When It Comes To Core Processors, The Tail Is Wagging The Dog, But Why?

April 18, 2019 at 8:00 am Leave a comment

If you increasingly feel like you’re a vendor of your core processor, you are not alone.

A reader sent me this recent article from the WSJ and it speaks to the frustration that many credit unions and community banks, particularly those with $1 billion or less in assets, feel when dealing with their core processors.

The article points out that even though small credit unions and banks know they have to quickly provide new technological offerings, they often find that their processors are either incapable of accommodating new technology or slow in making it available. Why not get out of the contract? According to the article, more and more institutions are trying to do just that. But as I can vouch for having read a couple of these cases, the contracts are extremely well drafted for the core providers. It is rarely cost-effective to try to prematurely end them.

Is the purpose of this blog just to feel your pain? Why, no. Yours truly is in an exceptionally optimistic mood after having watched his Islanders sweep a playoff series for the first time since 1983. So, against all my better judgment, I’m going to throw out a couple of foolishly idealistic suggestions. First, when it comes to the contract terms – push back. You might get one or two concessions and it’s absolutely crucial that you understand what its terms are anyway.

Secondly, even though three companies dominate 90% of the market for small credit unions and community banks, it doesn’t have to be that way. I find it hard to believe that in this age of nonstop venture capital infused innovation, there aren’t one or two companies out there worth taking a gamble on, particularly if you get greater flexibility in your contract.

Did you know that the original version of the Federal Credit Union Act would have authorized state-wide “central” credit unions? The clever business men who were behind the credit union movement in this country understood that cooperatives work best when they actually cooperate. For the life of me I don’t understand why small to medium-sized credit unions are so resistant to pooling their resources together and developing a single core processing platform which could cost effectively address their needs. I believe some CDFI’s are trying this approach and I hope their experiment takes hold while there are still enough credit unions around to make the idea worth pursuing.

On that idealistic note, yours truly is taking tomorrow off but will be back on Monday. Remember, don’t talk politics at the dinner table, it just isn’t worth it.

Entry filed under: General, technology. Tags: , , .

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Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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