We can all take into perspective how much regulatory, compliance, security and overall technology demands continue to increase. Outsourcing can be a wise business decision in response to these increased demands, and as an industry we have seen the trending to outsource core systems growing.
Based on the experience of helping dozens of credit unions migrate to an outsourced platform annually, I believe there are five main factors that every credit union executive should consider about outsourcing. The list, outlined below, is the cumulative experience of working with hundreds of outsourced credit unions, ranging in assets from $1.8 billion to the low millions.
Outsourcing does not mean relinquishing control. Outsourcing your core platform should provide access to the same flexible and robust core capabilities you would have in-house and perhaps even more, so be sure to take advantage of them. Every credit union has its own needs, and subsequently, each core platform should allow customization to that credit union's unique business requirements, whether in-house or outsourced. If you are thinking of making a change, consider the key areas that you need to retain control over and those best passed to your outsourcing partner.
Outsourcing does not necessarily mean downsizing. Every credit union has a long to-do list of projects that have been on the back burner for months (and if we are being honest, years). Ideally, the resources that you free up from outsourced responsibilities can be reallocated toward these other internal projects that can improve your efficiency and competitiveness. Popular projects include new products, network infrastructure upgrades, cross-sales technologies, automating manual processes, new technology-based products like mobile remote deposit capture and leveraging member analytics to support targeted marketing.
Now you can put those knowledgeable resources to work towards driving further efficiencies and new products within your organization.
Know your resources. If you have a hard time finding reliable talent, managing after hours processing, or keeping up with changing compliance and security standards, outsourcing may be a good fit for your credit union. An outsourcing relationship could provide experts to tailor the system for maximum operational efficiency, maintain compliance and security best practices. And, after-hours services provide the luxury of knowing that someone is managing and monitoring your systems when you are not.
Think about business continuity. If you do not have a robust and replicable disaster recovery plan, your credit union is at risk. Furthermore, if you are not practicing your plan on a regular basis, you are at risk and should take the outsourcing option even more seriously. Without a strong disaster recovery plan, auditors may suggest outsourcing to mitigate the credit union's risk. Over the last 10 years, we have seen natural disasters impact credit unions in all areas, leaving no region safe. Nothing should be left to chance when it comes to preventing, or minimizing, interruptions to your business. Your credit union's future depends on providing uninterrupted services to your members regardless of the nature of the disaster.
Components To Consider
Look for long-term value. There are many components to consider in the cost-benefit analysis of outsourcing. Credit unions tend to be reluctant to acknowledge soft cost savings. Fight that urge and give the outsourcing scenario a proper business analysis. Be honest about the value you would derive from reallocating resources or the risks of dependency on one or two people. Also consider the level of your in-house expertise.
I liken this to changing the oil in my car. Frankly, I could change my own oil. Factoring in the extra time and hassle may be compelling, but then there is the potential that I could make a mistake, costing me even more money. A service bureau is not inherently less expensive than in-house processing, but make sure you are weighing all the pros and cons of each solution.
Outsourcing is not for everyone, but as in-house costs, complexity and resource challenges grow the trend to outsourcing is also growing. Today's operating environment calls for credit unions to seriously consider outsourcing as an alternative to traditional in-house operations.
Ed Miller is senior director of operations at Symitar, a Jack Henry & Associates company. He can be reached at firstname.lastname@example.org.