Beyond Due Diligence: Why Credit Unions Must Prioritize "Vendor Sprawl" in Their Risk Assessments

Guest Editorial by Becky Reed, Chief Operating Officer, BankSocial

For decades, the standard for credit union vendor management has focused on depth: conducting deep-dive due diligence on individual partners to ensure financial stability, SOC2 compliance, and service level agreements (SLAs).

However, as the financial landscape shifts toward a 2026 digital-first reality, the greatest threat to operational resilience is no longer just the failure of a single vendor—it is the breadth of the vendor ecosystem itself. Modern risk management must now evolve to include a formal Vendor Sprawl Risk Assessment.

The Hidden Risks of an Over-Extended Stack

 

When a credit union accumulates dozens of niche "point solutions"—one for KYC, another for mobile deposits, a third for member communication, and several more for data analytics—it creates a fragmented infrastructure that regulators are increasingly viewing as a compounding risk.

• Concentration of Complexity: Every unique integration point is a potential failure node. The more vendors an institution manages, the higher the statistical probability of a "cascading failure," where an update in one system inadvertently breaks a critical workflow in another.

• Governance Gaps: It is exponentially harder for a board to maintain "informed oversight" (as required by NCUA and FFIEC guidance) when the tech stack is a black box of dozens of disconnected third parties. Sprawl obscures true accountability.

• The Agility Trap: In a fast-moving market, the ability to pivot is a competitive necessity. Institutions burdened by sprawl find themselves stuck in "integration purgatory," unable to launch new member services because they are perpetually reconciling data between incompatible systems.

Integrating Sprawl into Your Risk Framework

 

A modern Vendor Sprawl Risk Assessment should move beyond the individual vendor and examine the systemic health of the institution’s technology architecture. Credit union leaders should evaluate:

1. Redundancy: Do we have multiple vendors performing 80% of the same function across different departments?

2. Interoperability: How many manual "workarounds" or offline spreadsheets exist simply to move data between these vendors?

3. Visibility: Can we generate a real-time view of a single member's journey across all these platforms without a multi-day data-pull?

Leadership Perspective: If your IT and Compliance teams spend more time on "vendor upkeep" than on "innovation strategy," you aren't just managing vendors—you are subsidizing their inefficiencies.

Moving Toward Unified Ecosystems

 

The solution isn't to stop innovating, but to change how you innovate. The industry is moving away from the "best-of-breed" patchwork and toward integrated ecosystems that offer modularity without the overhead of sprawl.

By prioritizing platforms that provide comprehensive, interconnected capabilities—rather than isolated features—credit unions can systematically consolidate their vendor lists over time. This transition to a unified architecture doesn’t just simplify the audit trail; it flattens the risk profile, reduces the cumulative cost of compliance, and—most importantly—realigns the institution’s focus back onto serving the member rather than managing the software.

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Becky Reed is a credit union industry veteran and thought leader with more than two decades of leadership in credit unions and CUSOs.  Renowned for her unique perspective as both a credit union executive and CUSO leader, her expertise and advice are in demand by those who seek to embrace innovation.  As the CEO of Lone Star Credit Union, Becky led the organization through a complete digital transformation starting with a technology foundational remediation which allowed the credit union to achieve economies of scale through increased efficiency.

Becky continues to stay at the forefront of innovation by working with emerging technologies, such as DLT and AI through her role as the Chief Operating Officer for the fintech BankSocial.  Her focus revolves around the 4 'Cs' - Credit Unions, CUSOs, Crypto and Collaboration.  You can find her on the road speaking at conferences and in board rooms about disruption to traditional systems and how Fis can adapt, grow and even thrive.

In addition to her credit union and fintech expertise, Becky is the published author of the book “Credit Unions and DeFI: A Financial Renaissance” and co-host for the podcast “Grow Your Credit Union”. Becky graduated Summa Cum Laude from Concordia University in Austin, Tex.