CUs Caught Between Legacy Systems & New Tech Challenges

Lingering legacy technology, and fintech development speeding past their ability to stay up-to-date are some challenges facing credit unions in this era of fintech disruption, better member experience and digitization.

Dealing with these IT challenges was a focus of the second part of a recent CU Times discussion with Ted Bilke, president of the Monett, Mo.-based Jack Henry & Associate’s Symitar division; Robb Gaynor, chief product officer for the Austin, Texas-based Malauzai, a Finastra Company; Mickey Goldwasser, vice president of marketing for the Glastonbury, Conn.-based Payrailz; John Levy, EVP of the Rahway, N.J.-based IMM; Keith Malbrue, chief information officer for the $1.4 billion, Dallas, Texas-based Credit Union of Texas; and Joe Salesky, CEO of the San Francisco, Calif.-based CRMNEXT.

We asked our group about the enduring presence of older technologies have in today’s fintech.

Reports indicate a few financial services still driven by old technology such as COBOL in ATMs. According to Reuters, there is still 220 billion lines of COBOL code in production today; and some 80% of in-person transactions streaming through the nearly 60-year-old programming language systems.

Salesky maintained he sees few ATMs running COBOL, yet they all talk in an 8583 protocol. “[8583] lasted from the early days of tape-drives and batch settlement into the real-time protocol under every credit card and debit card transaction.”

Bilke said he is not aware of any COBOL within Jack Henry but did maintain that the business logic remains the same for items such as dividend processing. There’s evolution happening beyond just the business logic language, Bilke added. “The separation of the data from the application, which has happened for most large systems.” Many systems extract data out of the application and into a commercial database such as Oracle, IBM Db2 or Microsoft SQL.

There is also transition to Java as a general-purpose language, acknowledged Bilke. Half the systems still use PL/I, a less pricy procedural language designed in the 1960s and considered a legacy toolkit. “I think it’s a balance of needs, costs, and being able to deliver what’s necessary.”

Gaynor said, “The closer you get to the core banking solution, the older the technology tends to be. The key is to leverage the core for its strengths, even though it represents an older technology, and integrate digital to unleash the core in ways never imagined.”

Levy suggested IMM comes across older tech at times, but they adapt and to make it work. “We have no other choice.”

Levy maintained IMM sees cores, loan origination, account opening and other systems, upgrading solutions, going from Simple Object Access Protocol to Representational State Transfer. SOAP was the longtime standard method for web service interfaces, but REST has dominated in recent years representing more than 70% of public APIs, per Stormpath.

Disruptive technology sometimes pushes fintech vendors so far ahead – or behind – the development curve that it engulfs credit unions before they are prepared, or when they are ready, to adopt new tech.

“We used to feel overwhelmed prior to our last major systems upgrade. The reason was because although we wanted to move in a new direction the platform either would not support the move or the connections were not built and available to take advantage of the move,” Malbrue said. “If there is an overwhelming feeling now, it would be because there are so many options, which one do you choose first? I’d rather have this problem all day long.”

Goldwasser thought, “It’s asking questions and listening. It’s really gearing the answers to make sure you’re trying to meet their challenges.”

According to Gaynor, tech companies can make new tech more palatable when rolling out all the cool new stuff. “Fintechs need to ensure their focus and core competencies align with the problems facing credit unions. In other words, LISTEN to the credit unions and build what they ask for. It’s not that hard.” Then fintechs must deliver these products and services incrementally, so it doesn’t overwhelm credit unions.

Said Salesky, “It’s déjà vu for credit unions, where historically a new system is created for every new product or channel! Rarely is anything replaced. Credit unions have been missing a platform that embraces innovation, simplifies processes and powers their team and member interactions.”

Levy pointed out keeping up with their competition, and GAFA (Google, Apple, Facebook, and Amazon), is difficult but not impossible. “We try to deliver a solution that fits the credit union best.”

From a credit union standpoint, the issues of security and compliance should also be top of mind. Goldwasser said. “In order to pass exams, credit unions are making sure they’re up to date on what tools they need to be using.”

Bilke emphasized, staying abreast of technology and security requires solid partnerships. “Make sure you’re teaming with a credible player. It’s like taking your car to the dealership, where you have somebody that’s going to stand behind it, or you’re going to use a shade-tree mechanic that may leave you with some exposure and some risk.”

What are some tools and techniques credit unions can use to ensure members have a positive engagement?

“I can help you, not can I help you,” explained Salesky. “Growth in membership and products per-member is the true-north. The best credit unions have focused on ensuring the member experience feels frictionless and easy like Amazon purchases, yet as personal and consultative as your primary care physician or the Apple Store.”

For CUTX it is a matter of staying on top of fintech. “I would say that like other credit unions, our executive team attends many industry events and educational sessions. We also listen to our members’ feedback on the types of technologies they would like us to offer,” Malbrue noted. “We are also blessed with having a board of directors heavily involved with our membership feedback.”