While we continue to wait for the checkless society to arrive (and it really is getting closer this time), some couldn't afford to wait. Case in point is Harland, at one point content to be one of the major check printers in the country, which had more sense than some other companies, which, for example, were content to be typewriter ribbon manufacturers.
Today, two thirds of all banks and credit unions use a solution from Harland or one of its subsidiary companies, and most of those solutions have nothing to do with a "Pay to the Order of" line. Some 18,000 financial institutions count on the company to provide back-office support of some fashion. It has 20 offices around the country, many representing acquisitions, including data processor ULTRADATA.
Like some other providers, such as Fiserv and Jack Henry, Harland has its hands in all aspects of the enterprise beyond just the core data processing system. As such, it has a unique view on issues affecting credit unions, and several of the company's representatives recently took an hour or so to outline six trends it is seeing. It defines those six trends like this: the Deposit Dilemma, Process & Operational Compliance, Enterprise Integration, Changing Payments Landscape, Proliferation of Self Service, Outsourcing and Single Sourcing. Here's a brief look at each of them.
The Deposit Dilemma
"Looking at the Q2 earnings announcements from all the major banks there is a funding issue, a problem with getting deposits in the door," observed Harland's Sam Kilmer. "Loans are doing well and there is a lot of economic activity, but we're finding it hard to keep those core deposits to fund those loans. The declining net interest margin is causing the industry grief, especially for credit unions, which have had to turn to fees. There's a Grant Thornton study in which 'deposit retention' was the number one issue of concern, but just 50% of executives said they were confident they knew how to address it."
To that end, earlier this year Harland introduced a deposit benchmarking service in which a credit union sends the company all its data and it maps "their ability to acquire and retain deposits, and organically grow deposits within their peer group. We can identify is there a particular problem, or do they just have an attrition problem."
"I don't need to point out that banks and credit unions have a heavy compliance burden, but it seems to have grown," said Kilmer. "This has really focused lenders on their process. It's not enough to focus on the document. The question is, 'Is the process OK so I don't book dozens of out-of-compliance loans?'"
"Mortgage lending has become a manufacturing business and forced a focus on supply chain management," said Kilmer, noting some 130 Harland clients have moved to its Interlinq E3 solution for that reason. "What we're really seeing in the mortgage space is that for years it has been very loan centric (and focused on) making the loan faster. Now we're seeing lenders focusing on the whole enterprise, how do I get leads, how do I become enterprise-centric?"
Changing Payments Landscape
Kilmer dubbed the growth in debit cards "explosive" among financial institutions, reflecting use of debit cards by consumers (hence the checkless society). "In the back office, the bigger story is the image exchange and remote capture," said Kilmer. Recognizing the trend, Harland acquired Intrieve and Liberty (another former check printer) to expand its payments capabilities. Some 50 clients are live on image exchange and another 100 have signed up to do it.
Proliferation of Self Service
"The Internet is empowering the consumer and the channels are improving, although there are security concerns," he said. "The whole concept of e-alerts has really grown, and it really hints at what some call 'exception-based banking.' If you can e-mail me I don't have sufficient funds in my checking accounts, then it's not too many steps removed to say 'Why don't you just sweep some funds out of another account?' It's this process we call extended financial enterprise."
Added Harland President John O'Malley, "Internet banking is transaction banking. We want to move to full electronic banking, so you can set how the voice-response system responds to you in the way you want. Most important is building it around a true wealth-management capability."
Outsourcing and Single Sourcing
"We're seeing a lot more de novo banks and credit unions saying we want to focus on what we do best, and that is banking," said Kilmer. "They say 'We don't want 18 vendors, we want fewer providers. Core systems are not core anymore, it's now more than core."
And it's most certainly more than checks.
Frank J. Diekmann is Publisher of The Credit Union Journal and can be reached at fdiekmann<at>cujournal.com.