Reader Technology Question One

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We have an issue with the competitive advantages technology can bring us across the enterprise and in relation to banks. We aren't interested in the efficiency of a technology as it stands alone. As many of your tech panelists also work with banks, where do we have advantages we can leverage across the credit union, or where should we invest?

John Schooler, USERS, Inc.

Credit unions have traditionally enjoyed a technological advantage over banks through their long-time use of real-time systems vs. traditional "batch" banking systems. The member number-suffix combination used on a single core system also has posed an advantage over traditional banking systems, where each application is a unique, separate system with different numbers for each deposit and loan account.

But in recent years, this gap has significantly narrowed as bank systems have begun using different methods to consolidate their systems via CIF (Customer Information Files) and such methods as "memo-posting" (creating a near real-time environment). One of the key technological advantages that seems to remain is the versatility of the teller or member service rep to perform all or nearly all of the core system's transactions.

In banks, where the systems are still fairly discrete, tellers can only perform inquiries and monetary transactions, while other transactions must be done at a separate location (either in the same branch or through a central processing department). The credit union's one-stop shopping environment, enabled by technology, is a terrific convenience for the member. Finally, payroll deduction and shared branching are completely foreign concepts to the banking industry-and key technology advantages for credit unions and members.

Jim Hutchins, RDS VP of Systems Development, RDS

An advantage credit unions have over most banks is centralized core data processing systems and the open integration these systems have with third party products. Credit union core data processing systems are typically designed to store member information in a central file that is tied back to an individual member or members. Traditional banking systems that store information in separate systems based on account types (deposit, mortgage, consumer loans, etc.) often have minimal integration capabilities and do not support efficient data mining activities. Institutions using traditional banking systems face challenges relating to integration and the existence of "information silos."

Credit unions using core data processing systems built around a central information file and open processing standards can leverage their ability to quickly and accurately implement value-added services, such as courtesy pay programs and incentive rate structures. Investments in technologies that are leveraged across enterprise systems support service initiatives that lead to increased member loyalty and provide institutions with a competitive advantage in the marketplace.

We're a midsized credit union completely uncertain over some of the hardware-software demands of PATRIOT Act compliance. We have been inundated with sales materials, information from our league, and on and on. What do we need to buy, and what do most credit unions have that they can already use?

Sue Pogatschnik, Bankers Systems, Inc.

Technically, the USA PATRIOT Act does not mandate hardware or software solutions. However, from an efficiency and risk-management perspective, you may want to consider a software solution to help you easily verify member identity using a risk-based approach. Keep in mind that the legislation gives you the flexibility to assess your own risk factors, and determine the steps you will put into place to mitigate that risk.

Here are some factors to consider when determining if an automated solution is warranted:

* Risk Assessment. Clearly, the regulators are asking that risk be assessed at each account opening. A risk-based approach would entail asking certain key questions to establish risk factors. This is a process you may want to automate for purposes of efficiency, consistency, and data retention.

* Identity verification. The regulation requires you to do different kinds of identity verification. In high risk or non face-to-face situations, you will need a third party source to electronically verify identity. As for existing processes or solutions, be aware that some may perform valuable services, but not necessarily verify and validate identity. For example, services that check prospective members for accounts closed for cause or that provide credit reports are both valuable, but do not necessarily verify identity.

* Comparison to government lists. OFAC and FinCEN list checking is already mandated, and Section 326 regulations will likely bring yet another list to check. It becomes very difficult to do these checks reliably and efficiently with a manual method. An integrated solution that covers all of these processes, plus identity verification at account opening, may pay for itself in terms of efficiency gains.

* Data Retention. Paper-based systems may be fine, especially if you are using manual filing now. If you use electronic data storage, or will be moving in that direction, you'll want your solutions to capture, store, and integrate data with current systems.

In conclusion, as you evaluate the processes your credit union will implement to comply with the USA PATRIOT Act, keep in mind your needs for identity verification, government list checking, and data retention, now and in the future. Automated solutions can greatly increase your efficiency and reduce the risks of non-compliance with the Act.

Terry Treadwell, Summit Informatino Systems:

The the popular companies that I am hearing our Summit credit union clients discuss are: Bridger Systems, Inc., Certegy and Banker's Systems.

I also read an excellent Information Week article summarizing recent research describing three important criteria to consider when selecting anti-money laundering vendors: 1) transaction monitoring ability; 2) work-flow (information filtering); 3. reporting capabilities.

The article (found at this link: ) further describes which--of the 16 vendors Celent Communications analyzed-- do the best job in each of these three categories.

I suggest credit unions go through a structured comparison process to select the most suitable vendor using this list as a starting point. From there, a credit union can develop a better understanding of the resources required in order to fully comply with the provisions of the Act.

Credit unions will also find a helpful OFAC Policy and Procedure guide at the following Bridger Systems link: guide.pdf

John Schooler, USERS, Inc.

We vendors have probably had just as tough a time determining the requirements of the rather vague language of the act as our credit union clients. The good news is that most credit unions have the infrastructure in place to support the most apparent requirements of the act, such as the ability to scan drivers' licenses, social security cards, and other identification documents into an optical storage system or to microfilm.

Most core systems have adequate fields available to collect this additional information and store it in a location that makes it easy to retrieve. Some credit unions may choose to take a more aggressive and diligent approach to compliance, by working with a third-party specialist. Typically, these providers will offer the capability to compare a new member or joint owner against databases containing government terrorist watch lists, social security lists, and lists of blocked entities and sanctioned countries, for example.

These types of searches not only assure that you are doing business with someone who is legitimate; they can also help your credit union minimize losses resulting from the ever-increasing threat of fraud and identify theft.

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