A Dissection of the Core Processing Marketplace

Choosing the right core processor is critical to the success of credit unions large and small, whether they choose a single provider for all their processing and delivery needs, or select multiple vendors to fit different needs.

And just as there’s a plethora of providers, there are multiple options to choose from among the playing field of core providers themselves. And because the core system is typically the credit union’s largest expenditure behind only people, it’s important to play the field.

Here are three best practices in that regard:

• Analyze core processors that have clients similar to your credit union; check for gains made in relevant performance categories.
• Reach out to peers using a core in which you are interested to solicit an unbiased testimonial of the user experience.
• Develop core conversion guidelines, vendor management policies, and vendor risk-rating worksheets to make a smart decision and help ensure a smooth transition.

While there’s been significant consolidation in the core processor space over the years, there are still multiple choices. In fact, there are 29 different core processors offering 43 different platforms, and that’s just among competitors serving at least $400 million in aggregated assets.

That said, there are certainly clear leaders in the core provider marketplace. Two of them, in fact. Fiserv and Symitar have a combined market share of 43% as of mid-2018, and Fiserv alone serves 31.7% of the credit union industry.

Symitar continues to have the edge in large credit unions, with 131 clients of more than $1 billion in assets running on the Episys solution. Fiserv is close behind at 123 credit union clients.

That’s 254 of the 305 billion-dollar financial cooperatives as of June 30, 2018. In fact, Episys is the most commonly used platform in the movement, at 655 in the second quarter of 2018, a total that includes credit unions using third-party Symitar providers; Member Driven Technologies (90) and Synergent (65).

Next up is small credit union specialist FedComp, which serves 597 credit unions.

But in sheer number of clients, Fiserv continues to dominate, with 1,775 of the nation’s 5,551 credit unions running on the fintech giant’s various cores as of Q2 2018. Two of those – Portico and CUSA – were third and fourth on the list, at 328 and 290 credit unions, respectively.

The distribution of client adoption among providers varies through the asset bands tracked by Callahan & Associates in our Peer-to-Peer database. For instance, in the $50 million to $250 million group, significant market share remains in the hands of CU*Answers (92), CMC-FLEX (90) and Finastra (70).

As size begins to increase, Finastra – owner of the UltraData platform – gains more traction, moving into third behind Fiserv and Symitar with 40 credit union clients between $250 million and $1 billion in assets.

It’s also interesting to look at year-over-year net gains in client numbers. There were 10 that showed a net positive from the second quarter of 2017 to 2018. Most of the gains were small, with Corelation claiming the top spot there with a net gain of 6.

Properly choosing and effectively partnering with the right core processor can allow credit unions to respond to a changing marketplace with product and service enhancements, all while controlling expenses.

That’s true regardless of size, as shown in the accompanying table that compares performance by asset size.

Note: This article has been updated to reflect a correction in year-over-year net gains in client numbers.

Maya Neuman is Industry Analyst for Callahan & Associates. She can be reached at 202-223-3920, Ext. 210 or mneuman@callahan.com.