The company's flagship processing platforms have been re-engineered into two primary versions and sales and support for the long list of ancillary products-from loan origination to payments to ATM software solutions-have been integrated into a one-stop-shop that the CEO and chairman feels positions the company and client alike to handle, and grow with, the challenges and opportunities facing the credit union industry for years to come.
First, some background. Deploying a core processing solution built on Oracle's open relational database, little-known Open Solutions took advantage of the explosion of interest in integrated product add-ons to expand rapidly, adding new clients through notable contract wins with big credit unions, corporates and regional banks.
That was soon accompanied by a series of acquisitions of small core processors and providers of ancillary products that-along with going public in 2003-had some industry observers referring to the Connecticut-based upstart as "the next Fiserv."
Hernandez, who joined Open Solutions as CEO in 1999 when it had a list of about 125 customers, said he understands that. The software developer that started out in office space in a Connecticut shopping center in 1992 had grown by leaps and bounds and was beginning to evidence growing pains.
"Basically at the end of 2006, we had doubled each of the previous four years and were clearly the fastest-growing core system in the world at that time. We also grew to have 11 different profit centers built around core systems, Internet banking, business intelligence, lending platforms and so on," he said, "and each had a general manager. It was kind of crazy, we were growing so rapidly."
And then, Hernandez said, it was time to "step back and take a deep breath. That process led to a series of things we decided we had to do to stay out in front. These were things that we knew would be difficult to do and painful in the short run, but we decided it was worth it."
Those steps included taking Open Solutions private again, which Hernandez said gave his company the flexibility it needed to invest $40 million in research and development at a time when that kind of spending was on the wane.
"That was our own money we were investing, mine and our partners, directly into our business at a time when not a lot of that is happening. But we needed to do this correctly to put ourselves in the place we needed to be for the next 10 or 15 years, to make this transformation from a group of profit centers to a functional organization, one where you can call into one place and get service for all the products your financial institution needs," he said. "But, again, this involved some painful steps."
The flagship the Complete Credit Union Solution platform and its sister bank version were completely re-engineered, Hernandez said. Now labeled DNA, it features tighter integration that included the elimination of more than 500 screens, a development process that included hiring "human factoring experts" to provide an optimal screen-viewing experience for users, Hernandez said.
The company also redesigned its Standard Market Edition version of the core platforms to accommodate smaller institutions, although Hernandez said adoption of the DNA platform "has nothing to do with size," noting that the flagship platform is in use by credit unions of all sizes.
"I think it really comes down to how quickly you want to launch new products and adapt to changing regulatory requirements," he said. "Our architecture allows that by being flexible enough to be used here and in Canada and in Mexico and in Asian markets, too, and making it possible, for instance, for innovative credit unions like North Island to eliminate 30 different applications by using our platform."
Incorporating a lot of new faces also was involved, the Open Solutions chairman said. "Thirty-five of the top 50 people in our company are either new to the company or are in new roles," he said. "We needed people who could scale more aggressively in a more complex environment."
The makeover also included shedding some clients. A number of credit unions began switching to other vendors, decisions routinely reported by the industry press. But what wasn't publicly known, Hernandez said, is that his company often was not trying to retain those customers.
"The decline in core processing clients we went through was substantially due to planned attrition," he said. "It was mainly smaller clients we felt no longer fit our demographics, and when their contracts came up, we didn't bid for them, and that caused a lot of tension," he said.
"We were in the process of completely rewriting our core product, a four-phase process that we are now completing, and we also knew some people would stick it out with us and some people wouldn't. We decided to focus on those customers who are in the best position to use what we do, and we knew that would test some relationships," he said.
But, he said, he thinks his company has passed that test.
Total clients numbered 5,260 in 2006 and now number about 5,400, Hernandez said. Open Solutions also had about 1,150 core processing clients before the transformation and about 950 now, but total assets of those customers grew 36% between 2006 and 2008, the company said.
About 460 clients will be running the DNA platforms by the end of the year, the company said, building on 2008 year-end sales that were 104% above 2007 figures. "And if you look at the last 23 deals for billion-dollar plus credit unions, you'll find that Open Solutions has won about 65% of those," Hernandez said.
He also emphasized that users of legacy core platforms from acquisitions-such as Liberty fiTech and re:Member Data Systems-are still welcome customers.
"Basically our clients can continue to extend their use of these existing systems for as long as they would like, and we'll continue to perform regulatory updates," Hernandez said. "We have some clients who already have extended their contracts out to 2016 on those."
The company, overall, in fact has a 98% renewal rate on contracts for which it bids, Hernandez said, and he welcomes competition and comparison.
There should be plenty, according to industry analyst Christine Barry at Aite Group. She said she expects to see more attention paid to the credit union space going forward, pointing to the FIS-Metavante deal as just one example.
"Fiserv, Jack Henry, Harland...they're all in there, too, making this a tough market, especially nowadays when bigger is perceived as being better and the credit union market itself is seen as being perhaps underserved by the big technology companies," Barry said. "A financial institution wants to know that its core vendor has the financial security and ability to meet all its needs."
As for Open Solutions, she said, in her view, "this company has a fairly robust core solution and strong product set and has been seeing a lot of growth in attracting new customers."
She also sees Open Solutions profiting from the growing necessity for credit unions and banks to consolidate and reduce their number of vendor relations.
"There are a lot of opportunities out there," she said. "Because of current conditions in the market, there are more technology needs out there than in the past. And this is a company with higher sales velocity than any other vendor right now."
Hernandez said the senior managers at his company's competition "are all talented, experienced people who I respect, but we're very confident ourselves" about Open Solutions' ability to compete. He also sees the market for credit unions themselves as being in perhaps a singularly favorable state.
"I just think credit unions have a unique opportunity to capture more asset and loan and mortgage share in the next three years because the human psyche around large banks is so poor right now. Credit unions are seen as cautious and have been here for a long time and with a little bit of marketing, they can really make some gains in this setting," Hernandez said.
"That's why I'm so excited right now," he said. "We just spent two years and $40 million to put ourselves in a better position to help credit unions that are willing to roll up their sleeves and join us in the trenches.
"Sometimes people forget that we were a pure startup in that great American tradition of taking an idea out to the garage and making something big and successful out of it. In this case, these were people who didn't know a lot about processing but did know a lot about the math behind predicting human behavior, and out of that garage grew a culture of innovation and service and partnership," Hernandez said.
"There were no customers, we weren't spun out of a bank, and we weren't funded by a CUSO. Our founders just had to convince that first customer to place their faith and trust in us," he said.
"We're still humbled by the faith and trust that our customers place in us," he said, noting that that original customer, a commercial bank, has just re-upped for another 10 years with Open Solutions.
"I think people sometimes assume that just because we have grown quickly that we left our original culture behind, but we haven't," Hernandez added.
"The past two years have not been without pain, and we are certainly not perfect in every regard, but we are still willing to learn and to continue to go arm-in-arm with those clients who are in the best position to use what we have to offer them," he said.