The brain of every credit union is its core computer system–thetabulation of every transaction and thus the essential record. Butvoices increasingly are heard that it is time for a substantialre-evaluation of those core systems.

That is true for two reasons. They are very old and, in manyinstances, they no longer have the intelligent flexibility requiredto keep pace with a 24/7 world that demands answers right now.

As Peter Olynick, a consultant with Charlotte, N.C.-basedCarlisle & Gallagher, tersely put matters, “Most financialinstitution cores need to be updated to align with 21stcentury–many processing systems were architected in the 1970s. Theyare not nimble.” He added that “upgraded cores will provide acompetitive advantage to financial institutions that do it.”

Core systems were designed to do end of day batch processing.And banking in 2012 is all about immediacy: often without checks(think P2P payments, mobile banking and moving money across bordersin multiple currencies.) “A 40-year-old core–and some of thosesystems are that old–just won’t let you compete today,” saidLizette Nigro, a vice president at Glastonbury, Conn. core providerOpen Solutions.

Why don’t financial institutions just kill their cores? PaulSchaus, president of consulting firm CCG Catalyst in Phoenix, said,“They don’t want to write off their sizable investments.”

Cores, in many institutions, represent many millions of dollarsin computer hardware assets and possibly as much in software.

The other reason is that shifting off a core is “open heartsurgery with your eyes open,” said Fiserv executive MarkSievewright in aninterview. His point is that lots can and sometimes does go wrongin a core conversion, and institutions typically are in no hurry torush into this. Even when a core is no longer providing all theservices it needs to deliver, there is an inclination to delaybecause conversion horror stories (and sometimes careers derailed)are legendary.

“The road to conversion is littered with the careers of CEOs whono longer work for their credit union,” sighed John Fenton, CEO of Basking Ridge, N.J.-based Affinity CreditUnion, a $2.27 billion institution that is currently in a coreconversion that, stressed Fenton, is going as planned.

And yet more credit unions are facing up to the need to considerupgrading cores, mainly because they just cannot get the servicesthey need out of their existing system.

That was so at Affinity, which had used the same core for 27years. Incorporating new, desired services, such as mobileremote deposit capture, seemed problematic with the old core. Thatcore also resisted providing Affinity with the detailed,customer-centric reporting Fenton wanted. Old cores are rigorouslyfocused on transactions not on customer relationshipmanagement.

“We realized we had to change cores to get the services wewanted,” said Fenton.

At the $421 million First Credit Union in Chandler, Ariz., ChiefOperating Officer Lori Gallegos wrote in an email that theinstitution decided to convert cores because the system it had beenon was scheduled to sunset, that is, the provider indicated itwould cease supporting it. She added that the institution, whichconverted a year ago, is still harnessing the power of thenew core.

“We have more tightly integrated our online banking and iTalkchannels into the core. We have also added fraud detection, MCIF,logging member service events and tracking sales incentive, pullingdata directly from the core to assist us in providing a moreconcise member experience,” she said.

In contemplating new cores, two trends characterize thatuniverse, said the experts. And First Credit Union’s conversionillustrates them. “Today’s cores are all about an 11 letter word,integration," said Sievewright. “The ability of a core today is tobe a platform from which all other services are delivered,” headded

Cores, said CCG Catalyst’s Schaus are essentially “big, flatdatabases. What we need are parallel systems where the core is oneof several systems.” Thus Sievewright’s integration mantra, wheremobile banking, online, P2P and other transaction formats, neverenvisioned when most cores were designed, need to be linked to thecore.

Getting disparate systems talking together in real time may notbe easy, but it is, said the experts, crucial to the smoothfunctioning of any credit union.

The second trend, said Sievewright, is that an increasing numberof credit unions are choosing to shift their cores from in house tooutsourced. “It usually is more cost effective to outsource,” saidSievewright.

And credit unions are far behind community banks in outsourcingcores, said Ted Bilke, president of core system provider Symitar. He saidthat at his sister company Jack Henry Banking, which focuses onbanks, 90% of new core contracts are for outsourced deals. AtSymitar, the number is nearer 50%, a number that has him scratchinghis head because in most cases, especially for mid-sized andsmaller credit unions, outsourcing is a clearer solution.

Bilke’s bright news, though, is that “three years ago, we sawonly 20% of new cores outsourced,” meaning the trend for puttingsystems in the hands of service bureaus or similar off-premisesoutsourced providers is accelerating.

“From an economics perspective it makes no sense for a smallinstitution to maintain a core in house,” said Jeff Irby, a vicepresident with Unisys, a systems developer. He added that the goodnews with outsourcing for small institutions is that “they have achance to jump ahead of big guys.”

That is because many large banks will admit, usually not on therecord, that their patchwork quilt cores, amassed in a series ofmergers, are impediments to innovation. A small institution, with ashare of a state of the art outsourced core, might find itself ableto do more than much bigger institutions.

That is the story at California Bear, a $108 million creditunion in Los Angeles. CEO Robert York said the institution recently decided to convertfrom an in-house Symitar system. “The computers were 12 years old,at the end of their life,” said York. And York chose a service bureau arrangement with Symitar. “This will save us money.It will free up IT staff time to do other things. I am not worriedabout losing control. We can run any reports we want, when wewant.”

“Outsourcing makes so much sense,” agreed Tom Berdan, a vicepresident with core developer Harland Financial. “It allows the credit union to focus on itscore businesses,” member-facing interactions rather than technologymaintenance.

A third trend is that despite the age of the industry’s coresand a growing recognition that doing more will necessitate newcores, there is very little upgrading or shifting to new providers.“Perhaps 4% to 6% of cores are in play in any year,” saidSievewright. But not all of those will opt for change. Many willattempt to negotiate better terms with the present provider and endmatters there.

“There are so many antiquated systems still out there,” saidNigro. “In lots of ways this is an industry that just doesn’t getit.”