For decades, it was practically chiseled in stone. Smaller credit unions gravitated toward a service bureau (a.k.a. outsourced) data processing model, while larger credit unions favored in-house processing. In-house processing carries higher up-front costs and is more labor-intensive over time, so it makes sense that institutions that can pay more would be willing to pay more. In exchange for that extra effort and expense, these larger credit unions were able to exercise a level of control over their data processing environments that simply wasn't available from a service bureau.
Fast forward to the last few years, and we see an increasing number of larger credit unions migrating to one flavor or another of outsourced data processing. They seem willing to give up the control afforded by in-house processing for the benefits, real or perceived, of service bureau processing. When I ask credit union IT executives what accounts for this shift in thinking, the three benefits of outsourcing that I always hear are: Lower compliance burdens, more predictable expenses and fewer staffing requirements.
The compliance argument seems to make sense at first blush. Move all that hardware from your data center to your core processor's data center and you'll be moving a heavy compliance burden out the door, too. But how true is that?
Your core processor is responsible for keeping its software in compliance regardless of where the software is running. Sure, regulations regarding the physical security of your data may change, and you'll bear responsibility for those regulations, but how much of your total compliance effort does that really represent? I'm guessing not much.
It's absolutely true that an outsourced processing model brings a more stable, predictable monthly expense. When you're running your core in-house, you're faced with inevitable periodic expenses such as server upgrades, storage expansion and the like.
While predictable is one word that can be used to describe the monthly cost of outsourced data processing, hefty is equally accurate, especially for larger credit unions. Compared to the monthly maintenance costs for in-house processing, a credit union that migrates to outsourced processing might see its monthly bill from the data processor increase by a factor of two, three or more. That's a high price to pay for the convenience of not having to plan for server upgrades. When you compare the total cost of ownership for in-house and outsourced, outsourced might not be the bargain you expect.
This brings us to staffing, and this issue appears fairly clear-cut. If your IT workers aren't occupied doing the mundane tasks required to keep an in-house system running, they'll be free to focus on more strategic initiatives. That's a compelling argument in favor of outsourcing, to be sure. If you can refocus your entire IT staff from being tactical to strategic, that may very well be worth giving up the flexibility and control of in-house processing.
There's just one question that many credit union executives seem to overlook: Is outsourcing really the only way to relieve your IT workers of those mundane, repetitive tasks? The answer is quite simply no.
Before you make the leap from in-house to outsourced, you need to carefully consider how much of your IT operation has been automated and, more importantly, how much of your IT operation could be automated. If your credit union has never explored automation software, you'd probably be shocked at what it can do for you.
For example, at one point, TruWest Credit Union, a $900 million institution in Scottsdale, Ariz., had a seven-page run sheet – a list of daily IT “chores” that had to be performed by someone. Tired of being held hostage by this run sheet at the expense of various strategic initiatives that were forced to the back burner, the credit union decided it was time to automate – and automate, it did.
TruWest Credit Union reduced its run sheet from seven pages to half a page. That's about a 93% reduction in manual work. And that was just to get things started. They're truly an automation success story.
If you feel that market forces are pushing you toward outsourced data processing even though you really don't want to give up all the control and flexibility of in-house processing, you owe it to your credit union and your members to fully explore the automation option. You just may find that a new piece of software can solve most of the issues that you need to address.
Kathy Hooker Burress is president of SMA Solutions. She can be reached at 281-446-5000 or [email protected].
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