Rising costs for software and third-party services squeeze CUs’ IT budgets.
Credit unions must make difficult decisions when investing in technology, as their wish lists tend to be much more substantial than their budgets.
To help prioritize projects and expenditures, develop a strategy that spells out your credit union’s overall technology direction and goals, says Chris Saneda, senior vice president and chief information officer at $2.4 billion asset Virginia Credit Union in Richmond.
Saneda says credit unions should base their technology strategies on members’ needs with the ultimate goal of providing an exceptional member experience.
“Opportunity isn’t found in deploying splashy products,” Saneda says. “Opportunity is found in managing the member experience in an integrated fashion.”
Coping with tech costs
Most major technology initiatives come with a major price tag. That’s one reason why nearly 60% of credit unions say this year’s budgeted information technology (IT) expenditures will outpace last year’s, with 17% of credit unions budgeting increases of 10% or more and 42% budgeting increases between 1% and 9%, according to CUNA research.
Software and maintenance costs have increased 7% each of the past four years at Virginia Credit Union, Saneda says. Fortunately, the credit union bulked up its IT budget five years ago and has been able to absorb the rising costs up to this point.
Saneda says “pay by the drink” services can be particularly problematic. He suggests trying to come up with solutions internally first, as a way to control costs. Virginia Credit Union built its own online membership- application tool last year. Online membership applications now are outpacing its busiest branches for new membership growth. The credit union will save more than $200,000 over three years compared with off-the-shelf packages that are priced per membership application, he says.
“For the most part, I’m not a fan of managed services and cloud services,” Saneda says. “But we must watch, assess, and consider these capabilities to ensure we’re getting the most from our technology dollar.”
A tech crossroads
A few years ago, the board and management team at Nassau Financial Federal Credit Union sensed it had arrived at a technology crossroads. Members’ technology expectations were rising, but the credit union’s infrastructure presented some challenges for meeting those expectations.
As a result, the credit union started to look for a new core processor in 2011—an undertaking that Everett Boccafola, board chairman, called “crucial” to its long-term viability.
This year, Nassau Financial Federal rolled out Symitar’s Episys system, telling members it would be the launching pad for cutting-edge services. The $392 million asset credit union in Westbury, N.Y., which serves more than 30,000 members through its four Long Island branches, quickly delivered on that pledge.
Nassau Financial Federal improved its online delivery, added mobile services, enhanced online security and functionality, and improved its customer relationship management (CRM) system.
But that didn’t come cheap. The credit union had to increase its IT budget by 35% in 2013 to account for the conversion expenses—new hardware and soft ware, overtime and travel for training staff, and equipment installation and testing.
From Robert Reh’s perspective, that money’s not just well-spent, it’ll offer a positive return on investment over time. “We need to have the foresight to invest in our future success, and not be shortsighted in trying to focus only on today’s financials,” says Reh, chief information officer at Nassau Financial Federal and a CUNA Technology Council executive committee member.
Many credit unions, like Nassau Financial Federal, are aggressively adopting new technologies to meet members’ demands for remote access to their accounts. But many credit unions say a large portion of their IT spending is nondiscretionary.
Research from Abound Resources—a CUNA Strategic Services alliance provider—shows that much of the industry’s increased IT spending will go toward increases in vendor contracts or inflation adjustments. And the slew of regulations in recent years is another nondiscretionary expense, requiring credit unions to introduce or upgrade systems to remain in compliance.
It’s not terribly surprising, then, that planned expenditures for new or replacement technologies is down in almost every category, according to Abound Resources, even though overall technology budgets are up. The exception is mobile remote deposit capture, which Abound calls the one “must-have” technology.
“I have to allocate a lot of my resources just to make sure what I have is functioning well and that we’re getting everything out of it,” says Brandon Smith, vice president of finance and operations for $98 million asset Reliant Federal Credit Union in Casper, Wyo.
“You’d think you should be able to implement IT solutions and save money, and they’re supposed to be more efficient,” Smith says. “But every time you do it, it seems like there’s more work for you to do, and maybe additional cost.”
So how do credit unions, especially those with limited resources, offer cutting-edge services to members and balance their budgets?
NEXT: Focus on members
Focus on members
Nassau Financial Federal strongly considered offering instant-issue credit and debit cards as part of its technology overhaul. Although Reh gives high marks to the service, he and his team chose to pass on it because improving members’ online experience and capabilities delivered higher value.
