COLUMBIA, S.C. – Deploying a key member service remotely through an application-service provider (ASP) is not unique, but increasing numbers of credit unions are adopting a hybrid approach – keeping their core transaction processing in-house while managing online banking and other add-on solutions offsite. For many credit unions, it's an attractive alternative. For many others, it's perhaps their only choice, and it's a matter of survival. Derrick Smith, president of FedComp, is well aware of that, and that's why the core processor is lowering the bar for access to Internet banking for his 1,500-CU base by supplying online transaction ability at a relatively minimal cost while keeping the core processing in-house. Most providers charge for the service based on usage. FedComp includes it at no additional charge as part of a bundled package of solutions for credit unions under $300,000 in assets, while assessing others $25 to $100 a month to use its Internet Teller service. Most ASP online banking, of course, occurs in real time, which is something Smith says his Virginia-based firm is working toward, but for now it's a batch process, running once or twice a day. "It's not as robust as real-time, and we don't contend that it is. But the complaint rate is less than 1%, and we are making it possible for our clients to provide a service that their members are demanding, one that they need to survive among all the larger CU's and banks and other competitors out there," he says. "There's no per-transaction fee, no special phone line fee, no special equipment other than what they need to access the Web, an ISP and a PC that can handle it," Smith says. "This group of credit unions is probably under assault more than any other," he says. "These are the guys who are going away, which is too bad, because in a way, they represent the CU philosophy so strongly, serving the underserved, serving citizen groups in ways that no other organizations can reach. "So even though we serve a mid-market, too, these small credit unions are very important to us and our ASP solution is easy for them to deploy, easy to maintain and it's one way they can be competitive with products and services that they otherwise would not be able to offer," he says. Smith says about 100 FedComp clients have deployed online banking as an ASP, with another 300 in the queue for both Web sites and the Internet Teller application. USERS is another core processor that has seen that trend. About two-thirds of its 180 Internet banking clients are doing it by ASP, and about half of them are taking the "hybrid" approach of combining an in-house core system with ASP applications for such things as online banking, billpay and e-statements. Size Doesn't Matter Size isn't the only determinant, the Pennsylvania-based vendor says. "The interest is coming from a diverse group of credit unions. In fact, we have credit unions with over 85,000 members choosing our ASP Internet banking option," says Dan Jorna, general manager of DataSafe online operations for USERS. "At least among our own clients, we feel that the movement toward ASP is a function of word-of-mouth generating interest: clients are hearing about others' successes and that's getting their attention," Jorna says. "It also seems to be a favored option for credit unions that are just adding Internet banking at this point," he says. "Time-to-market is definitely a factor in your decision, and the ASP model can allow you to launch the service faster." Other factors include security, the limited IT resources of most credit unions, upfront capital expenditure and the demands of 24/7 availability, all perhaps more easily handled by the economies of scale offered by a vendor than an individual credit union. For instance, in the matter of security, Jorna says, "Internet security needs constant, 24/7 monitoring. . And each new threat requires some sort of remediation – whether it's installing a Microsoft patch, upgrading to a new version of intrusion detection, etc. "The ASP provider is able to make these investments on behalf of a large client base." He adds that "it's not that one approach is inherently more or less secure than the other. The issue is that implementing home banking in-house places the burden of ensuring security entirely on the credit union's shoulders, while the ASP model shifts the bulk of that burden to the supplier." Credit unions, of course, are responsible for making sure that their suppliers are adhering to the regulations and best practices of Internet security, which Jorna and Smith both say their firms are well aware of and adhere to. As far as costs go, credit unions like WCTA FCU which have adopted the hybrid approach will need to watch closely how the equation shifts as usage grows, says Becky Hulett, vice president of operations for the $230 million CU in Sodus, N.Y. Her 35,000-member organization has an in-house USERS core system and offers online banking, billpay and e-statements as an ASP. More than 7,000 members use the Internet banking option, and as is the industry standard, they wouldn't know the difference whether the transactions are being serviced in-house or through a remote site. However, there are some differences that need to be monitored, Hulett says. "We're going into the second year of our contract soon and we will be taking a look at it again in six to nine months to see if it continues to be the best option for us," the WCTA operations chief says. "We'll look at costs closely, of course. USERS offered us a cost-effective solution; however, the more members we get the more we will have to weigh that," she says, since the suppliers' charges generally are based on usage. Jorna of USERS also notes "that there's inevitably a break-even point at some point in the future, based on your penetration rate, when in-house may become more cost-effective." He advises credit unions to consider both initial and ongoing costs in calculating ROI for such deployments. "For example, with an in-house solution, as your Internet banking penetration grows, you may need to upgrade your hardware, add another server for load balancing or add bandwidth," Jorna says. Much of that upgrading, of course, takes place at the vendor's end, but those growing pains can affect the CU itself, as well. "There have been a few bumps here and there. Nothing is perfect," says Hulett at WCTA. "As our members quickly began using the product, USERS had to beef up its system to accommodate them so that we had the response times our members expected. "But we also had to increase our pipeline. We had a 56K connection that we had to double to a 128K, but those are issues we would have had to be doing ourselves, so they're not out of the ordinary," she says. Overall, Hulett says, "We don't feel like we've lost any control over things at all." -

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