Transcript
Robert McGarvey:
This is the CU 2.0 Podcast with your host Robert McGarvey. Big new ideas about credit unions, big new ideas about credit unions. CU 2.0 Podcast.
You had asked me 10 years ago, what’s the future for corporate credit unions, I probably would’ve said, “They have one.” There were reasons for that cynicism. You remember Westcore, right? There are links in the show notes if you need memory refreshing. If you don’t remember Westcore, read the show notes, read the links. But, this is a huge but, there are literally thousands of small credit unions that needed and still need a corporate credit union to provide crucial assistance in a range of functions from payments, especially contemporary ultra-fast money movement, to short-term liquidity.
I covered the corporate credit union beat for a few years at Credit Union Times. While I cannot say the sector ever thrilled me, little by little I agree to see corporates as essential in today’s credit union universe. Were the credit union sector to shrink down to a few hundred behemoths, corporates likely would vanish. But in a world with 5,000-plus credit unions, many minuscule, the need for corporates remains. Have they modernized? Are they part of 21st century financial services? Are they more of a curio shop of dusty processes and tools?
Today, you’re going to hear the answer. That’s because in this podcast you will hear from Eric Dotson, EVP at fintech, Aptys, and Jaime Agostino, Vizo’s director of marketing and business development. Vizo, of course, is a product of a merger of Mid-Atlantic Corporate Credit Union and First Carolina Corporate Credit Union. Aptys enters this picture because it was tasked with modernizing Vizo’s payments technology, which had become something of, and this is my words, not theirs, a rat’s nest of tangled treads from the two merged-in partners. The tools just would not suffice is what is becoming a real-time payments world. Vizo new it, so it brought in Aptys to produce something new, bigger, better. That turned into a multi-year process. Hear the details in this podcast. Along the way, you’ll also hear mention some other corporates, Alloya and Catalyst are doing similar with their payments. The message is plain, corporate credit unions are making changes to seek to stay relevant. Will they succeed? Listen up.
All righty, so who’s speaking today?
Jaime Agostino:
I will be speaking. This is Jaime Agostino. I’ll be speaking on behalf of Vizo Financial, and I believe Eric, you’re speaking on behalf of Aptys.
Eric Dotson:
That’s correct. Good afternoon, Robert.
Robert McGarvey:
Good afternoon. Okay, Jaime, let’s start out with what’s the problem? What was the problem you were having?
Jaime Agostino:
Well, we were operating a lot of different payment systems, multiple systems, and we were using those. We had consolidated, or I’m sorry, we had purchased or acquired some entities. Then we had the merger, and so we had a lot of different payment systems.
Robert McGarvey:
So you had two corporate credit unions coming together and everything wasn’t all meshed up perfectly?
Jaime Agostino:
That’s correct, yes. First Carolina and Mid-Atlantic Corporate merged back in 2016. And with it, with any merger comes multiple systems. And we were looking for consolidation. We needed to create some efficiencies internally and also ease for our members, and we were able to find that with Aptys.
Robert McGarvey:
Now, what was the friction members were experiencing?
Jaime Agostino:
The members necessarily weren’t experiencing any friction in the services that we were offering or in the systems that we were offering. But for ACH, we had two different systems, so half of our members were using one HCH system and the other half of our members were using another one. So we wanted to consolidate that.
When we merged, we also had two wire platforms. We also had check systems. And so we were looking to create efficiencies across the board, and what Aptys was able to provide us was a single-payments platform that brought in the ACH, the wires, and the check processing.
Robert McGarvey:
Did this look different to your members?
Jaime Agostino:
As far as to them, they access the system a little different. They still go through our online system, Zephyr. They click a single button now to access all of those systems. The screens look different obviously, but the general working of the systems is the same as far as creating a payments or an ACH transaction or initiating a wire. We still have some of the same features as far as dual control. But there were some enhancements that were made. With just reporting alone, the enhancements to the reporting features that are now at the disposal of the credit union did increase.
