Direct FCU’s Core Conversion Adventure Begins

Editor’s note: Direct Federal Credit Union is a one-branch, $750 million, credit union located in Needham, Mass. It is undergoing its first core conversion since 1984 and has partnered with CU Times to document its journey until the new core is anticipated go live in 2021. Contributing authors will be members of the project team and each article will tell a story from a different point of view. Follow along at cutimes.com/instantinsights.

The year is 1984. The hit film “Ghostbusters” is in cinemas and a gallon of gasoline is only $1.10. It’s also the year that Direct Federal Credit Union did its previous core conversion. That’s right, Direct has been on Fiserv (formerly Summit) Spectrum for over 35 years. Lucky for us, we’ve had the same core administrator, Ned, for all that time. Ned’s specialty is making a core from 1984 do things that weren’t even dreamed of back then.

I joined Direct in 2016, after spending 10 years outside of the financial services industry, working for high tech startups. Direct intrigued me. Here was this $460 million credit union with a single branch named Massachusetts’ fastest growing credit union and the CEO had an aggressive growth strategy that was heavily reliant on the digital channels and contact center. I was curious if I could incorporate some of the startup innovation into a credit union.  After an initial assessment of Direct’s technology needs, I worked with the leadership team to lay out a roadmap centered on a new core and digital banking platform.

So, why now? The short answer is flexibility. Direct has had two major changes to our business in the past two years. First, in 2018, we expanded our field of membership and can now service 2.5 million people. With a single branch operating model, we need to be able to offer our members a variety of access points when it comes to how they bank with us. In order to do that, we need the ability to work with established vendors and partner with the latest fintechs, many of which only program to the newest cores. The second change is the 2019 launch of Business Banking products at Direct. Our current core had some of the functionality we needed to accommodate these products but does not have the functionality we need to grow these products to be a sustainable part of our growth strategy.

We started planning for the core conversion in 2017. We spent the last few years adopting LEAN process improvement practices and focusing on improving our workflows. LEAN has helped us minimize steps and improve the member experience, but we have come to a point in our LEAN journey where we feel we can’t continue any further without replacing our core. In 2018 we hired a full-time project manager to start a formal Project Management Office at Direct that follows PMBOK standards. The PMO has been instrumental in creating a project portfolio that is strategic and focused, establishes project scopes and developed a project resource plan for all employees. In 2019, we hired a consulting company to help guide us through the RFP process. We had specific objectives for the consultant:

1. Select the vendors to invite to participate in the RFP. Direct invests a lot of time in educating our staff by sending them to classes and conferences. By the time our consultant came on board, we had a short-list of the vendors we wanted to invite. Direct also made the decision to evaluate every system that integrates with the core and consider a possible replacement. With so many possibilities, hiring a consultant who has been through the process many times before was critical.

2. Write the RFP. The consultant provided a template for Direct to review, which consisted of hundreds of questions, some of which didn’t apply to our lines of business while other important questions were missing entirely. Our team spent weeks getting together to go through the questions. We spoke to our peers who have completed a conversion to find out what types of questions they wished they had asked but didn’t and what lessons they learned the hard way. We took those questions and lessons learned and added them to the template.

3. Make timing a priority. We knew we wanted to Go Live with a new core in the first or second quarter of 2021, so we asked the consultant to push hard on the vendors to get the initial demos scheduled for May 2019. Unfortunately, we learned that our desires did not necessarily match up with the availability of the vendors’ resources, so we had to push core demos until June and early July and digital banking demos until early August. Final demos took place in late August.

4. Demonstrate honesty and transparency. With so many moving pieces with core and digital vendors, we relied on the consultant to keep the vendors honest and to ask questions during the demos. As it turned out, this expectation was not realistic, and our team ended up asking most of the probing questions and identifying topics that we wanted additional information on. These topics were used in the next phase of the process – visiting existing customers. The visits were the most important phases of the RFP stage as we got the opportunity to learn from people who use the core systems daily. We learned what worked well and what didn’t. Most importantly, we were warned of what to watch out for during the implementation in order to keep things running smoothly.

5. Start negotiations. The consultant provided a wealth of knowledge when it came time to negotiate with the vendors. They knew what we should be asking for during the planning, implementation and support phases. We combined their templated terms and conditions with our own wants plus those learned from other credit unions that have gone through a conversion. During the negotiation with the two final core vendors, we had the opportunity to attend their respective user group meetings. This opportunity gave us the final critical information we needed to make our selection. This is the main reason I would recommend continuing to negotiate with both of your final vendors right up until the end. It’s not always about the money. For us, it was speaking with the existing customers that made us change our mind at the last minute.

At the end of the RFP and negotiations, we selected Corelation Keystone for our new core and Alkami for our new digital platform. Both products have an open architecture, which will allow us to work with any third-party vendor we choose or allow us to develop our own applications. Our go-live date for both will be Feb. 1, 2021. Several of our ancillary applications will move from batch processing to real-time interfaces and the core will move from in-house to a hybrid hosted model.  A Service Bureau will host the hardware, take care of patching and automate regularly scheduled jobs, but Direct staff will maintain and make any changes to the core application itself.

It’s been a very busy but educational year. Some key lessons we learned were:

1.  Consultants are there to assist, but you should do your own research as well. Corelation was not one of the vendors originally suggested for us by the consultant but was the one we chose in the end.

2. Plan for additional time. We wanted to see demos sooner than when the vendors had availability, and it pushed our overall timeline out three extra months.

3. Know your business. An RFP template will not fit every combination of product lines and ancillary systems. Be sure to have a question for every scenario.

4. Lean on your peers. Core conversions are done regularly. Most credit unions are happy to share their experience with you if you ask.

I need to end it here because we have a lot of work to get started on and complete in the next 13 months. During the process, we will be giving regular updates on our progress – the good, the bad, and the ugly. We hope that documenting our experience will benefit other credit unions. To those of you going through a conversion now, good luck – and feel free to reach out to me with any questions at the number below.

Brian Medeiros is SVP, Chief Information Officer for Direct FCU in Needham, Mass. He can be reached at 781-433-2900 Ext. 215.