Repeated regulatory assessments, increased credit risk, drops in key revenue sources and increasing compliance burdens are all making it harder than ever for credit unions to stay healthy and continue to serve members. To meet these challenges and protect their long-term prospects, many credit unions are focusing like never before on expense management.
In addition, the NCUA is increasingly stressing the need for stronger levels of third-party vendor due diligence and we are seeing credit unions reexamining some of their most central vendor relationships. As an organization serving more than 3,000 member credit unions, CSCU is well attuned to the importance of these needs and we hope that each and every credit union embraces them. Such reviews should be a part of regular management discipline and board direction.
While most consultants are appropriately knowledgeable and experienced and avoid compensation structures that preclude a conflict of interest, we frequently see situations where consultants receive compensation from particular processors; thus, their interest may be more aligned with these "preferred processors." Recommendations become biased and financial performance and member experience can be damaged for years to come.
Below are a few best practices we recommend for anyone considering engaging a third party for any request for proposal assistance. We tend to think about card processing relationships, but these apply to nearly any similar third-party consulting engagement.
Don't Allow Your Adviser to Be Paid By Anyone Else Except Your Credit Union
In this environment you are likely being offered any number of "free" services from third parties. That sounds appealing, especially when such expenses are harder to justify than ever before. But realize, no one works for free and we should not expect them to. When someone suggests they can bring you a better solution for "free" the immediate question should be "Who pays you and how?" This is a particular concern as related to payment processing for credit/debit cards. Consultants with "preferred processors" operate much more like an outside sales force for those vendors than as the neutral adviser you need. If someone said they get paid by the processor and only if they bring you cost savings, that should be a strong warning sign that their motivations are not aligned with all of your interests. CSCU feels so strongly about these conflicts of interests that it has opted to not participate with consultants who work in this way.
Make Sure They Are Experienced in CU Operations and Platform Functionality
Just as many credit unions are stressed, many consultants are struggling to find new sources of revenue as their past business models struggle. This is particularly true as related to card processing requests for proposal. For example, someone who used to sell other services (e.g. credit card portfolio sales) might reposition themselves as an expert in operational consulting and processing RFPs. This can lead to many problems, foremost among them that the personnel working on the project do not have day-to-day operational experience running card businesses but are instead repositioned salespeople. This would not make them bad people, only the wrong pick for your needs. For RFPs of this sort, your adviser needs to understand not just expense invoices, but the nuts-and-bolts operations of the separate technical systems and related platform capability and functionality across the organization.
Focus on Product Deliverables As Much As Cost Savings
Yes, costs are a critical driver of any vendor selection process. They should be. But when a decision is based too strongly on costs or other financial elements such as up-front "bonus" payments, critical elements can be overlooked. In the field of card processing and support it is particularly easy to find the lowest cost provider and end up with a disaster of a card program. Fraud protections can be weak, servicing can fall short and damage member relationships, performance standards can be lacking, analytic and program support can be nonexistent and investments in continuous and critical systems development can lag. When a consultant offers a recommendation focused strongly on cost savings, it can be a warning sign that they do not fully understand the other costs of the cheapest option (especially if they are offering to work for free under the premise that they will bring you savings).
A true expert adviser will work with you extensively at the beginning to identify your current operational structure, design "scorecards" for your priorities and use them to evaluate options and create an analysis that includes all of these elements. If a consultant does not want to do this work upfront, beware.
To avoid these problems and make sure your adviser is truly working for your interests, we have a very simple suggestion, one that really can help you escape all of the possible traps. If you embark on a card processing (or most any other) RFP and feel you need outside expertise, we strongly encourage you to engage your adviser directly and pay them for their work yourself. Some charge by the hour or by the project, others incorporate some success-based component, but either way you can ensure that your interests are put first and that the cost of the service is transparent. Just remember, set clear goals at the beginning of the RFP process so that when you settle on a business partner solution you will have achieved your goals.
Yes, there are difficulties facing credit unions today. But there are also opportunities to increase the success of our movement, prove our value to our members and develop our credit unions for tomorrow. We just urge you to be careful about how you try to get from where you are today to that bright future.
Robert Hackney is the president of
Card Services for Credit Unions.
can be reached at 727-536-6800