Choosing the Right Core Processor for Your Credit Union: Key Considerations and Benefits

According to McKinsey & Co., “many” smaller financial institutions are shopping around for new cores over the last two years. Additionally, “Most banking leaders are aware of the significance of their core banking system, but many do not have explicit strategies tied to the core. And as banking continues to be disrupted, the traditional core architecture may not be able to deliver for incumbent banks; and given the long lead times required for transitioning to a new core, they need to set their strategies in motion now.”

Selecting the right core processor for your credit union is critical. It’s also one that credit union leaders put off for a number of reasons: comfort level, complexity, lack of understanding of choices, upcoming key retirements, long contracts, intensive research and more.

The core processor serves as the backbone of your credit union, facilitating various operations and supporting essential functions such as account management, transaction processing and member services. With numerous options available in the market, it can be overwhelming. Credit unions must carefully evaluate their needs, prioritize key factors and choose a core processor that aligns with your strategic goals and operational requirements.

Let’s explore the key considerations in choosing a core, not the least of which is…

Member Service

Credit unions pride themselves on excellent member service. That comes with a price tag of more than a smile at the teller station and a lollypop or dog treat at the drive-thru. Sometimes we don’t truly value our members as owners; they should get to tell us what they want from our services. In general, that’s going to be cost, convenience and speed. How well does your mobile banking work? If it’s not on par with member demand, why is that? Sometimes it’s complicated or unavailable core banking integrations – or costly ones at that! Find a core that will allow your credit union to serve members the way they want to be served. And let’s not forget…

Employee Service and Training

Members will be nonplussed if your team takes forever to complete a transaction, or they are greeted with employees (also members!) who are in a foul mood because the technology your credit union runs on never works right. Are member service reps clicking through a bazillion screens and platforms to complete what should be simple tasks? And if these processes are that complicated for longer term employees, what kind of nightmare must training new ones be?

Assessing Functional Requirements

Select a core processor by assessing your credit union's functional requirements. This involves evaluating the institution's specific needs in terms of member services, product offerings, compliance requirements, reporting capabilities and integration with other systems. A comprehensive analysis of these requirements ensures that the chosen core processor can effectively support the credit union's day-to-day operations and future growth plans.

Scalability and Flexibility

Credit unions should consider the scalability and flexibility of a core processor. As you grow, it's essential that the chosen core processor can accommodate the increased volume of transactions and member accounts without compromising performance. For this very reason – and many others, you’ll likely want to consider a cloud-based core. Additionally, the core processor should be flexible enough to adapt to changing market dynamics, regulatory requirements and emerging technologies. A scalable and flexible core processor helps credit unions to future-proof operations and seamlessly adapt to evolving industry trends.

Integration Capabilities

Integration capabilities play a vital role in the selection process, another plus for cloud-based cores. Credit unions rely on a variety of third-party applications, such as digital banking platforms, loan origination systems and payment processors, to enhance member services and operational efficiency. The chosen core processor should have robust integration capabilities, enabling seamless data flow between the core system and these applications. Smooth integration reduces manual efforts, enhances data accuracy and improves overall operational efficiency.

Compliance and Security

Compliance with industry regulations and ensuring data security are paramount for credit unions. When evaluating core processors, credit unions should consider their track record in compliance with regulatory requirements such as NCUA regulations, data privacy laws and industry standards. Additionally, the core processor should have robust security measures in place to safeguard member data and protect against cyber threats. In addition, be sure to review your prospective (and current) core’s disaster recovery and business continuity plans. Require, as part of your contract, that you’re able to access disaster recovery testing results on a regular basis. A strong compliance and security framework provides peace of mind and ensures your credit union's ability to meet regulatory obligations.

Technology and Innovation

The chosen core processor should be built on modern technology and offer innovative features that can enhance member experiences and operational efficiency. Current legacy cores have been operating on a patchwork of fixes to decades-old technology that is suboptimal at best. Look for features such as mobile banking capabilities, real-time transaction processing, self-service options and analytics tools. But don’t necessarily go with a core that offers a complete package – no matter the discount – because you’ll run into a ‘jack of all trades, master of none’ situation. Embracing innovation that your leadership determines is right for your credit union is key to staying competitive in today's digital landscape.

Support and Service

Credit unions rely on a responsive and knowledgeable support team from their core processor. How does your existing core measure up? Assess the level of support and service offered by the core processor, including availability, response times and expertise. Are they a true partner or simply a vendor selling you widgets? It's crucial to choose a core processor that provides reliable and timely support to address any issues or concerns that may arise. Regular software updates, training resources and a user-friendly interface are additional factors to consider to ensure a smooth user experience for credit union staff.

Cost and Return on Investment

The cost of implementing and maintaining a core processor is an important consideration. Credit unions should evaluate the overall cost of ownership, including licensing fees, implementation costs, ongoing maintenance expenses and potential upgrade costs. It's essential to conduct a comprehensive cost-benefit analysis to determine the ROI and long-term financial viability of the chosen core processor. While cost is a factor, it should be balanced with the value and benefits the core processor brings to the credit union.

Choosing the right core processor is a significant decision for all credit unions, impacting operational efficiency, member experience and future growth potential. Carefully considering what’s right for your credit union regarding scalability, flexibility, integration capabilities, compliance and security measures, technological innovations, service and ROI, your leadership team can make an informed decision. Your core processor is the backbone of your credit union – only behind your members. Make sure it will serve them well, including your employee-members.