Shot to the core

Working with a group of credit union leaders last week, hacking our way through the weeds of the exciting world of core selection, core conversion, and vendor consolidation, one of the senior executives asked a disruptive question. “Where is the strategic innovation [in a typical core conversion]?” This question struck me as both ironic and refreshing as the lion’s share of leaders in the financial industry understandably mistake all three of these topics as inherently strategic or, if not explicitly, at least as initiatives which will, in and of themselves, lead to the sustainability and financial viability of their financial institutions. Frankly, it was encouraging to hear a local financial institution leader question the decades’ old idea that simply undertaking and completing a core conversion constitutes a strategic plan and success. This isn’t true any longer (if it ever was).

The executive went on to say, “we’ve been putting tourniquets on our wounds for years, how about we stop shooting ourselves in the first place?” It was an insightful question from a leader who clearly understands the difference between incremental, operational improvements and strategic innovation. While we’re ops experts and technology nerds at heart, and enjoy talking with industry leaders about the best ways to keep their FIs out of the nightly news (it’s been just over a year since the infamous month-long digital banking outages impacting VyStar’s 822,000 members), what really excites us is an opportunity to speak with a group who understands that while replacing ATMs with ITMs might be a good move operationally, it takes much more to truly achieve strategic innovation, invigorate membership, sustain relevance, and generate a return on investment from a core selection and conversion project.

Shopping core vendors and selecting new ancillary platforms used to be about upgrading software, ‘improving’ the electronic experience of managing and displaying 1s and 0s to members – the shape and state of money for the past 50 years. Converting cores used to be about speeding up batch processing times for electronic dollars, making our daily business a little more efficient at the end of each business day. Implementing new core software was once about better buttons and screens to make life ‘easier’ for users – staff and members – and multi-million-dollar deals were inked thanks to ‘innovations’ like blinking graphical traffic lights and pictures of driver’s licenses.

It may still be possible to make a decent core decision based upon these elementary objectives. Yet, if we simply glance at the product and service strategies of market-makers and influencers invading our space, they are not constraining their ‘strategic’ choices by worrying about batch speed, fancy buttons, and imaginary traffic lights on relationship profiles. To the contrary, real innovators are committed to eliminating batch files, real-time data processing, and ensuring data can securely and seamlessly stream into and out of their organizations. Through this lens, making a strategic core selection and completing a valuable, optimized core conversion (one that does more than aims to ‘avoid impact’ but instead aspires to optimize the value of the change event) requires awareness that our world is advancing (has advanced!) beyond the era of the electronic dollar, the batch file, the ancillary software … perhaps even the centralized banking system!

This realization alone ‘elegantly simplifies’ what used to be a ‘complex’ decision process. In a world where we’re rapidly moving past the electronic dollar and the fifty year old electronic banking infrastructure into an era of streaming digital money, the sine qua non of a core conversion strategy is simple – centralized control of data. The era of digital money and streaming commerce will require strategic focus, stoic resolve, and a steadfast pursuit of selecting a home for your data and building a business committed to using that data to become a valuable nexus of community commerce as finance merges with the internet.

If you are one of the few, farsighted leaders who understands that spending millions of dollars on picking and implementing new core software simply to continue opening new branches with ‘better’ ITMs isn’t likely to keep your member base from moving their deposits to high yield accounts at SoFi, CIT Bank, or even Coinbase, then keep reading as we explore three examples of digital evolution possible when an FI truly embraces a strategy of amassing a sustainable data center-of-gravity as a next-gen engine for local commerce.

Account management & loan origination

If you’ve selected a modern core, one which likely purports to keep you on equal footing with Google, Apple, and Amazon, we encourage you to ask them how they’ll make it possible for you to streamline digital operations by processing and storing account and loan origination data within your core dataset. Is this data not part of your core business? If so, why the need for ancillary platforms and the overhead of additional software sets? Because that’s how the business unit is comfortable doing things? Because the core salesperson gets a stimmy from slinging the bolt on? What’s any of that got to do with becoming a digital, data driven, extensible business able to connect all pertinent data to any service channel: branch, online, AI, etc.? As proven strategists and partners in safely and profitably navigating complex change, we’ve witnessed consultants and vendors who suggest the goal of a core conversion is to ‘minimize impact.’  We suggest an alternate objective: maximizing the opportunity of the change event. We’re certain your competitors – like BofA and Apple – prefer the ‘minimize impact’ approach (as opposed to taking the risk to become better bastions of data defensible from disruption and more extensible to your community).

Predictive, automated use of data for member service

No one likes sitting on hold for 27 minutes, waiting to talk to a ‘customer service representative’ in a call center somewhere on the other side of the earth, only to have the call dropped during one of the intra-department call transfers, and then start over from scratch. This is why all the leading service organizations and market-makers are shifting these interactions to predictive, efficient, automated AI interactions. How do they achieve this? Control and extension of data. It’s that simple. Why do they have the upper hand on financial institutions? Because most financial institutions are running 20–30-year-old data processing systems with information tragically fragmented and disparate across the institution. The traditional solution? More training, more procedures, more fragile processes, and increased expenses. The good news is, if you are on a modern core, and working with an innovative strategic partner, you already have everything you need to optimize your member service operations, making the process almost entirely self-service, reducing the burden on your back-office staff, improving resolution times, and building consumer loyalty and trust.

Cashless transactions & digital asset vaulting

The economic landscape is quickly evolving, and while we won’t get into the pros and cons of electronic dollars vs digital assets (we’ve published extensively on this elsewhere), the reality is that approximately 90% of money is already digital, and with the Fed targeting this month for its pilot release of FedNow℠, it’s time to explore whether it makes sense to maintain physical branches for the handling of digital transactions. Is your FI strategically positioned to fully adopt real-time digital payment systems and distributed ledger technology? Or at the very least, have you taken steps to streamline cash deposits & withdrawals, cashier’s check issuance, and safety deposit box access? Retailers across the United States have aggressively adopted order-ahead models, many of which allow their customers to complete their purchases online, and pickup at in-store kiosks or external lockers by simply presenting a digitally delivered QR code from their smartphone. Leading CU’s are implementing branch appointment scheduling, and empowering their members to buy and sell digital assets, order cashier’s checks, and spin up large cash transactions online or at retail kiosks, so that if and when they do decide to visit a branch, the teller already has all the information needed to facilitate a fully frictionless interaction.

Vendors and consultants who promise minimal impacts to operations and members through core conversions are still working on the old paradigm. Optimizing your core and operations impacts everyone, ultimately for the good, which is precisely the goal of the event (especially if it’s going to be strategic). The only way to get there, to complete a core conversion with results that realize next generation capabilities, (and preclude future gun-shot wounds), means partnering with technologists that have a track-record embracing and managing these impacts, delivering seamless self-service functionality on-time and on-budget. As you ponder these possibilities, we’d love to hear your questions, comments, and ideas. DaLand has earned its reputation as THE Next Generation CUSO by our willingness to engage and collaborate with fellow thought leaders who serve this noble industry. Drop us a line or give us a call, we’d love to hear about your strategic initiatives and partner with you along the way!