Robert McGarvey:
Am I right in thinking that the world of payments today, even though it’s only five years later, is very different than it was at the time of the merger?
Jaime Agostino:
Yes. As we all know, technology is always constantly changing and we’re always looking for enhancements to our payments operations. And one of the great things that we were able to accomplish with partnering with Aptys is they had a person-to-person payment option, PayMoli. So that was an additional service that we didn’t even offer at the time that we now have today that’s available to our member credit unions.
Robert McGarvey:
What kind of uptick is there for that?
Jaime Agostino:
It’s still in the introductory, intro phase. We launched PayMoli about a year ago, and it’s more getting the consumers to use the credit union’s native person-to-person application. As we’re aware, there are a lot of person-to-person applications out there, and it’s getting the consumers comfortable with using the credit union’s PayMoli application. And so the more financial institutions that we get utilizing the PayMoli application, the easier it will be for consumer adoption.
Robert McGarvey:
That’s been the Zelle business plan, which has worked extraordinarily well for them.
Jaime Agostino:
Yes, it has.
Robert McGarvey:
And then on the other side of the coin, there’s the Venmo, PayPal problem, which is working pretty well for them.
Jaime Agostino:
Yeah. So we want to encourage the consumers to use the PayMoli app because it enables the consumer to keep those funds at the credit union, whereas a Venmo, you actually have to fund Venmo and then you have to transfer the funds into your financial institution. With PayMoli, the funds are actually at your credit union, so you can see it right there within your application or your mobile app.
Robert McGarvey:
It’d be interesting. It’d be good if it works. I’m not a big fan of Zelle, so it’d be wonderful if Zelle had a significant competitor, particularly one inside the credit union world. Now, how does this stack up this solution, have you saved money by doing this?
Jaime Agostino:
Well, we just finished the conversion back in July, so we don’t have all the figures at this point. But I mean, we’re definitely going to see some hard and soft savings. Just the efficiency that we’ve gained internally, it has been monumental. But I mean, we’re definitely estimating to be hundreds of thousands of dollars in savings from converting all of these systems into one.
Robert McGarvey:
Would there be some labor savings too?
Jaime Agostino:
Yes, as I said, we definitely have created efficiencies within our own systems, so we’re definitely seeing savings there, which is great because then we can have reallocation of some of the staff resources into other projects and things of that nature.
Robert McGarvey:
Now, are you set to deal with the payments world over say the next five years?
Jaime Agostino:
We believe so. I mean, obviously things are going to continue to change. We know FedNow is coming here in 2023, and we’re working directly with Aptys to make sure that we are prepared with the current Aptys system to be able to work with FedNow.
So I mean, we’re planning accordingly, but as you know, you never know what new technologies are going to come out, and it’s just about making sure that you’re prepared and being able to make those mid-course corrections to make sure that we’re providing the payment needs that all of our credit unions need.
Robert McGarvey:
I just remember going to financial industry conferences five or 10 years ago and people were talking about real-time ACH, which was already happening in Europe. Credit union people were having heart attacks even thinking about it, no less not doing it, just thinking about it. You need to have a defibrillator in the room. Eric, so how hard was this project?
Eric Dotson:
It’s interesting. It definitely has its challenges because of the scope of what the corporate credit union had going on with the mergers. There were multiple entities that they were merging in along with multiple systems. So when Jaime talks about that they had two different ACH systems, well, one of those ACH systems, which they already had in place, had multiple systems behind it. So you’re looking at not just two, three or four, but 6, 7, 8 systems that you’re trying to bring together. And this is something that we deal with. This is what we designed our system to do is to be able to bring everything together onto a single platform.
But in order to accommodate this, we worked with the corporate credit union to really establish an iterative approach to the project so that it wasn’t ripping everything out today and then putting our system. In it was, all right, let’s address wire first. So we took time a couple years ago and we worked on the wire project, we implemented the wire, replaced the systems, and they had a couple different systems they were using for wire, got that up and running. And then there was a break, and then we came back and we worked on ACH together. Cash letter was the last one that we worked on together.
