Areas of Interest

by Larry Rohrer, Vice President of Operations, re:Member Data Services (RDS)

The term “ASP” (application service provider) has become a hot technology topic among the credit union community lately.  Discussions center around what function an ASP serves and how it differs from the more familiar term “online.” These discussions are followed closely by the question, ‘is this solution right for my credit union’.

Credit unions of all sizes are evaluating ASP solutions versus in-house processing in order to dedicate increased attention to core management issues. Technology is moving at such a rapid pace, that credit unions are turning to ASP alternatives to keep up with the continual advancements and related expenses.

To gain a front-line view of the benefits of both ASP and in-house solutions, views from an ASP and an in-house credit union are represented in this article. While the credit unions have different views, they both agree that making the ASP or in-house selection is an individual choice that has to be made taking into consideration the unique characteristics of your membership base and by determining which solution best achieves your institution’s goals regarding service delivery.

re:Member has had several customers evaluate the ASP versus in-house processing solution recently. Many of these credit unions have determined that the ASP solution was the most cost effective option for their particular needs. Requests for ASP proposals are being seen more frequently in the sales process as well. Credit unions with assets near and exceeding $1 billion have now begun to request ASP proposals. When evaluating service options, credit unions should look at the upfront hardware and software costs, the level of technical expertise on staff, and the cost of retaining qualified technical professionals.

Alisa Raines, CEO of INCO Federal Credit Union ($18 million in assets and 5,500 members) in Huntington, West Virginia stated that her credit union made the move to an ASP solution in February of 2000 from their previous in-house operation.  The credit union says that their primary reasons for moving to the ASP solution from the in-house solution were staff turnover and hardware costs. INCO had lost three data processing professionals in the span of two years and the training and staff time required to continue running in-house was becoming cost prohibitive.

Hardware costs and keeping pace with technology was another reason INCO selected the ASP solution. “It was time to upgrade the credit union’s hardware and we were concerned about under-buying, as well as about over-buying,” said Raines. The credit union found it difficult to predict the hardware that would be needed in the future to meet the needs of their growing membership base. Selecting an ASP solution meant that INCO would not have to purchase new hardware and provided them with a system they knew had the capacity to grow with the credit union as new services and members were added.

INCO evaluated several factors when making the decision to move to an ASP solution. When comparing salary costs, benefits, and training versus the monthly ASP fees the numbers were comparable.  The credit union stated that avoiding hardware upgrades and the challenges of DP staff retention were compelling factors that tipped the scale in favor of ASP.

INCO is happy with the flexibility that the ASP solution has offered their members. “Our credit union now has the opportunity to expand the services available to members without having to make a large capital expense,” said Raines. For example, Raines said that an in-house credit union wanting to add the service of audio response would have to make a sizeable expenditure. “As an ASP customer, hardware such as an audio response unit, is shared among all customers and we pay for the service based upon usage,” continued Raines.

INCO had concerns about giving up the control over their system when they became an ASP customer. Raines says the credit union has adjusted to the differences and the benefits still favor an ASP environment. “We don’t have to worry about hardware being outdated, long hours for our DP personnel, and the other back-office functions that come with running a system in-house,” said Raines.

It is essential for credit unions utilizing the in-house solution to understand how the data processing software functions and how it relates to the hardware, as well as proper system maintenance and tuning. If a credit union possesses this technical skill set there can be advantages to having an in-house system. Such advantages include having control of the system and minimizing the effect of a communication failure.

Greylock Federal Credit Union in Pittsfield, Massachusetts has assets of $457 million and a membership base of 52,000. They are an in-house credit union and do not have any plans to move to an ASP environment. Kevin Zimmer, Greylock’s DP manager, says that the advantages they see with in-house processing include flexibility and control.

“The management at our credit union has the ability to redirect priorities in order to accomplish immediate goals,” said Zimmer. “In an online arrangement there are more layers, such as a help desk, to go through in order to make changes. As an ASP customer you are one of many. When you have control of your own data, changes can be made rapidly and you have the ability to quickly differentiate yourself from the competition,” continued Zimmer.

However, Zimmer cautions credit unions considering an in-house solution by stating that it is vital to have the right people to support the system. “Regardless of which option is selected, ASP or in-house, having the right people to translate member requirements into software functionality is essential.” At Greylock, their 120 employees all have PCs that require internal support. “Whether we are online or in house, we have the need to hire trained systems analysts,” said Zimmer. “We leverage the people we have hired and use them for both internal systems support and support of our data processing system.”

Credit unions evaluating their data processing arrangement should perform an internal analysis based upon their individual circumstances to determine the pros and cons of ASP versus in-house solutions. Costs to include in the analysis are:

Software maintenance
Hardware maintenance
Communications
Vendor interfacing fees
Personnel costs, including benefits and training
Hot site disaster recovery services
Depreciation of hardware and software
Shared versus dedicated ancillary services (i.e. optical and audio)

Credit unions whose current data processor provides ASP and in-house solutions are another source to use throughout the decision making process. When making a comparison from the services offered by your vendor, make sure the ASP solution provides the same features and functionality that the in-house solution delivers.

Reprinted with permission from re:Member Data Services (RDS)