Avoiding Core Conversion Missteps
Author: WB King
Published in: CU Journal
You’d be hard-pressed to find a credit union that looks forward to a core conversion. The process is generally considered cumbersome and taxing, and that’s a best-case scenario. Still, there are steps CUs can take to make the process easier, and Credit Union Journal spoke with several core conversion industry experts about best practices.
“There is a misperception that a conversion of a smaller credit union – say, less than $25 million in assets – is easier than the complexity of a conversion of a billion-dollar credit union,” said Barb Lowman, VP of professional services for Fiserv’s credit union division, which handles upwards of 20 conversions per year. “I’ll argue that the simplification comes more into effect in how their products are set up and how they function, and what third parties they interface with,” she added. “The process is the process regardless of the size of the credit union.”
Bret Herbert, SVP of project management for the Memphis, Tenn.-based Strategic Resources Management, echoed Lowman’s stance.
“We differentiate our approach based on the driving business factors of a client rather than asset size,” said Herbert. “We have relatively small clients with very complex and sophisticated requirements for core systems, and conversely we have large clients with very basic needs. The complexity of product offerings and the flexibility to change product parameters is much more important to our analysis than asset size.”
Know your contract
In most cases, a core contract term of service is seven years, and conversion timelines range from nine to 18 months. But the process needs to start before that contract ends, and experts offered a variety of opinions as to when those steps should begin.
“At a minimum, credit unions need to start their evaluation two years from renewal,” suggested said Tim Maron, director of business development services for the San Diego-based Corelation. “It’s at least six months to a year [for the] evaluation process, then a 12-month conversion process. Buying out of their contract really depends on loss factor on the credit union not meeting their goals. It may be more cost effective paying the early termination fees.”
Ted Bilke, CEO of the San Diego-based Symitar, said in his experience credit unions under $1 billion in assets are usually “not aware” of their core and vendor contract obligations.
“Credit unions also have to be aware of the vendor lead times,” said Bilke. “The typical time frame is 15 to 18 months. You have to start your conversations early.”
He added that nearly all CUs with $200 million or more in assets are hiring consultants to manage the core conversion process.
According to Sabeh Samaha, CEO of the Chino Hills, Calif.-based Samaha & Associates, one common CU misstep is making core decisions only at senior management-team level, which can cloud a strategic point of view.
“These projects are highly tactical, operational and functional,” Samaha said. “When this is not studied at the deepest level, many gaps and surprises result after contract signing when it is too late to remedy effectively.”
Another misstep, he noted, is executives not planning for and/or allowing outgoing system upgrades during ramp-up to conversion. “This renders all testing and certifications null and void due to changes introduced in the upgrade process,” he said.
Data gathering Many credit unions approaching a core conversion have been running the same core platform for 10 to 20 years. As a result, a conditioning process has transpired, which needs to be broken, explained Dan Micale founding partner for the Aurora, Col-based DaLand Solutions. Breaking a realized core conditioning is accomplished, in part, with a thorough the RFP process.
“We do as much data collection as we possibly can,” he explained. “We are having conversations with vendors. We want to know how the different individuals in the organization see and view the system. These are all important pieces to the conversion process. We make decisions on the data we gather.”
To avoid missteps, industry experts implored credit unions to elect dedicated leadership for the core conversion process. This person or team is the go-between with consultants and vendors, and reports to senior management.
“This is often a project manager or a member of a business services department – a person who understands the entire organization and how all the processes come together,” said Micale. “This person is an extremely valuable resource, but it is a tough skill set to come up with.”
Fiserv’s Lowman was hesitant to suggest an average timeline for the RFP process – it “should take as long as it takes,” she said – but noted that it can often take six months or more. More important than a timeline, she said, is that the credit union understands its current feature functionality, which features they don’t want to give up and that the credit union identify feature functionality gaps.
In Lowman’s view, the most successful institutions are those that are fully engaged and take ownership of the conversion process.
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“We do the best we can with the resources we have, but there is knowledge we have to get from the credit union, so there is a level of engagement that becomes crucial,” said Lowman. “You have to tie the RFP process to the current and strategic priorities of the credit union.”
While Maron said credit unions know their pain points best, he added that after many years, they have also grown accustomed to them.
“This sometimes does not translate effectively into their RFP process,” he said. “Having the ability to spend as much time with the solution is critical to really understand if the solution is a good fit.”