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FAIRFAX, Va. – Offering a service bureau option to credit union clients has long been a given for most core processors, but not for FedComp. The veteran provider of basic transaction processing software and services to more than 1,400 small credit unions is preparing to take on that task for the first time. “We’ve been offering a range of hosted services through our VirtualCU family, including home banking and Web sites and a new product called Virtual Lender, but every one of our data processing clients is in-house,” says Derrick Smith, FedComp’s president. The notion of changing began with the development of the company’s flagship core platform, TNG (The Next Generation) which now is in place at about 1,100 FedComp clients. “We engineered TNG as an in-house product with tools and architecture conducive to the migration to a hosted environment, and now we’re taking that jump,” Smith says. With only about a month of concerted marketing of TNG Online under its belt, the company expects to soon have its first service bureau client signed and hosted. But, Smith, says, FedComp also knows that as it talks to clients and prospects, it will have to answer this question: “Why should I go online?” “We’ve asked ourselves that, and we’ve asked ourselves, `Why do we want to do this,’” Smith says. “Our TNG in-house system is highly economical, powerful, scalable and already interfaces with the third-party products that credit unions typically expect to get in hosted environments.” But there are natural drawbacks to in-house systems – maintenance and backup issues among others – that can emerge as credit unions get larger, and that creates a market that FedComp now is seeking to serve, the FedComp president says. “There seems to be a certain size credit union where the challenges of an in-house system become such a burden that it becomes more affordable to offload those chores to someone able to manage it. It costs a little extra but it comes down to balancing that against the rising costs of doing things in-house,” Smith says. “Our challenge has always been in that middle market. That’s where I always lose the most deals,” he says. “Our target market for TNG Online is credit unions $50 million and under, but we’re not going to refuse the business of a $100 million one.” FedComp’s largest U.S. client right now has about $43 million in assets and Smith says he knows that many of his clients, including those using online services from FedComp already, will want to keep their core processes in-house. “I don’t think it’s an automatic that Virtual CU users are going to be online service bureau users,” Smith says. “We have a long list of very specialized programs that those credit unions can use in an online environment already without giving up the minimal ease and expense of running our core system in-house, and that list is growing. For instance, payroll is an emerging area.” Smith says what FedComp expects to find as it markets the new service bureau “is that we’re looking at two different kinds of credit unions: Those that need in-house and those that are on the line between in-house and online. I think for them, the issue will be more over the price point than the options we offer.” Smith says he expects FedComp to enter the service bureau arena by “working to match and beat our competitors on competitive features while at a price point below where they are. But we’re not going to be ridiculous about that. We have to offer better value in that new niche, as well as a competitive price.” -

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