No Love Lost: What Credit Unions Can Expect From Cores of the Future

Banking has always been about good record-keeping, but today, more than ever, financial services is fundamentally data services. As the foundation (often literally) of transactional processing and maintaining a system of record, core platforms are critical to credit unions’ ability to store, access, use and see value from their members’ data.

Today, members’ daily financial tasks involve much more than simply making deposits and taking out loans, and those tasks are completed more commonly through online and mobile channels. In this environment, cores provide another important service: Enabling credit unions to plug third-party applications into their suite of service offerings.

These are two common points of contention between credit unions and their core providers – and they emerge loud and clear in research we conducted for an upcoming report from the Filene Research Institute on the credit union-core provider relationship. We spoke with stakeholders on both the credit union and core provider sides of the fence, and our conversations inevitably returned to “the data questions”: How are data collected, shared, stored and analyzed? As credit unions look to serve their members on a more granular level, the capacity to pull data from sources like ATM transactions, card payments and loan activity with other institutions is paramount. Credit unions typically rely on their core platforms to integrate those data, which can then be exposed for analysis and put to use in creating new and innovative member services.

Core Integration and Innovation Obstacles

The ability to innovate and stay up to date with member expectations for service and technology is crucial for any credit union’s viability. It should come as no surprise, then, that when a credit union announces a core conversion, the most common reason given is that the current core isn’t supporting service innovation quickly and comprehensively enough.

One of the most promising ways of innovating the member experience is by harnessing the power of predictive data analysis to automate engagements. But any sort of automated process needs an integrated data set that can serve as a single source of truth in order to be truly effective. To paraphrase one of the credit union chief information officers who participated in Filene’s research, integration enables automation, which leads to innovation. When data are not well integrated, redundant entries and “missing” data points limit the credit union’s understanding of its members. The quality of data matters as much, if not more, than its quantity.

Integration requires openness, and credit unions say that legacy systems can create obstacles to creativity by making it difficult for third-party vendors to integrate – by, for example, relying on proprietary application programming interfaces (or APIs), or by charging for professional services to write new integrations. On the other hand, many core providers say that credit unions jump too quickly to external solutions, neglecting the market-competitive options provided by the core itself and assuming that those options won’t be as flashy as the VC-backed fintech start-up.

Core Trends and Standards

Another obstacle is the lack of common structures for sharing data. For example, if the data from one source are organized according to one structure, but the data from another source use a different structure, those data need to be normalized before they can be exposed for analysis. This creates extra work for a credit union that wants to be able to query those data regardless of where they come from.

More and more core providers are moving toward open APIs and open data architectures in response to demand for quicker and easier integrations. But there are also some who believe that the best solution would be to mandate integration standards for the entire credit union system.

The CUNA Technology Council has been developing its credit union financial exchange (CUFX) standard for the past seven years. CUFX is an open standard that establishes a consistent method of communication among vendors, cores and credit unions. CUFX has been implemented by 52 organizations, including one core provider, and has an additional 41 implementations in progress.

Its supporters argue that CUFX allows credit unions to work with best-in-class vendors and bring new technology solutions to market more quickly and easily. Critics, on the other hand, say that a standard like CUFX undermines the comparative advantage of core providers – thereby limiting competition – and that without a clear business reason for adopting the standard, there is little incentive for any of the players to do so. Moreover, implementing a standard still won’t solve the fundamental problem of enabling two-way data flows between credit unions and vendors – and ensuring that those data remain secure, protected and used responsibly.

A New Relationship With Cores

The future of financial services lies in putting data to use for more engaging, more personalized and more impactful service. This idea is so important for the survival of financial service providers that Filene is bringing together leading academics this May to explore how technology will be used to engender trust in an environment where most consumers expect their data to be exploited. Far from some science fiction future, the use of data to tailor financial services speaks to the traditional strengths of credit unions: Member-focused relationship banking.

In another Filene research report we co-authored, which was released last month, we describe how “the 21st century credit union” will, in part, be a provider of “concierge banking.” That is, the credit union of the future will not only be a deposit-taker and lender, but also a financial advisor, wealth manager and safety net, automating tasks that drain members’ energy and attention while guiding members individually through the decisions that matter throughout the course of their lives.

This relationship will not be possible, however, without a core platform that can integrate different kinds of data from different sources. This is the crux of the issue: As members require and expect increasingly personalized relationships with financial institutions, the relationship between credit unions and cores is also changing. The cores of the future will be not simply systems of record, but multilayered data management systems. All roads, in other words, lead back to the core.

Taylor C. Nelms (left) is Senior Director of Research for the Filene Research Institute. He can be reached at taylorn@filene.org. Stephen C. Rea (right) is Postdoctoral Researcher, Department of Anthropology at the University of California, Irvine. He can be reached at stephen.campbell.rea@gmail.com.