OPEN, but it’s Not Business as Usual
Open technology, open standards . . . we hear these terms bandied about with more
frequency. Everyone wants to be perceived as “open”.
So, what does it mean, why is it important and most importantly – when it comes to your core data processing system, what does it do for your credit union and how can you tell who really is open?
What is Open?
From an overly simplified technical perspective, open technology is designed to “play well with others”; others being hardware, software applications, systems and networks, developers and end users. There are actual layers in openness and all have to be present to be truly open. The first layer is Open Technology or open standards programming languages. Next is Open Architecture which sits on, but does not necessarily require, Open Technology. Equally important is the final layer, which is an Open philosophy.
There are varying degrees of “open”. On one end of the continuum are closed technologies and hardware that control all conditions under which they are used and hinder or prevent collaboration with anything that’s different from it or not created by its maker. This lack of openness was more prevalent in the past. Market pressure, globalization, the emergence of open standards and “free” software and even anti-trust legal actions are demanding change if the manufacturer is to thrive in the current economy.
At the other end of the continuum are open, shareware and even freeware systems and applications that can be downloaded, enhanced and shared back with the original developer to benefit from global software engineering talent. A good example is the Linux Operating System software that can be downloaded, used, and even changed by anyone capable of understanding the technology.
Today’s “open” core systems fall between the extremes but arguably the traditional model continues to struggle to be open due to technical issues and/or due to “coopetition.” Coopetition is a relatively new term coined to describe cooperative competition. This can be observed in the varying levels of system capability integration across different data processing solutions that are often owned by the same parent organization.
Why is “open” Important?
Credit unions need to grow, not just maintain this market message. Just like credit unions and the members they serve, technology solutions, including core data processing systems, are rarely “one-size-fits-all”. With all the demands by regulators, members and competitive pressures placed on credit unions it is very difficult for traditional core processors to deliver all the product and services needed by credit unions in order to thrive. Open technology enables credit unions to maximize the range of innovative technology opportunities available in the marketplace to be more effective and efficient while providing a consistent member experience regardless of channel used.
“Open” is vital for credit unions to ensure their ability to compete with the rapidly evolving financial services industry and respond to the likes of ING Direct’s Orange Savings Account, reserve a place at the table if new strategies such as peer-to-peer lending really take off, or reach members that are turning to payday lenders for service. Those are just a couple of examples that potentially whittle away member relationships if technology systems are not capable of adapting to an individual credit union’s strategy needs. Open systems enable credit unions to offer best-of-breed boutique products and services needed by their members in order to differentiate and gain or retain the coveted PFI status. When leveraged effectively it can effectively create a gargantuan virtual footprint for the credit union regardless of asset size.
Society as a whole is becoming more mobile across all demographics. Boomers are one of the fastest growing segments in adopting the internet as a preferred delivery channel. Gen X/Y could care less to walk into a financial institution and, not only are they computer literate they are mobile technology literate. The result is that typical brick and mortar strategies no longer completely service either segment.
Traditional 24x7 delivery must change to meet the needs of all credit union members. It is not enough to have a branch infrastructure, an internet channel, a shared branch channel, and call center. Data needs to be able to move seamlessly between the channels and the credit union needs to know at any time where the member and data are in any channel.
This will require us to rethink what open technology means and the importance of the core system in seamlessly regulating this vital information flow. The core system needs to be able to connect and redirect this data from channel to channel and control access points. A true open core system of the future looks less like an accounting system for debit and credits and more like an integration point and manager of independent services.
Open allows the credit union the advantage to leapfrog technology because they are not limited in their choice. This will also enable more development because technology providers will not be at the mercy of the core for distribution access. Open systems will allow credit unions more choice, often encouraging competition by allowing new best-of-breed technologies to emerge. What a concept; it sounds like open-market capitalism! The traditional “closed” model is more akin to a market oligopoly or even socialism at the extreme. To quote Henry Ford, “You can have any color you want as long as it is black.”
How can you tell who is “open”?
No core processor is as open as they need to be . . . not necessarily because they don’t want to be, but because most systems were not designed from the ground up to be truly open. Most core providers have done what they can to make their systems more open (or at least to appear more open than previous versions). However, as discussed earlier, “Open” is more than the technical ability to connect disparate systems; it encompasses a business philosophy.
Several data processors have been buying best-of-breed solutions rather than attempting to build it themselves. This naturally leads to the question of whether these solutions will continue to be best-of-breed, or will a new best-of-breed emerge. In the latter scenario, how willing will vendors be to integrate when they have sizeable investments to recoup? This will be the true test of a provider’s “open” philosophy stance.
Why is this all happening?
- The internet as an enabler;
- Adoption rate of the internet and a direct member interface to the core;
- Proliferation of open standards and tools in support of emerging technologies (eg. HTML, XML, Java, RedHat Linux)
- De-socialization of society (Going to the credit union was a social event, now we increasingly observe in-person visits replaced with self-service, webcasts, text messages, and e-mail.)
- Changes in demographics and attitudes about access and delivery.
To summarize: True open is not the evolution of the traditional core but a revolution of the very definition of the core; what it is will need to be redefined.
EPL is committed to a set of core values that ensure a client-centric business focus. They strive to align with their owner and client credit unions for a Common Purpose, that is, to provide the technology solutions that credit unions need to differentiate themselves in an increasingly competitive financial services market.