We’ve heard it all before – new technology trumps old "legacy" technology. But if credit unions regularly upgrade their software and hardware, why do so many credit unions still rely on technologies that were developed in the 1970s?
Many credit unions will argue that their technology is brand spanking new. They’ll even prove it by calling up a slick loan origination system on their tablet. But dig a little deeper and you will discover that the credit union’s whiz-bang functionality depends on ancient technology staggering around the basement. Too often, it’s got more bang than whiz.
The Core is Dead, Long Live the Core
So what is the difference between legacy and new technology? Quite simply – the purpose of the system. Credit unions in the 1970s were based on member share accounts. Financial technology was designed to cash and deposit checks, and to process withdrawals. The bottom line: keep the teller line moving. It was a strategy to dispel the awful truth – banking almost always involved waiting in line.
Fast forward to 2013. One of the rarest things to find in a credit union lobby these days is a member. Fully 80-85% of all transactions don’t involve a teller. Members use more channels than products, and they expect all those channels to work together, to reflect every transaction and update to their profile immediately, and to offer every credit union service.
The last time a MSR told a member of the Millennial generation to visit a branch and complete a particular paper form, people heard the poor Millennial screaming from Alabama to Wyoming.
So if the earth has moved under our feet, why haven’t more legacy technologies moved with it? In a word – pain. Many credit unions regard the move to new technology as a huge drain on time and resources. In the face of big pain, credit unions do what everyone else does – they avoid it.
The trouble is, credit unions can’t avoid pain forever. The only thing that trumps pain is bigger pain, which has landed in most credit unions’ laps in the form of shrinking deposits, reduced loan volume, shriveling fee income and rising costs – particularly in regulatory compliance.
Credit unions that haven’t traded up to new technology are feeling all of these pain points. The question is – do legacy credit unions believe that new technology can help them enough to endure the pain of conversion?
Many credit unions have said yes. Today they enjoy a 360o view of the member because they truly have a member information system that includes the member’s photo, signature and fingerprint onscreen. Their marketing and risk management efforts key off of that MIS, simplifying new business development, regulatory compliance and service delivery.
When new technologies become available, the new MIS systems can literally “plug them in.” That’s because the new systems actually work like platforms – much like apps for smartphones and tablets. When credit unions want new functionality, they can shop for it in an online store, try it on their systems, and implement it immediately.
This approach to new functionality is a game-changer for credit unions. It gives them choice in selecting payments, business intelligence and MIS solutions. Because these solutions are fully integrated, they share data. They also share capabilities, so document management and e-signatures can be used in loan origination; fraud and anti-money laundering becomes part of member business deposits.
This is a far cry from legacy systems which require a separate interface for every new capability. With legacy systems, credit unions find the quality of service depends on the quality of the interface. No wonder much of the upgrade work for legacy systems revolves around interfaces.
In spite of all the benefits of new technology, many credit unions continue to avoid the inevitable core system conversion. We hear of institutions hunting for processes that can be shifted off of the core to separate systems. While that sounds brilliant in theory, it stumbles in practice.
Each separate system requires its own processes and database. Periodically, the data in these separate systems have to “synch up” to ensure consistency. Unfortunately, the time between synch ups open opportunities for fraud.
Separate processes present additional issues. For example, in most systems, Internet banking is a separate system that literally duplicates core processing transactions in order to present them on the Web. That may not be difficult for simpler transactions, like fund transfers or bill payments. But more complex activity – like paying down a loan balance – can take months to develop. Every time regulations change, the credit union has another system to track and fix.
New technologies are eliminating the “synch up” issue because their advanced integration enables them to use the core as the single source of record for all transactions. There are no discrepancies between debit, Internet banking and teller. Member information and account histories are accurate to the second.
New technologies are also eliminating the separate process issue, since the processes used on the teller line can also be used for Internet and mobile banking. Imagine how that can reduce the time spent explaining why some transactions are unavailable online. It also saves time when regulations change – fixes can be done once, not in each separate system.
Finally, we need to address the language issue in legacy systems. Since these ancient systems were written in equally ancient programming languages, interfaces to new systems have to be written on those languages as well – COBOL, PL1 and assembler. Today’s brightest programming minds have never touched these dinosaurs, and the programmers who wrote those legacy systems didn’t just scream from Alabama to Wyoming – they retired there and hope never to be called back for a credit union system emergency.
If a credit union is wondering why it takes so long to get new functions installed on a legacy system, or why only a few of the new features work as advertised, wonder no more. It’s a long way to Wyoming, and most of the time, nobody’s home.