“Each credit union should decide for itself what’s best for its members and potential members to remain competitive, rather than simply follow some industry trend,” Reh says.
That frequently translates to a substantial investment. First Tech Federal Credit Union, a $5.8 billion asset institution based in Oregon and California, will introduce a multichannel initiative next year that CEO Greg Mitchell says “should cause First Tech to be viewed as an industry leader.”
The initiative includes a fully integrated digital sales platform, a CRM solution that creates consistency in processes and member experiences across state lines, and a business intelligence application that allows First Tech Federal to deliver better products to members.
“Failure to maintain relevancy through the development of better products, strong distribution channels and frictionless processes will limit growth of new members and drive existing members into the arms of evolving players in the payment space," Mitchell says. "We believe that credit unions which are able to combine a trusting relationship and relevant banking and payments experiences will remain well-positioned for growth and high levels of member satisfaction.”
Despite rising costs, some small credit unions see technology as a chance to level the playing field. “Technology allows even small credit unions to look big and offer online services similar to the big boys,” says Jim Schrimpf, CEO of $34 million asset Brewery Credit Union in Milwaukee.
To maintain its competitive edge, Brewery Credit Union offers online and mobile services to its largely low- and middle-income membership via “It’s Me 247”—a solution from CU*Answers, the credit union’s core processor.
Efficiency is key
After bringing its core processing in-house in 2010, Reliant Federal also started handling its own credit and debit cards and card conversions. Last year, the credit union invested $30,000 in Voice over Internet Protocol (VoIP) for its entire operation.
Since then, Smith has focused on improving staff’s ability to serve members. Reliant Federal streamlined infrastructure by removing inefficiencies from the network and significantly upgraded external and internal Ethernet bandwidth.
“Rather than focusing on new bells and whistles, we’re trying to build a stable platform,” Smith says. Reliant Federal maintains that platform by outsourcing its network support and help desk. Smith decided to take that direction in 2011 aft er his department manager left ; he was concerned that retention would continue to be an issue, and opted to shift that burden to a third party.
Given these constraints, Smith cautions about the hidden costs of any service alteration. “Even if it’s something as simple as rewards checking, there’s a lot of back-office IT work that needs to be done,” he says.
When prioritizing technology projects, Reh recommends giving priority to low-cost adjustments that automate tasks to improve members’ overall experience. More specifically, he advises:
“Low-cost or even no-cost system refinements can have a big effect on members or your operations, especially if they address something you’re sorely lacking,” Reh says.
Abound Resources recommends asking vendors to help identify inefficiencies and overlapping services, and renegotiating contracts whenever possible.
Getting maximum value from existing technologies and vendor relationships was the top technology concern for 2013 among 69% of senior executives, according to a survey by Abound Resources.
Reh says credit unions can avoid buyer’s remorse by being cautious and by exercising due diligence. Nassau Financial Federal’s policy prohibits the credit union from implementing any system that’s still in a pilot stage or not in active use at another institution. The credit union typically considers at least three vendors for any new product or service.
Nassau Financial Federal reviewed eight core processors during its search. It also asked for input from everyone on its management team and other employees during the testing phase.
It considered only telephone-banking and job-scheduling systems that were compatible with Symitar’s core system.
“Spending on technology should always receive careful consideration,” says JeffJohnson, senior vice president of information technology at $1.8 billion Baxter Credit Union in Vernon Hills, Ill., and vice chair of CUNA’s Technology Council.
Before making any major investment in technology, Johnson recommends asking:
Consider software options that offset hardware costs and streamline operations, advises Reliant Federal’s Smith. He’d like to see credit unions more closely study virtual desktops, which would allow multiple tellers from a branch run programs off one server.
Push the envelope
Despite pressure to control costs and provide bang for every buck, credit unions are better positioned than big banks to move forward with new technology because they’re more nimble and generally aren’t burdened with expensive and unwieldy legacy systems, Reh says.
“Credit unions shouldn’t strive to equal banks— they should strive to eclipse them,” he says.
To that end, Nassau Financial Federal plans to significantly improve its existing CRM systems in 2014— an investment Reh regards as essential to the credit union’s growth plans.
“Having improvements that bring online services to the next level, data analytics that target new technology and services to the right people, and increased returns and reduced costs make the increased spending on IT certainly justifiable,” he says.