strategy we've taken since last fall is to begin to think about technology as a platform and the strategic expertise of the Federation," he said. Myers added that technology is almost always the second-largest expense a credit union has — staffing is the biggest expense, he said — but while consumers' technology costs are on a long-term decline, core banking technology costs are increasing.
Within the next month, said Myers, the Federation plans to issue a report and analysis from a survey it conducted last year examining what credit unions look for in their core systems, along with system use and satisfaction, what direction they plan to go with their current core systems, what an ideal system would entail and more.
More than 50 credit unions — about one-third of the Federation's membership, said Myers — responded to the survey, including identifying areas such as third-party solutions that are of interest to them so the Federation can keep that feedback in mind as it develops a system.
Another element on the project that is on the horizon, said Myers, is that the Federation expects to name a domestic partner for the project within the next month.
International Partners
A pair of international partners is already on the scene, including Italian firm Dedagroup — which is also as a Federation sponsor — and Toronto-based Strategic Information Services.
Myers explained the importance of international partners.
"In the domestic market now, if you're a credit union above $250 million in assets, more than 80% of the marketplace is controlled by Fiserv and Jack Henry Smyitar," he said. "You have a situation where you have an oligopoly.... Bringing in an international partner with a deep R&D support team and deep capital base to do a full-on build could bring a third competitor into that larger credit union core processing space."
Lino Menchella, a consultant from Dedagroup's international division, joined Myers and others for a breakout session on this topic recently during the Federation's annual conference in Detroit. Menchella noted that the model for core systems throughout Europe and in Mexico is that one system is shared by both large and small corporate banks, allowing them to share the investment necessary to keep those systems updated.
While those systems are open-source, Myers said that the final product from the Federation is not guaranteed to be an open system. The primary objective, regardless of what form it takes, is for the Federation to work with a single core provider and associated CUSO that can help small CUs find efficiencies.
"It's cost savings that are associated with price negotiation from a number of small credit unions running on the same platform and running a very similar back office," he explained. Myers added that streamlined operational processes would free those CUs from having to run every IT process on their own and enable them to outsource some of that work to the CUSO.
By way of an example, Myers pointed toward Bethpage FCU on Long Island, which he said has formed a CUSO with two smaller CUs in order to consolidate back-office operations.
"Clearly if a billion-dollar credit union can seek economies of scale, a network of smaller credit unions could achieve the same by working together," said Myers."
