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  • Writer's pictureJohn San Filippo

Jack Henry’s McLachlan on Top CU Tech Challenges

By John San Filippo

Jack Henry Connect, the fintech provider’s annual user conference, was held this year at the Indianapolis Convention Center Oct. 16-19. While onsite, Finopotamus conducted an exclusive interview with Shanon McLachlan, the company’s president of credit union solutions. The topic: the “most significant technology challenges” faced by today’s credit unions.

Leveraging Data

Shanon McLachlan

Credit unions have struggled with data since the terms big data and business intelligence first appeared in the 1990s. Finopotamus asked McLachlan why, decades later, managing and applying data is still so difficult.

“Some credit unions have done amazingly well, but most of us have struggled, including Jack Henry in that area,” said McLachlan. “Part of it is that your data is all over the place. Every system has data in it. And even if you build everything into a data warehouse, you still have to understand what you're building into the data warehouse.”

He explained that the matter is further complicated by the fact that sometimes multiple systems can contain what’s at least supposed to be the same data. “A data element is not the same data element in every system,” he stated. “Which one is the system of record? Which one – if the same element exists – which one are we going to take? It's been a struggle just to understand all the sources of data and then to bring them together in a way that you can trust the reporting, the analytics that come out of it.”

According to McLachlan, successfully leveraging a credit union’s data requires an investment in human capital. “The [credit unions] that have been successful have hired specific experts in those areas to bring that data together,” he noted, “and then they’ve hired data scientists to do the actual analytics.”

The final hurdle, he said, is figuring what actions to take based on those analytics. “That's where AI (artificial intelligence) could come into play,” he continued. He added that it can often take several back-and-forth iterations between an executive and their data team to finally reach the desired result. However, AI, acting as the intermediary, can significantly shorten this process.

“With AI, we'll be able to do those iterations ourselves,” he added. He further predicted that at some point in the future, a credit union executive will be able to simply tell AI what they’re trying to accomplish and AI will figure out on its own what data is necessary to achieve that result.

Small Business Services

Credit unions have been serving the needs of small businesses for decades with varying degrees of success. Recently, however, business banking as become a high priority for several digital banking providers. Some traditionally retail providers have added business features. At Jack Henry Connect, much was made of recent enhancements to Banno Business, the business banking component of Jack Henry’s Banno digital banking platform. Finopotamus asked McLachlan to comment on the challenges credit unions face in serving business members, as well as the opportunity that doing so represents.

“Credit unions have traditionally been focused on retail relationships,” said McLachlan, “but what many have found is that a significant number of what appear to be personal accounts are actually small business accounts.” The issue, he said, is that as a business grows, its banking needs grow beyond what can be accommodated with an account designed for personal use.

“Take entitlements, for example,” noted McLachlan. “I may want to have my accountant help me out, or I may have somebody that I need to be able to make payments or be able to deposit, transact activity, but not withdraw funds.”

Payments represent another area where personal and business needs are different. He explained, “From a small business perspective, how do I take a payment? If I'm running a landscaping service and I come and take care of your yard, how are you paying me? Am I taking care of that with Square? If I use Square, that doesn't go into my credit union account; that goes into my Square account. We feel like those small business services should come from the credit union.”

Just as with data analytics, McLachlan warned that it’s important not to overlook the human component of providing business services. “The [credit unions] that are really getting interested in it are investing either in talent that's got commercial experience, or for sure training on it,” he noted “It depends on how deeply into commercial they want to get and how fast.” He added that while some credit unions are proceeding slowly with business services, other more aggressive credit unions have acquired banks to get their commercial accounts and expertise.

FedNow and the Deposit Crisis

According to McLachlan, there may be an important relationship between a credit union’s quest for more deposits and its willingness to adopt the FedNow instant payment network from the Federal Reserve.

“Everybody's looking for deposits, right? It's a liquidity crisis,” he noted. “We need deposits. And we're out there advertising, we're out there spending money trying to get deposits. We're offering larger interest rates to get deposits. But how many credit unions have deployed FedNow?”

The FedNow Service can be deployed as receive-only or send/receive. McLachlan said that every credit union should at least adopt the service as receive-only. “Don't worry about the send right now because there is some perceived risk there, but on the receive, there's no risk, there are no liabilities,” he explained. “It's just receiving the funds.”

While he admitted that it would be pointless to have everyone receive if nobody is sending, he stated that it’s likely that government agencies, for example, will start making payments via FedNow. “If your member is receiving money that way and you can’t receive it,” he said, “you are refusing your member's deposit.”

Open Systems and Banking as a Service

Terms like “open systems” and “best of breed” first became popular among credit unions in the late 1990s. While the basic definition of open hasn’t changed much in the ensuing years, expectations around open systems have changed significantly.

“Think about before digital, before we had a mobile app. When the first internet banking came out, the member could see a little bit of what the teller saw,” explained McLachlan. “Not everything the teller saw, but just a little bit. But then the web experience just got better and better and better. And then the mobile app comes out. It's no longer just a little bit of a view of what the teller sees. It's way beyond what the teller sees.” He noted, for example, that members can now do account aggregation and budgeting on their mobile apps – two areas where credit union employees have no view.

“Open now has gotten to the spot where, as the member, I need everything,” he added. “It's my data. I'm the member. I need all that, but I also need it to connect here and to here and to here, and I need somebody to bring it together. I think openness has expanded to that definition.”

This led to a discussion of banking as a service (BaaS), which, according to McLachlan, comes in two flavors. Credit unions can embed their services so that a fintech can leverage them, or a fintech can embed its services to be included as part of the member experience at the credit union.

“It’s embed or be embedded,” said McLachlan. “There are arguments for both sides of that, but for the community institution, I really think we want as much embedded in the community institution app as possible so that the community institution stays at the center of that relationship.”


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