In-House or Outsource . Will Katrina Sway Credit Unions Choosing Which Process to Pick?

COLUMBIA, S.C. – Will the experience of Hurricane Katrina affect the balance of preference between service bureau and in-house processing among credit unions? Not necessarily, according to some executives at core processors and at least one well-known consultant in credit union land. Others, meanwhile, think a service bureau option will become more attractive now. But there was general consensus that service bureau clients typically had a somewhat easier time restoring services to members after the storm, “Do I think Katrina will make a difference in how many credit unions choose service bureau over in-house? No, not all. Was there a difference in how credit unions recovered after the storm? Absolutely,” says Suzanne Wright of Wright Consultants, Houston-based specialists in helping credit unions and banks decide on host and third-party vendors. Service bureau credit unions were able to “pick up at least parts of their core processing on their outsourced system as soon as they could get connected,” Wright says, while in-house operations often found themselves needing to physically get people and tapes to their disaster recovery sites to get up and running. And then there were credit unions that restored partial operations at home while running others from faraway disaster recovery centers. “There are really just a lot of different situations,” Wright says. “But I really don’t see this changing whether credit unions decide to go in-house or with a service bureau. There’s so much that goes into that.” Kathy Hooker-Burress, president of Symitar, sees it that way, too. “I don’t think that many credit unions will change their preferences because of this, but we did see that credit unions in service bureaus had a much easier recovery,” she says. “Even if their building was destroyed, once they got to a different location and got a telephone line routed there, they were back up very quickly,” says Hooker-Burress, whose San Diego-based Jack Henry & Co. subsidiary has more than 600 core processing clients. “For our in-house clients, the problem was physically getting to their disaster-recovery sites with their backup tapes. Once they did that, we had them all up in 12 hours or less, too, although one had bad tape, so that took a lot longer to reconstruct,” says Hooker-Burress, noting that Symitar has only been offering service bureau service for about three years and “probably less than 10% of our clients use it.” Everyone Must be Somewhere On the other hand, David Turner, CIO at Texas-based IntegraSys, says, “I think the hurricane will certainly make some credit unions take a look at how they process. There were definitely some advantages demonstrated in Katrina for those operating with a service bureau.” But service bureaus also have to be somewhere. “You could be nowhere near a disaster but your service bureau could be. Some data centers in Florida were impacted during the hurricanes last year, for example, and had to move to their own recovery facilities,” Turner says. “So it really cuts both ways. You’ve got to make sure you’re prepared yourself, whether you’re in-house or service bureau, and you have to make sure your vendor has a good recovery plan and facility itself,” says Turner, whose Fiserv unit provides core processing to about 800 credit unions, about 550 of them through a service bureau. Another industry veteran who sees the storm perhaps tilting the tide toward outsourced processing is Larry Tankeloff, senior vice president of operations at USERS Inc., in Pennsylvania, another Fiserv unit whose client base of 325 credit unions is about evenly split between in-house and outsourced processing. He says his firm has seen the shift occurring for years, spurred along by the experience of credit unions in the Oklahoma City bombing, the 9/11 attacks and subsequent anthrax scares, all of which directly impacted USERS’ clients. “Deciding which way to go with this involves soul searching and a lot of thought about how you want to run your credit union. People are looking for options, and really, in areas such as bill pay and Internet banking, our data center already is supporting our in-house base as well,” Tankeloff observes. Meanwhile, Dick Neri, senior vice president and general manager of Harland Financial Solutions’ Enterprise Services Center in West Des Moines, Iowa, says he hasn’t heard of any conversations among clients or prospects that the big storm is making them decide in favor of a service bureau solution. “I haven’t heard directly from our sales people on this, but I think like always, it boils down to a matter of preference in the way they want to run their data processing, whether they want absolute control or delegate some of that control to a third party,” says Neri, whose center is responsible for service bureau services to about 270 credit unions. HFS has about 650 credit union DP clients altogether on its ULTRADATA and CUServ platforms. “Either way, a lot of people don’t put a lot of credibility in disaster recovery until it’s too late,” says Neri, who compares the Katrina experience to the Mississippi River basin flooding of 1993. “We were in the middle of that, and were able to send credit unions that had lost their facilities to other credit unions, split their communications and make two credit unions into one, essentially,” he says. “In the service bureau environment, you really do have a lot of flexibility.” New Perspectives in Planning In-house vs. service bureau aside, perhaps the biggest technology infrastructure lesson coming out of Katrina is the renewed appreciation for in-depth disaster planning. “I don’t think a disaster like this will fundamentally change how credit unions want to handle their data processing,” says Hooker-Burress at Symitar. “But credit unions will be looking at how many backup tapes they need and all those other things that go into how to recover from something like this.” Tankeloff at USERS adds, “We’re getting so many calls now from credit unions who want to re-evaluate their business recovery agreements. They’re going through a lot of thought right now about whether they need to take their disaster recovery to the next level.” That includes new ways of thinking about what could happen, notes Ricky Vogel, IT director for the HFS data and disaster recovery centers. “It was kind of interesting to see what survived and what didn’t. Internet facilities, for instance, did a bit better, but maybe that was because they tend to be in more stable places and in newer facilities,” Vogel says. “Meanwhile, in the gulf region cell towers are all over the ground, so that communication channel was not very available,” he says. Vogel also says one of the main changes will be in perspective. “Disaster planning pre-911 was very local in thinking. A fire could damage a building. A tornado maybe a couple. But now people are realizing that a terrorist could wipe out a small region or something, and then there are hurricanes,” he says. “We were just talking to an in-house client in New England who has their alternative facility in the same county as their main office. That might not work anymore.” -