Why Some CUs Are Turning To Outsourcing For Their Core Systems

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SAN DIEGO-More credit unions are turning to outsourcing their core solution.

"Several years ago in the banking world we started to see a lot of banks migrate from an in house solution to outsourcing, and we're starting to see that now in credit union world," said Symitar President Kathy Hooker-Burress. "Service bureau has always been a strong play in the [credit union] marketplace; the difference in the trend now is that bigger CUs want to be outsourced."

Smaller CUs have outsourced core solutions for years because of the cost savings and reduced operational risks, but the economic downturn has compelled larger institutions to take a second look at this option. Hooker-Burress noted that a few existing Symitar in-house clients with assets of more than $250 million have migrated to the service bureau model and the vendor is also in talks to convert at least a few billion-dollar-plus CUs.

Outsourcing A Simple Solution
"It's hard to manage all of the aspects of risk, compliance, regulatory and security. By outsourcing, some of those things go away," said Jan Wilgus, director of product marketing at Harland Financial Solutions, which has also seen several CUs with more than $200 million in assets-and even one billion-dollar CU-become outsourcing clients.

Harland also provides a sort of hybrid service it calls Enterprise Resource Services, which allows a CU to turn over parts of its business, such as IT maintenance, to the company while maintaining in-house control. Harland can also act as a consultant that looks for ways to optimize operations, and also "provides a recommendation and then periodically check in to make sure the recommended changes are being implemented and ensure they are getting the results we expected," Wilgus noted.

"Our system was scheduled to be replaced, so we had a decision to make as to whether or not we were going to remain in an in-house environment or look to outsourcing," Rose Ann Lambert, CEO of Bel Air, Md.-based of Freedom FCU said when asked why FFCU moved to the service bureau model. "We were looking at least $205,000 worth of equipment that would have to be purchased and installed."

Regaining Focus
With 24/7/365 monitoring, processing and upgrading all being handled by Symitar, Freedom Federal IT staff is able to focus on the core business of serving members, said Lambert, adding that the outsourced model "broke the cycle" of hardware expenses and saved on staff while meeting all regulatory requirements.

But not every larger CU pondering a core solution move is opting for outsourcing. "We've discussed it here and we've decided not to do that for a number of reasons," said Robert Reh, CFO of $346-million Nassau Financial FCU. "If you go with a service bureau solution it can save you money, but it's only true, we believe, if you stay in a plain vanilla system."

The Albany, N.Y.-based institution decided its customization and vendor support needs in an outsourced model would cost more than keeping it in-house. Relying on vendors for core solutions can hamstring new product offerings or tweaking existing products as well, Reh pointed out. "If your vendor has numerous other requests and they came in first, they tend to not to respond to you right away unless you have a serious issue," he said.

Still, Lambert said she believes that more large credit unions will become comfortable with the idea as technology and service advances and more CUs are forced by economic realities take a look at all of their options.

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