With in-house IT expertise often difficult to come by at the right price for many credit unions, institutions of all sizes frequently turn to third-party IT vendors. The tricky part of that process, sources say, is determining which tasks to outsources.
“The biggest pain points for most credit union tech departments are resources,” said Cornerstone Advisors Managing Director Brad Smith. “Typically, they can’t get the budget to support every project their lines of business want to do so they’re always battling between resource allocations for daily processing – keep[ing] the lights on – and special projects.”
Aside from technology solutions, tech department also frequently run into a shortage of talented, experienced staff who can execute C-level initiatives.
“In many smaller communities, there just aren’t enough talented IT professionals,” said Smith. “Information security positions are amongst the hardest to find these days.”
Is your tech department “strong?”
According to Callahan & Associates’ 2016 Report, “Does Technology Matter to Small Credit Unions?” there are seven key technology offerings that lead to a “strong” technology department: Mobile banking, remote deposit capture, electronic signature authentication, electronic bill pay, electronic member application, electronic loan application and electronic share account application.
The Callahan report focused on institutions with $100 million or less in assets. Those credit unions that deploy all seven offerings, many of which were outsourced, realized 3.37 percent member growth year-over-year, noted Callahan & Associates’ Senior Industry Analyst Liz Furman.
“These seven fields were picked from the call report profile that credit unions fill out on tech offerings, and we found these to be the most impactful services on the list,” she said. “Credit unions that offer a variety of technology options have higher operating expense ratios; however, the benefits of technology is evident in not only standard growth and penetration rates but also average member relationship and member growth.”
The quandary of outsourcing technology can become complicated for a host of reasons. For example, a small to mid-size credit union may need to outsource certain tech responsibilities because it doesn’t have enough qualified staff or the necessary facilities. Conversely, a large CU might have a well-staffed and funded tech department, and therefore believes it can handle the load, but maybe it shouldn’t due to unforeseen complexities.
“Smaller CUs do tend to outsource much of their data and payments processing and network management, but large CUs outsource as well, said Smith. “As CUs grow, their needs grow as well as do their IT examination expectations so even large CUs struggle with resources. There are some processes that CUs outsource largely because of scale economies, such as EFT processes, statement rendering and there are others about expertise like information security or data analytics or around risk like internet banking.”
Common outsourced technologies
Determining what services to outsource is “complex,” explained Smith. The below list are examples of the services many Cornerstone Advisors’ CU clients outsource. Smith noted that some of these services “blur” into operations.
- Core data processing
- EFT, debit and credit card processing
- Internet banking, mobile banking and bill payment
- Mortgage and other loan origination systems
- Network design
- Network management
- Help desk support
- Vendor management
- Disaster recovery/Business continuity planning
- Internal audit
“Outsourcing technology is definitely a common conversation we have with our clients,” said Smith. “Every CU outsources some technology function or process. For example, nearly every CU outsources EFT processing and Internet banking.”
There exists a psychology to outsourcing, as there are sensitivities among employees who may feel devalued as a result of farming out what were in-house operations.
“Two sensitivities to be concerned about when moving to outsourcing are fear of job loss and fear of losing control,” said Smith. “Executives need to be very sensitive to this and over communicate. Many CU operations and technology personnel have come from banks that routinely outsource and announce a reduction in force. While that’s uncommon in CUs, your employees might assume the worst.”
For C-level executives vacillating on whether or not to outsource technology, Smith said there is a simply check list: cost, benefit and risk. To this end, executives have to determine the “all-in” cost differences between “doing it yourself and paying someone else to do it.” This includes both capital investments and ongoing expenses considerations.
“Though there is a framework for making these decisions, the in-house versus outsource decisions tend to be driven as much by culture and the personal preferences of CEOs and CIOs as the business case,” said Smith.