Core Vendors Undergo ‘Ecosystem Evolution’
Integration gives CUs a variety of new features and functions.
Core processing is never a settled matter. A relentless stream of tweaks, improvements, and leaps in technology makes it a two-edged sword: While it increases credit unions’ efficiency, it also can expose deficiencies in their current practices.
“We’re seeing a general trend in core processing technology where distinct modules deal with specific elements, such as online banking, mobile services, general ledger, and so on,” says Ryon Packer, senior vice president, enterprise product strategy, at Fiserv. “We call it ‘ecosystem evolution,’ where the core becomes more of what it’s supposed to be.”
An analogy might be the orchestra conductor who doesn’t play an instrument but makes the notes of all instruments mesh into a coherent whole. “Using an integrated system gives financial institutions easier access to various data and allows for better adherence to regulatory requirements,” Packer says. “We characterize it as ‘1 + 1 = 3’, meaning the module coupled with the core processor creates a synergy that is a third element.”
Ten or 15 years ago the core was supposed to be all-knowing and all-serving, says Barb Lowman, Fiserv’s senior vice president, account processing solutions. “But now modularization makes it so there’s no one-size-fits-all attitude. Credit unions can now see a menu and bundle which core services they want.
“Credit unions look to functionality and numerous touch points in their relationships with members,” she continues. “Otherwise, if a credit union is struggling to reconcile different core system modules, it can detract from service levels.”
“Credit unions that struggle to integrate multiple vendors’ systems eventually reach a point where the money they’re investing in integration can’t be applied elsewhere in the organization, such as offering members lower interest rates,” Packer adds.
Tim Maron, director of business development services at Corelation, expands on the modular concept. “Our XML middleware, KeyBridge—KeyStone is our core software—gives credit unions the ability to open their system to third-party providers without jumping through hoops. Because we use our own middleware, the entire transaction set is available to third parties. Therefore, clients get to control what their members see.”
Lowman is on the same page. “If we own the core processor a client is using and that client wants to integrate another company’s module, we can do that. We also will ask clients what they like or don’t like about their current core processing system. What do they want to provide for members that they now can’t? Much of the answer depends on their select employee groups or current platform. But much of what they request is simply, ‘I need better tech.’ ”
What oft en happens, she adds, is that frustrations mount as credit unions attempt to integrate data from different vendors’ products. “Their information technology people might be able to do manual workarounds for a while, but as credit unions add components, it becomes more burdensome to do this.”
Packer says credit unions have gotten smarter about integration. “In the past, they might have bought a module and found that hooking it up to the rest of their core processing system was a problem from the start. As they peel the onion, looking for ways to integrate systems, they run into the problem that many vendors’ offerings are not open-source.”
Spencer Jones, product management executive, integrated core solutions, at D+H, says his company’s strength is its “willingness to partner with other vendors’ solutions. Some vendors can be heavy-handed, telling credit unions they must buy their products exclusively.
D+H offers two core systems: UltraData Enterprise and Phoenix-EFE, the latter of which many credit unions use as they get deeper into commercial business, says Jones, who’s a proponent of the omnichannel approach to service.
“Why have six different ways of dealing with the branch, call center, online, smartphone, tablet, and desktop PC?” he asks. “Why give members different experiences as they shift from one channel to the other? While bankers tend to look at channels as separate letters of the alphabet, we say the best way to look at them is to join those letters together to create a sentence.”
NEXT "The future of core"
The future of core
As for the future of core processing, Corelation’s Maron says the goal is to integrate data and apps across all channels. “Over the next five years you’ll see self-serve capabilities match in-branch capabilities,” he says. “We work closely with a company that is helping us set the stage for the branch of the future, where a member can use an iPad in the lobby to set up a transaction and then walk over to an ATM or a teller who already knows what the member wants.
“It’s a concierge approach versus walking into a space where tellers stand behind bulletproof glass,” Maron continues. “Instead, the consumer experience is like walking into an Apple store.”
He says Corelation is open to working with technology vendors of all kinds, including producers of wearable technologies, such as Apple or Samsung watches. One problem that might arise with wearables is that their viewable areas are limited compared with other mobile devices, Maron says.
But he thinks consumers will readily accept that limitation given their own experience with mobile devices.
“Members want a seamless handoff,” says Jones. “If they start looking at something on their smartphone, they want to move over to a tablet or desktop that looks the same as from where they started. What’s interesting is that members themselves know what kind of data they can access given their various devices’ screen areas. This means that members are now driving how core systems present data.”
Packer, who wears an Apple watch, understands the role of wearables inside a relationship with a financial institution. “Do I want to use my watch for data entry? No—its real estate is too small for that use. So it’s not a challenge for credit unions to figure out what data will be the most useful to watch-wearing members.”
Jones says mobile is changing everything. “It’s washing across the entire industry, oft en leaving a swath of destruction behind it.”
What’s being destroyed, he says, are the old assumptions that member relationships begin at the branch and extend outward instead of from the customer inward.
“Credit unions have to think of how members perceive their contacts with them,” Jones says. “Members quickly catch on that doing a four-minute transaction on the smartphone beats taking 30 minutes to do the same thing at a branch.
“Consumer expectations have been formed by vendors like Amazon,” he continues. “Members’ questions aren’t about how do I do this or that, but why can’t I do this or that?”
Maron says his best advice for credit unions is to “understand that when you switch core processors, you’re bringing in a new system for a reason: to solve problems or handle data that your old system could not. That’s why it’s important to throw out what you’ve been doing before with your old system.”
Jones advises rethinking contacts with members: “Maybe even do home visits. Look for deeper and richer payment analytics—a process that takes up one third of all core processes. Leverage data to create moneymaking opportunities. Be prepared to expand into commercial lending and services. Simplify members’ experiences with you—think across channels. Partner with a good vendor.
“Fifty years ago, lenders had vastly more power than [borrowers],” he continues. “Now the field has been leveled. Financial institutions have to compete on price and product. If you don’t understand the omnichannel experience and how members move across them, you will see breakage of your member base.”