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How to Decide on a Core Provider
December 1, 2007
Contents
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New technologies to consider
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Core terminology has changed
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Four steps to core evaluation
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RFP process
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Know your options
By Bob Moreau
Deciding which core processing system to select for your credit union is one of the
most important decisions you'll make. Even for credit unions not planning to switch core
processing providers, conducting a thorough evaluation process can be helpful in
validating your decision, and the findings can be used as leverage during renegotiation.
This vendor due diligence meets compliance requirements. And taking an objective look
at all of your options may save your institution thousands of dollars.
New technologies to consider
Identifying key differentiators in a core solution is crucial to a successful evaluation.
The past few years have shown several excellent innovations in core processing,
including cost-saving measures with Check 21 and branch capture. The user interfaces have changed dramatically, and most core providers are focusing on a .net technology change. One area to watch is how well each module integrates with the entire system.
For example, you should expect a teller application to notify a teller if a member's
loan is past due. Customer-facing applications are critical for helping a credit union differentiate itself among competitors. Online banking functionality is a key differentiator for your members and should be considered when evaluating core solutions. For instance, a core provider's approach to addressing multifactor authentication can be viewed either as a necessary asset or can result in cumbersome experience. Merchant capture is an excellent tool that, when implemented properly, can be a huge benefit for members.
Many core providers are focusing on mobility options for members, such as e-mail alerts
and the ability to transact business from handheld devices.
Core terminology has changed
With the constant mergers and acquisitions within the core community, it's critical to
validate how a vendor provides a solution. A core provider will talk about "interfaces" to
certain applications. This means the application isn't an inherent part of the core—a communications process to move data from one module to the next. Most core systems will have multiple interfaces to products such as deposit platforms and reporting modules. Some interfaces may launch a separate application, and the program will look
different from the other modules. On the other hand, a core provider will mention that certain modules are "integrated" into the solution. This means the module is a fully functioning part of the core solution, and data movement between the modules will appear seamless. Some business applications aren't considered part of the core but can have a major impact on your organization. The profitability reporting module sometimes isn't considered part of the core. Frequently, accounts payable and human resource functions aren't considered or quoted in the core solution as well.
Four steps to core evaluation
A typical core evaluation process will take anywhere from one to three months,
depending on the staffpower assigned to the project. Formalizing the steps in the
evaluation process will help you get the most out of your time commitment. The process of selecting a core system is difficult. The project manager must possess
a special skill set that includes knowledge of financial processes, project management,
negotiation, and the ability to build strong relationships with vendors. Expect delays in the process. After all, running the credit union is your primary responsibility.
Here are four steps to an effective and proven approach to the core selection process:
1. Build a detailed request for proposal (RFP);
2. View and grade demos presented by the core providers;
3. Conduct site visits of existing core customers for each provider; and
4. Conduct a thorough review of the proposed contracts, and always negotiate.
RFP process
The RFP process should include a review of your current business processes to determine strengths and weaknesses of the existing solution. Always account for major
business units and considerations, including:
Financial controls;
Lending systems;
Consumer systems (ATM, Internet);
Deposit systems (teller, branch capture, merchant capture);
Compliance solutions (Bank Secrecy Act, Gramm-Leach-Bliley Act);
Infrastructure and communications;
Training;
Installation; and
Conversion costs.
To maximize efficiency, see as many core demos as needed and invite employees who
actually will use the system. A full demo typically takes four to six hours. Each person doesn't need to attend the entire presentation but can sit in for particular target areas. Site visits are excellent ways to generate frank discussions with outside employees who use the core system. Contract negotiations should occur when the selection process is down to the last couple of candidates. To be fair and to maximize your leverage, make sure each vendor knows it's still a competitive playing field.
Pay particular attention to one-time, monthly, and annual licensing fees. Core
providers typically base their pricing on the number of accounts, transactions, or the
institution's asset size. Build a spreadsheet comparing the total cost of ownership over the life of the contract. New credit unions typically will receive a lower initial start-up price, but the fees will increase as the number of accounts grows at the institution.
Don't feel locked in. There's a lot of flexibility during the final negotiations stage. Features can be added, training options can be more liberal, and the resulting monthly bills can be negotiated.
Know your options
The core evaluation process is critical to your credit union's success, but it can be a
time-consuming and intensive project. Experts can guide, assist, or manage the
entire core evaluation process and/or assist at crucial stages, such as the contract
reviews and negotiations. There also are companies that can help implement a new core solution. Remember: You don't have to go it alone.
Bob Moreau is a senior banking consultant.
Contact him at 972-898 -1810.
Copyright © 2007 - Credit Union National Association, Inc.
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