5 minutes
Every credit union had to decide at some point in its history whether to do its item processing in house, or to work with a third-party provider. Sticking with a choice to outsource made years ago may seem like the path of least resistance. But, with check processing solutions becoming progressively better, the game has changed. For many, it’s time to reconsider.
Digital check processing has been around for a dozen years now, since Check 21 came into effect. Although this opened the door for direct-to-Fed processing, outsourcing remains widespread. Some institutions fear the complications of working with the Federal Reserve. Others, concerned about operational efficiency, remain unconvinced that savings or efficiency gains justify the costs of transitioning. And even among those who see the potential, many believe their own institutions are too small—or too large—to reap the benefits.
At Bluepoint Solutions, we’ve helped credit unions make this choice for more than eight years. Five of the credit unions that successfully switched to in-house processing offer their thoughts in this virtual roundtable. (See especially those under the “Streamline Operations With In-House Item Processing” header.)
The five CUs in our roundtable range in size from $65 million to $1.8 billion in assets, and are located in states as farflung as Hawaii to Maryland. All acknowledged that it had been a significant change. Not one of the five would look back. Here’s a summary of some of their thoughts from the write up.
Working with the Fed
Countering the almost legendary perception that it’s difficult to implement a direct-to-Fed process in today’s world, each of the CUs in the roundtable expressed how surprisingly easily and quickly they had found the transition. Sacramento-based $1.6 billion Schools Financial Credit Union expected the process to be daunting, but former CEO Jim Jordan, who retired Dec. 31, said, “…from the time we selected Bluepoint as our vendor, it took less than four months to get fully operational.”
Travis Bow, vice president at $566 million University of Hawaii Federal Credit Union, Honolulu, told us, “The Fed provided all the necessary information to re-map our core files, and helped ensure the transition went smoothly, all within a four-month window.”
At $108 million Montgomery County Employees Federal Credit Union, Germantown, Md., Digital Banking Director Jorge Saenz had heard the rumors about the Fed, but said “we had a great experience … our representative [from the Fed] walked us through the entire process from start to finish. Once we had everything set up [and documented], it ran smoothly and worked very well from the start.”
Not to minimize the work involved, Paul Maslonka, chief operations officer for $1.8 billion JSC Federal Credit Union, Houston, cautions, “If you don’t have a master account with the Fed, there is some time involved in setting up the VPN (virtual private network) and FedLine,” https://www.frbservices.org/Electronic-Access/AccessFedLine.html which uses web technology to access the Fed’s payment services, including account and check services. “But,” he adds, “working with the Fed is easy and painless.”
Considerations for Big and Small CUs
What about the operational benefits of in-house item processing? Do they apply to all institutions? Is there a size of CU for which in-house item processing is not feasible?
The savings associated with making the switch has definitely been worthwhile for Coconino Federal Credit Union, Flagstaff, Ariz., according to Katherine Escalera, CFO of the $65 million CU.
“We looked at a lot of vendors to support this change, taking into account the long-term costs of continuing to outsource, compared to the upfront cost of converting,” she explains. “For a small credit union like ours, we feel our $1,200-a-month savings, taking the entire switch into consideration—check processing, ACH, cash delivery and wires—is significant.”
Schools Financial CU also appreciates the simplicity of managing a range of related functions in house. The CU now has direct transmission and receipt capabilities with the Fed, and performs daily in-clearings processing, lockbox remittance, Check 21 imaging, branch capture and file aggregation.
University of Hawaii FCU took a deep dive into comparing the cost and operational factors involved, and especially into various vendor offerings that would be alternatives to working directly with the Fed, Bow says.
“We looked at banks, other corporates, and other technology vendors, including core vendors,” he explained. “It became very clear during the process that going direct to the Fed would be the most cost-effective solution.” Fed fees are significantly lower than the outsourcing charges the credit union had been paying, so “…it will take less than five years to recoup the cost of the system, but we expect to continue using the system for as long as we are clearing checks for our members.”
And credit unions of all sizes can expect to achieve long-term cost savings, improvements in efficiency, and significant ROI. JSC FCU, for example, had been using its corporate credit union for securities and investment advice, international wires and item processing. When the credit union made the switch, it simply added item processing to its existing master account with the Fed for ACH. Incremental costs were less than outsourcing even given their relatively large volume of items.
With check volumes declining a little each year, how much of a priority is this decision? The credit unions we work with are clear that their implementations were simple and their continuing benefits valuable.
“It’s not just the savings from outsourcing,” one said. “It’s the reduced workload through the whole process. We all have staff constraints. Every bit of employee time we can recapture is valuable.”
Outsourcing or in house? Each credit union has its own factors to consider and both are still good solutions. But today’s technology makes direct-to-Fed a reasonable choice for a wide range of institutions, and it’s clearly time to debunk the myth that working with Fed is always problematic.
“If we can do it, anyone can,” Maslonka adds.
Alissa Fry-Harris is the director of marketing for CUES Supplier member Bluepoint Solutions, Henderson, Nev.
