Online-Only Bonus: Core Processing: Does Opening the Platform Make it a Commodity?
Core processing systems have been the backbone of the credit union transactional system since the days before share draft accounts became simply known as checking.
But with functionality broadening to include credit and debit cards, online fund transfers and now mobile and even person-to-person, is core processing simply a commodity, a plug-and-play nearly interchangeable as an off-the-shelf wireless router?
“That’s a really important question. I think the core system is still the hub, if you will, of most of what we do, but if you really think about it, it just gets you out of the block,” said Jeff Johnson, senior vice president/chief information officer at the $1.4 billion BCU in Vernon Hills, Ill., and a member of the CUNA Technology Council executive committee.
He said his credit union’s core system – in this case, Symitar Episys – remains the “flagship of our operations.” But, he said, he’s seen an explosive growth in the demands on the core in the past couple decades – from call center to interactive voice response to mobile – and that it would be impossible to expect even the most innovative core processors to be able to provide best-of-breed for every single solution a modern credit union needs to compete.
“You have to have a solid core processing system just to get into the game, but you also have to have a lot of innovative services and products around the core, and I think the days of expecting a core processor to do everything … well, that’s just not realistic anymore,” Johnson said.
That’s changed semantics as well as technology. “I think the concept of core processing has changed, but I don’t think it’s really become a commodity. I think it just means something different than it used to,” said Sara Brooks, chief strategy officer for Fiserv Inc.’s Credit Union Division.
“Historically, when we referred to core processing, we were talking about a single application that enabled a credit union to manage the bulk of its technology needs – including collections, loans origination and accounting – inside a single core application,” Brooks said. “But now many of those applications have moved outside the core and become value-added or ancillary solutions that are maintained by independent teams and integrated back into central system applications.”
Fiserv, in fact, now calls the platforms it provides to more than 2,500 credit unions “account” rather than “core” processing solutions. “I don’t think of them as commodities but as solutions that enable tight integration across the enterprise,” Brooks said. “It’s kind of a central nervous system with the transaction engine as the system of record.”
Meanwhile, Daryl Tanner, CEO of core processing CUSO Share One Inc. of Memphis, Tenn., put it this way: “My first thought about this is that while all core systems process member transactions against a database of member balances and information according to certain business rules, and offer some measure of native delivery and analysis services, some core systems have largely become integrators of third-party applications that require access to the member information database, either through real-time or batch access to that database.”
How many of those applications need to be from a third party or integrated to the core depending on a lot of factors, Tanner said, including age. “Our own NewSolutions is relatively young, just now 10 years old and was built on ubiquitous Microsoft technology that allows us to provide seamless things such as ID and Check 21 capture and check images and paperless loan processing,” he said.
That said, Tanner noted that bill pay is still a third-party solution for his clients and that Share One is working with another IT CUSO to develop a universal interface hub for third-party vendors to write interfaces into their systems using a standard API.
That kind of connectivity has developed a cottage industry of developers at credit unions, CUSOs and consultancies creating solutions to interface with core platforms that advertise their ability to “open up” for third-party solutions – notably including the Symitar Episys and Open Solutions Inc. platforms.
The $9.2 billion BECU in Seattle adopted the Open Solutions platform along with a number of third-party applications in one large effort several years ago, creating what Senior Vice President/Chief Information Officer Butch Leonardson calls a “hub-and-spoke” arrangement, with the core system at the middle.
“But that doesn’t make it a commodity,” he said. “I became a student of people’s use of the idea of a commodity back in the 1980s when I was with the Arthur Anderson accounting firm. We were afraid at the time that audits were becoming a commodity and that if you treat it as a commodity, that’s what it will become.
“So to me, water and coffee are commodities. If our core processing system is a commodity, it’s certainly a key commodity, because here, we work with an outside-in approach, and works back from the experience our members get online and in branches and call centers. That’s where the moments of truth are,” Leonardson said. “So, that doesn’t make technology a commodity. It just means it’s how we do a better job of serving our members.”
If commodity means just grab one off the shelf, then it doesn’t work for Dave Mitchell, senior vice president and chief marketing officer at Open Solutions Inc., either. “If you think about the amount of time and money and due diligence a credit union invests in choosing a core processor, no, I wouldn’t call it a commodity,” Mitchell said.
“And while credit unions have to think of a lot of other components in their technology back shop – and we sell a lot of those, too – the core remains the key, the system that other things are added on to,” he said. “It’s like the central city, with the ancillary products as the suburbs. They wouldn’t work without the central city.”
Not all “central cities” are alike. One credit union executive who has found core processing systems increasingly open but still quite different from each other is Robert Reh, chief information officer for the $357 million Nassau Financial FCU in Westbury, N.Y.
Reh, vice chair of the CUNA Technology Council, said his credit union has been evaluating core systems over the past year and has found them to be quite dissimilar.
“These differences include the look and feel of the user experience in conducting member transactions, the level of employee direction and collaboration the system not only supported but stimulated, how well the system maximized employee productivity and operational efficiency while at the same time maximizing member satisfaction, the structure of the database and how much data it provides about the member,” said Reh, who’s currently vice chair of the CUNA Technology Council and a Fiserv Spectrum customer.
“While many of these factors can be judged by personal preferences as well as more tangible measures, the significant differences between them do not necessarily make one system superior to another, but just different and possibly a better fit for some credit unions as opposed to others with different cultures and other circumstances,” Reh said.
Rather than commoditization Reh said he sees differentiation. “What these differences do create is making core systems less a commodity and more unique in terms of what benefits they offer and how well they satisfy the particular needs of each individual credit union.”
Because of that, observed Johnson at BCU, core processors have to make it easy to integrate third-party solutions, solutions that can seem to take on as much importance as the basic transaction functions that define the core.
“But when I hear people say that the core processing system is now a commodity, it makes me think that, well, air is a commodity, too,” Johnson said, “but without it, we’d be dead.”