The biggest decisions in a core banking system change arefrequently made prior to the project's actual start. In a recentCU Times interview, Black Hills Federal Credit Unionoffered an inside look at its pre-conversion choices.

For the first of a series of articles documenting its conversion journey, the $1.07 billion, Rapid City, S.D.-basedcredit union revealed its course of action – from developing astrategic initiative through RFPs, vendor interviews and scorecardsto making a core selection.

BHFCU SVP of IT John Buxton recalled a number of events that ledthe credit union to consider a new core system during the last quarter of 2015.

“It was a combination of things, such as the timing of contractsand integration with best of breed software we wanted to implementbut could not,” he said.

Plus, its current system is 20 years old and still based onWindows XP. That led the credit union to search for a partner thatcould help.

“We had an internal steering committee that evaluated severaldifferent consulting groups and people with expertise in thatarea,” Buxton said.

After several months of presentations and evaluations, the coreproject officially kicked off in January with the selection of theChino Hills, Calif.-based Samaha & Associates to help withanalysis, planning, implementation and documentation.

“From our perspective, we see these as organization projects,not just IT projects,” Samaha & Associates Managing ConsultantAdam Denbo explained.

After selecting Samaha & Associates, the credit union'ssmall internal steering committee was expanded to include employeesfrom all departments, especially as it started bringing coreproviders onsite, Buxton explained.

“When we have our kickoff meetings, we meet with all thedifferent teams,” Denbo said.

The goal of those meetings is for the core provider tounderstand the credit union.

“We know the core systems out there in the marketplace, we knowthe credit unions really well, but we didn't know Black HillsFederal Credit Union,” Denbo added.

Samaha & Associates spent several days onsite learning aboutthe credit union's different teams and traveling to differentlocations to understand the various aspects of BHFCU.

The next step – producing a request for a proposal – was acollaborative effort from the beginning.

“Unlike some other consulting firms, we like to start off with ablank sheet of paper and have the credit unions author their ownquestions,” Denbo said.

During the kickoff meetings, Samaha & Associates gave thevarious departments homework.

Since they are member-facing, BHFCU's online and mobile bankingplatforms will be converted onto the new system first.

“We found out how they would ask questions in an open-ended wayto various core processors,” he said. “That is how they start tocompile a list of questions to ask.”

Buxton added, “It's really hard to get an organization to writean RFP. That is why one person or one small group ends up doing it,but that's not the case here. Samaha has a really good process forhelping credit unions write an RFP. As the departments explainedtheir pain points, we would capture them.”

The RFP template evolved to include examples of items capturedduring the interview process and questions from theparticipants.

“We created a website that allowed the different departments toenter their own questions,” Denbo noted. “Then we rewarded themwith our master set of questions. Folks that have been on the samesystem for a while do not know what they do not know. But we dowant them to begin to author their own questions. That customizesthe RFP process to fulfill the specific needs of Black HillsFederal Credit Union.”

Buxton added, “It truly was an organization-wide initiative towrite the RFP.”

The credit union sent out the RFP to three core providers. Ittakes some time for vendors to answer the RFP – Samaha &Associates allocates about three to four weeks for theresponse.

“In this case it might have been closer to five weeks,” Denborecalled. “It is something that adds a lot of value because it isBlack Hills' custom RFP.”

Denbo also pointed out participants from the credit union aremore excited and engaged when reading these vendor responsesbecause they addressed their unique questions.

Next, the team set up meetings with each vendor.

“We call them interviews, unlike a demo where you sit back andgrab a Coke and popcorn and just listen,” Denbo said.

Samaha & Associates took the RFP responses, combined theminto one document and redistributed them to the departments thatcreated them. BHFCU personnel then highlighted and notated them.Then, the core team asked vendors to elaborate on and conductdemonstrations related to issues, questions and concerns when theycome onsite.

“Then it becomes more dynamic – it is an interview, not a demo,”Denbo said.

In addition to conducting interviews, Samaha & Associatesdemands vendors set up a lab at the credit union.

“[That's] so the credit union team uses more of their senses:They are authoring the questions, writing notes, reading responsesand talking collaboratively during the interview and watchingprocess, and then there is the hands-on portion,” Denbo said.

Different departments cycle through the interview process andlab, which is located in a neighboring room.

During the interview process, the team looks for likes anddislikes for each core system as well as functions or features thateach credit union department needs.

In addition to conducting a core search, Buxton said BHFCU isevaluating some of its key ancillary systems.

“We are not just reviewing core, we are also repeating that sameprocess with some other systems such as mortgage, consumer lending,and online and mobile banking,” he said. “That is a little bitdifferent; a lot of organizations just go through just a coreselection, but this is really much more than that. We have severalother selections going on in parallel to the core.”

He added, “As part of the core process, we identified everysingle system that we have – every vendor we currently contractwith and every third party.”

Denbo pointed out that because third-party core providers areinvolved, gaps are going to exist.

“To fill those gaps, we work closely with the client,” he said.“We are bringing in commercial business underwriting systems thatcan plug and play nicely with any of the cores we decide on.”

Another thing that makes BHFCU's core conversion process uniqueis its range of product offerings: Investment and insuranceproducts, business lending (agricultural and commercial) andmortgages.

Some services are further along in the conversion process. Forexample, while BHFCU has not yet made a final selection for a newonline and mobile banking system, it is currently in thenegotiation and finalization phase.

Part of the reason for proceeding more quickly on the online andmobile banking side is because it is member-facing.

“With the core, the members don't interact with that directly.”Buxton said. “Our thought there is we can complete the selection,make that conversion and get that all done before we do the coreconversion.”

As far as the core itself, the credit union is currently in theinterview, and hands-on evaluation phase. It has completed onevendor interview and has two more scheduled for early June. Theinterviews span three days, and separate mortgage loan originationsystem vendor meetings will take place as well.

After the interview process concludes, the team will conduct agap analysis and scorecard procedure.

“They will be completing the scorecard, which they work withthroughout the process,” Denbo said. “It creates more objectivitythroughout the process, which would otherwise be subjective. Thescorecard with the gap analysis and references really gives usinsight into the direction the credit union team wants to go.”

Denbo pointed out, “It is always their choice, we're completelyvendor neutral. We are just facilitating the process.”

By the end of this month, the credit union team will have aclearer vision depending on what the scorecard shows, Denboexplained. If the scorecard shows one vendor at 100 basis points ormore ahead, then the choice will be clear. If the score is close,the credit union might rely more on internal gaps or price, orschedule onsite visits with neighboring credit unions.

Samaha & Associates sometimes uses another credit union as areference to uncover how it managed to close gaps that anothercredit union (in this case, BHFCU) found.

By the end of June, the credit union expects to have moreinformation to help it determine how to proceed. Then, it expectsto begin a negotiation process, validation of the system gaps andfollow-up on the gaps, and depending on the scoring, a finaldecision. Implementation will follow.

Learn about BHFCU's next steps in the core conversionprocess in an upcoming print issue of CU Times.