ONTARIO, Calif. -- Credit Unions that have their debit andcredit card processing with different firms do not necessarilybenefit from consolidating all their card business with one cardprocessor, according to research conducted and released by CO-OPFinancial Services.

The research came out, ironically, right around the announcementof card processor Fidelity National's intention to purchase EFTprocessor eFunds. CO-OP Financial Services said its researchindicated that neither banks nor credit unions would necessarilybenefit from bringing all their card business to one firm.

The release of the white papers was entirely coincidental withthe announcement of the Fidelity/eFunds deal. CO-OP released theresearch at its annual meeting at the end of May, a full monthbefore the deal between the two processors was announced.

In the course of its research, CO-OP asked the 25 largest banksand 25 largest credit unions who they used for processing servicesand why they chose this particular processor or processors? A totalof 18 banks and 17 credit unions responded to the survey and CO-OPfound that only 30% currently have both credit card and ATMprocessing with the same company.

The research found that only 30% of top banks and credit unionsuse the same provider for both credit card and debit cardprocessing. The most widely used single provider was First Data,chosen by half of the banks or credit unions with a consolidatedprocessing model (five of the 35 responding).

The arguments in favor of consolidation centered on economics(more favorable pricing by aggregating volume) and simplicity(single point of contact, same back end systems). Arguments infavor of separate processors for credit and debit also focused oneconomics (more competitive bidding) and simplicity (aligning debitprocessing with debit network affiliations).

Banks and credit unions choosing different providers also citeda desire to work with "best-of-breed processors" for each service,the company said.

CO-OP said there was evidence that a single processing provideris better positioned to manage and reduce a financial institution'scard-based fraud losses on credit and debit than two separateprocessors. Credit and debit are distinct accounts and requirespecialized risk management tools; there does not appear to be anysynergy in combining their processing, CO-OP said.

Meanwhile, a second white paper CO-OP released at the same timetried to tackle the extremely complicated question of whether acredit union should or should not outsource its ATM processing to athird-party.

CO-OP's research urged credit union managers to look atfinancial, operational and strategic factors when deciding whetheror not to outsource their ATM processing.

When it comes to income, "uptime" or the amount of time an ATMis running and available to use is perhaps the single biggestfactor impacting ATM profitability, CO-OP said. Another importantelement to the financial side of the picture is functionality, thepaper added.

"New transaction types can increase foreign transactionvolumes," CO-OP observed. "In evaluating this, credit unions shouldconsider the internal and external providers' ability to support agiven functionality currently, or attempt to estimate differencesin time-to-market for functionality not currently supported."

One argument in favor of outsourcing, CO-OP said, is that whileATMs are a critical part of a CU's strategy, they are rarely enoughto win competitive battles alone. In this scenario it might makemore sense for a credit union to outsource its ATM processing tofree up staff to work on other core products and services, CO-OPsaid.

"There is no simple answer as to whether or not credit unionsshould outsource their ATM networks. Instead, managers mustindividually and objectively evaluate the merits of in-house versusoutsourcing options to select the best solution for their creditunion."

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