Moving DPs or Merging CUs? Start Here.
By Kathy Feringa, Vice President, Member Product Support
November 24, 2023
When moving to a new home or apartment, look no further than the internet for inspiration on the right questions to ask.
Why is the seller moving? How old is the roof? Is this a flood zone? How’s the water pressure?
There are dozens if not hundreds of articles with words of wisdom for renters and homebuyers alike, because moving is a big deal and asking the right questions is the key (pun intended) to making the right choice. You don’t need me to tell you that where you live has major implications for your financial well-being and overall quality of life!
Much like a renter or homebuyer, credit union decision-makers should consider this logic when contemplating a move from one data processor (DP) to another or a merger with another credit union. There are important questions to ask to ensure the right fit.
Checklist of Moving Questions
Contact your Alloya representative early in your decision-making process so we can offer guidance, suggestions and next steps. By the end of 2023, the Alloya team will have assisted with 26 data processor conversions and 45 credit union mergers!
ACH processing: Does the prospective processor offer derived returns and origination templates? How about the ability to warehouse items until the settlement date? Does the new processor allow you to send multiple ACH return and originations throughout the day?
Check processing: Does the prospective processor generate a return file that your credit union can automate? Do they offer return credit file processing? Do they support the length of your check and account numbers?
Per FFIEC, you must conduct a risk assessment before making a change to any significant business process or product. Per the guidance, the risk assessment should consider your credit union’s strategic goals, objectives and needs, defined requirements, the importance and criticality of the services, necessary controls and reporting processes, overseeing and ongoing assessment of the relationship, regulatory requirements, contractual obligations and contingency plans.
The FFIEC provides guidance on factors that your credit union should consider when selecting a new core processor. Based on the scope and importance of the services the core processor will manage, it is recommended to hire an external consultant or another qualified, independent source for their expertise. It’s important to review the new processor’s technical and industry expertise, their operations and controls, including their service standards and internal security precautions and safeguards, and their financial condition.
If you currently warehouse your ACH items and post by settlement date, ensure that a new processor will do the same. Some processors may require posting on the receive date rather than the settlement date, which could change your risk and liability.
Understand any new ACH SEC codes, like WEB and TEL, and the added risk and warranties associated with offering them.
Understand the risks involved in ACH origination processing. Does the new system have the option to set various exposure limits to help mitigate fraud and errors?
If not, these might be features you’ll miss having later.
Check whether this will require a change in your Federal Reserve set-up.
Determine if any existing relationships will need to be severed as a result of their way of processing. Not all vendors provide a choice of where your transactions can be processed and/or settled. Determine this prior to signing a contract with a new processor.
If not, you may be limited in how you provide and offer other services, such as real-time payments.
Do you need to dump your warehouse of ACH items?
Do you need to change or stop transaction templates?
What system do you need to return items through? (Hint: Usually it’s the system of origin!)
In the event that your new processor (or the processor they use to ultimately process the transaction) goes down, is there a documented and tested contingency plan for your processing?
Some processors charge a fee for additional connections or users.
In the case of a credit union merger, many of the “Moving Questions” will apply. But there are a few additional questions to ask.
Checklist of Merger Questions
In a combined file, both credit union routing numbers are intermingled within the file with one header and one footer record. This option is only available for ACH Receipt files.
In a stacked file, both credit union routing numbers are contained within the same file, but they are kept separate by routing number and each has their own header and footer record. This option is only available for Member Checking files and ACH Receipt files received via FTP.
A complete analysis of account numbers at both institutions needs to be reviewed before combining any product operations and files.
Changes to processing can be made via the Fed’s merger matrix in lieu of completing individual sets of paperwork/forms. Your merger coordinator can also help ensure that all processing has been considered and help evaluate your current set-up.
You can locate your merger coordinator by going to frbservices.org, clicking on “Contact” in the upper-right corner and then inputting your routing and transit number in the “Search by ABA” field. This will display all your credit union’s Fed contacts. Merger contacts will appear near the bottom of the page.
Moves of any kind have the power to improve our lives and set us up for future success – so long as we ask the right questions first! Keep these checklists in your back pocket to ensure your move between core processors or a merger with another credit union is the right decision. And if you remember just one thing, make it this: At Alloya, our job is to make your job easier. So, start your planning here.
For more information about core processor transitions and credit union mergers, please contact the author, Kathy Feringa, at kathy.feringa@alloyacorp.org or Member Product Support at membersupport@alloyacorp.org.