By Anthony W. Montgomery
Just a few years ago, industry publications were abuzz with talk of disruption. This disruption was coming at the hands of fintech startups – well-funded, high-tech companies that thought they could use their new technologies to cut their own slice of the financial services pie. Credit unions were surely doomed.
Personally, this talk didn’t worry me much. Credit unions had one key ingredient fintech companies didn’t: members. Fintechs had neither the public awareness nor the public trust enjoyed by credit unions large and small. And as you know, no credit unions closed due to fintech disruption.
That’s good news for credit unions. But what about all the exciting technology created by these fintechs? Is that innovation going to waste?
The smart fintechs figured out that acquiring consumer business is an uphill battle. They also realized they could make more money with less effort by selling their technology to banks and credit unions – rather than trying to compete with them. Today, the talk of disruption has been replaced with talk of collaboration.
Now, imagine credit unions with access to the latest financial technology. That sounds great, doesn’t it? Actually, it is great. Or should I say, it can be great. The simple truth is that many credit unions may find themselves unable to collaborate with fintechs.
The one thing that blocks a credit union’s success with fintechs is a legacy core processing platform. You know, those older core platforms with closed proprietary software, outdated programming languages, or even EBCDIC extracts.
I know what you’re thinking. My core processor says they’re open and that I can add any third-party technology I want. Technically, they’re correct. You probably can connect any technology you want to those outdated systems – just like you can fit a square peg in a round hole if you pound hard enough and apply enough brute force. It just may not be the best idea.
What the Legacy Core Does to You
So, how exactly do legacy cores curtail your fintech success? First, legacy cores make sure their own ancillary products and versions of the fintech innovation are the easiest to buy under an “all-in-one” or “one-stop-shop” model. Of course, these knockoff versions may not be the best at what they’re designed to do; they’re just the easiest to retrofit and make work with their older technology.
Second, if you decide you prefer the third-party’s technology to their version of it, the legacy core will hit you with exorbitant integration fees, or charge you for expensive middleware, or both. Ultimately, one-stop-shop cores have a vested interest in making sure your experience with third-party technology is as unpleasant or costly as possible.
Three Things Needed
Therefore, if you seek fintech success, you really need a core processor that offers three things:
- Open technology. The technology should be a truly open, modern, API-driven system specifically designed for easy third-party connectivity. The core should be built with software interoperability in mind.
- Open mindset. The core provider’s mindset should reflect choice and the pragmatic realization that a core cannot be the best at everything. Credit unions should be free to select the technologies that they feel best meet their objectives and ancillary products should not be forced on you and your credit union.
- Open ecosystem philosophy. The core should practice an open ecosystem integration model, which translates to low cost – or better, no cost – assistance with new or existing integrations so you get your new technologies deployed as quickly and as effortlessly as possible.
Those core processors do exist, and I’m not just talking up my own tech CUSO, which passionately offers those things. There are others that serve credit unions as well. And as we collectively grow and gain market share, we hope to tip the scales and create a market in which tech providers care more about the success of credit unions than delivering profits to shareholders.
Anthony W. Montgomery is CEO of CUProdigy.