Executive Summary
The relationship between credit unions and core technology providers is being transformed as the relationship between credit unions and their members changes, and especially as member data become increasingly important to the credit union value proposition and operating model. How can credit unions and core providers build a productive partnership in this context? What conflicts are on the horizon, and what solutions are being developed to resolve them?
What is the Research about?
This research explores credit unions’ shifting technology needs and their struggles with their core providers. It offers an in-depth analysis of the place of core processors in a financial services environment transformed by the need to store and analyze data efficiently and effectively. Based on interviews with core provider representatives and credit union executives, this report digs into the current and future state of the relationship between credit unions and their core technology providers.
The cores of the future will be not simply systems of record and transaction processors, but multilayered data management systems. This transformation is unfolding in two ways. First, financial services is becoming fundamentally a kind of data services, and cores are critical to credit unions’ ability to store, access, use, and see value from their members’ data. Second, as online and mobile channels have grown in importance and as members’ financial tasks expand beyond deposits and lending to include personal financial management that is at once more automated and more tailored, cores provide another important service: enabling credit unions to plug third-party applications into their suite of service offerings.
What are the obstacles to building a productive credit union–core provider relationship? Consolidation and the proliferation of third-party fintech providers have led to increased competition. Common points of contention include complaints from credit unions about lagging technology to meet shifting member expectations, opaque pricing, high costs to accessing data and partnering with other providers, and lack of culture fit and customer service. Many core providers, meanwhile, say that credit unions lack familiarity with the solutions offered by the core itself, are slow to adapt to changing market dynamics, and do not understand the limited security, scalability, and integration capabilities of off-the-shelf fintechs. Frustration on both sides ensues.
This report ends by exploring two approaches to improving data sharing and interoperability: first, the CUNA Technology Council’s Credit Union Financial Exchange (CUFX), an open standard that would make possible a consistent method of communication among vendors, cores, and credit unions; and second, the Constellation open digital services platform, which seeks to allow credit unions to integrate directly with third-party providers.
What are the credit union implications?
In the short term, credit unions will be better positioned to negotiate with core providers by understanding the business interests and market pressures of the core provider marketplace. Credit unions searching for a better relationship with their current or a future core can begin by asking themselves a series of important questions:
- What are your medium- and long-term strategies? What will your credit union look like in a decade? Different strategies necessitate different technology needs.
- Do you need a core that “does it all”—extending basic core processing functionality to include all manner of member-facing and back-end systems—or would you be better served by a core that acts as a bridge to connect you with vendors?
- Which is a higher priority: cost savings or access to a variety of data management and analytics capabilities? And do you have access to technical talent to help you integrate and utilize your data? What are your data warehousing and information security needs?
At the same time, credit unions must take the long view to see how they might work together and with both long- running system partners and new players:
- Will core platforms become “one size fits all” or bridges that allow for case-by-case integrations? What are acceptable trade-offs between open data architectures and integrity, security, and speed? How can small credit unions overcome obstacles to effective data management associated with size and capacity issues?
Reflecting and acting on these questions will help credit unions and their cores align needs and wants into a future largely defined by technology and data.
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