AUSTIN, Texas—Fintechs are driving credit unions to spend more on technology, particularly mobile. But many credit unions are spending more than they need to—sometimes much more–and not holding vendors accountable for what they say their solutions will deliver, according to one expert.
Brad Smith, managing director with Cornerstone Advisors, shared with the CUTomorrow Conference how fintechs such as Rocket Mortgage are raising member expectations and putting pressure on CUs to meet demands—which can lead to hasty decisions.
Cornerstone’s annual technology spending report shows a shift in tech spend among credit unions. Smith said the data show that while CUs are spending about the same on technology annually—about 2% of assets—more of the dollars are heading to electronic delivery, particularly mobile and remote account opening. There is also more money heading to CRM and business intelligence.
“This shows that our technology infrastructure and core costs are declining,” said Smith. “We are not spending more, but what we are spending on is changing. The core and infrastructure costs are becoming commoditized.”
A Changed Focus
Smith said Cornerstone data in 2016 showed the big CU tech focus was on improving efficiency.
“Not today. Today is more about service delivery and the big issue is how do we get more value from what we spend,” explained Smith.
Therein lies a key issue facing credit unions today, said Smith, who suggested that credit unions may not be doing a good job of receiving superior value from their tech investment due to weak vendor management programs.
He said one of several key issues CUs face is being too dependent on their current core provider, which may offer a mobile solution that is not a good fit for younger members.
Smith said that several of the core providers offer mobile solutions but require the user to first log into online banking to set that up.
“Many young adults will never do that. They won’t use the PC. They are mobile only,” he said. “That is a fundamental challenge.”
Banks Double Down
Smith cautioned CUTomorrow attendees to not simply think that upgrading to the core provider’s mobile solution is effectively meeting the emerging needs of their digital-savvy members.
“The big banks are doubling down here,” said Smith about banks’ slick new mobile offerings that are not tied to online banking. “I don’t see credit unions moving in this direction like the big banks are.”
Part of the reason credit unions aren’t moving in that direction has to do with budget restraints caused by overpaying for what they already have.
“My guess is most have traditional vendor management programs that are really mostly vendor risk management—to satisfy the examiners,” he said. “You put the vendor management program in a binder and it sits on the shelf to show the examiner.”
But if the management program is mostly risk-focused it’s not doing its key job, which is to drive vendor performance and drive greater value in what the CU is spending its money on, explained Smith.
“Vendor management is about performance, cost and risk,” said Smith. “And I argue that risk is the least important of those three things.”
Avoid This Trap
Smith stressed that credit unions must not fall into the trap of only evaluating their technology vendor right before a contract renews, which for core systems is typically every five years.
“It’s really, now, vendor performance management,” explained Smith. “You are holding them accountable and not every five years.”
Smith said that what the credit union must do is create agreements with tech providers that have “teeth” in them, that hold the vendor accountable for ongoing performance.
“Service level agreements, you need them,” he said. “And you have to regularly assess your vendor, possibly every six month, to see if they are meeting their agreed upon levels of service and doing what they said they would do. This will help you get the love from your vendor all year round—not just the six months before their contract is up.”