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Weighing the Benefits and Risks of Outsourcing Technology Management
Thursday, May 8, 2014 6:50 AM

As credit unions continue to look for ways to maintain efficient processes and reduce expenses, interest in outsourcing information technology (IT) services is on the rise, according to Kelly Flynn, national sales director with John M. Floyd & Associates (JMFA) – a business partner of Credit Union Resources. By outsourcing these important functions, Flynn says credit unions can use their resources more effectively to provide members with the products and services they demand.

“With proper management, outsourcing relationships can be successful,” she says. “For credit unions with limited internal technology resources or expertise, outsourcing such IT functions as data processing, online banking, debit card processing, ATM networking and item processing to a third party provider can be a vital step toward maintaining a competitive advantage.”

Doing so, she says, can improve the quality and delivery of services, increase efficiencies and savings on hardware and software costs, and allow credit union personnel to concentrate on more member-focused initiatives. Flynn cautions that choosing the right vendor and the appropriate services to meet your credit union’s needs can turn into a completely new –and potentially costly – challenge if not managed properly.

To avoid risks that can far outweigh the benefits of outsourcing, due diligence at the vendor selection stage is vital. You can prevent unexpected problems, she suggests, by asking yourself these questions before contracting with a third party provider:

  • Does the vendor have strong compliance credentials to protect the credit union from regulatory scrutiny?
  • Are the vendor’s systems robust enough to protect the credit union from system failures?
  • Does the vendor have strong financial resources to ensure long-term service?
  • Are the vendor’s practices in line with the credit union’s mission?

“Proper management of the relationship is essential for avoiding potential risks that can adversely affect earnings, service standards, operations and compliance,” Flynn continues. “On-going monitoring of contract terms can also ensure that proper controls and contingency plans are in place, giving you confidence that you are getting the best service at the best price, and that your vendors can accommodate future operational changes.”