So it was quite a process and that’s why it took so long to be able to address all of that. But at the end of the day, we’re all so happy and excited about how things have gone.
Robert McGarvey:
Now, was this a unique set of problems or are there many other credit unions and corporate credit unions that have a similar rat’s nest of entanglements?
Eric Dotson:
It is an ongoing problem in the industry. In fact, for a number of years when we first started at this, I had a slide, it was called My Spaghetti Slide, that had all of these different systems trying to connect to each other and trying to figure out how do the payments move from here to there and how do we get to cold storage, who’s accessing which systems?
So especially for smaller financial institutions that have limited resources, limited training capabilities, all of that, it can be quite challenging for them to get that all untied, get it all put together in a way that makes sense for them. And it’s something that just built up over time, right? As an industry, ACH, way back in the day ACH, one system went to a web-based solution, and so everyone went and got on a system for web-based ACH. Well, technology has evolved over time that allows us to converge all of those together onto a single platform. You don’t need to have them separate anymore.
So bringing them together is a natural step in this whole process I think in the technology environment. And I think truly it is imperative for the financial industry to really look at that. As we are moving into this fast-paced world of evolving technology and payments, it’s going to be important to have that established system of ACH and wires and check that’s in a place that’s easy to manage so that you can focus your resources on where things are heading, what do I need to be doing next? Our technology platform, it’s designed in a way that allows you to be able to adopt and to bring in new technologies into that environment.
And so that’s what we’re working with. Vizo today is, all right, what’s the next step beyond the legacy payments that we’ve already worked on together? Where do we go from here and how do we build on that?
Robert McGarvey:
This is a problem that afflicts not just smaller institutions, but also big ones. I remember doing a piece some years ago, one of the big money center banks was having trouble rolling out MRDC. I did an interview with a very senior guy who was extremely candid, and he said, “I can turn this thing on, it’ll work in 80% of the country, but we did a merger in the Southeast and this damn thing ain’t working there. And we’re not going to turn it on until we can turn it on national. We’re not going to say works every place except Georgia, Alabama, Florida.”
Eric Dotson:
It is a problem definitely, but it’s something I think that can be addressed in that there’s technology solutions out there to be able to do that and simplify life for the financial institution. I mean, you think about compliance issues that you have to deal with having all of these different vendors and security that you have to set up and there’s redundancies on the different operational processes that you have to do across the payment types.
And then even at the end of the day, data. I talked with a customer that had data in five different locations and different systems that they were having to try to manage that data. And what we’re able to do is bring all that data together in a single archive. And in Vizo’s situation, it’s not just their data, but it’s also their customers’ data. So all of that data can reside in a single place that’s easy for them to access, and that creates new opportunities in the future.
So when you’re looking at that data being in one place now, now you’ve got check data, you’ve got wire data, you’ve got ACH data. Soon it’s going to be faster payments data in that archive. What can you do with that? How can you enhance your offering to your customers? Maybe it’s fraud security protections. Is it new products and services that you can develop out of analyzing that data and what are their customers need? And that opens the door for opportunities rather than creating obstacles of, okay, my data’s spread out all over my organization. How do I manage that? And that’s truly what we’re trying to help customers do.
Robert McGarvey:
Jaime, are you seeing new opportunities coming out of this?
Jaime Agostino:
As Eric said, we just finalized this conversion back in July, so at this point, I mean, we haven’t gone out to other credit unions that we weren’t currently serving. We’ve been primarily focused on our existing members and making sure that all of their needs are met and working with them directly. But I mean, obviously we want to continue to work with the credit unions across the US. We work with 1,100 now, so the more credit unions that we could bring on, obviously we’re willing to do that. But we haven’t had a big push at this point because we just finalized this conversion.
Robert McGarvey:
I would assume this payments mess is something that’s affecting pretty much every credit union though.
Jaime Agostino:
Yes. Creating efficiencies for our members was definitely top of mind. And we’re getting a lot of positive feedback that they’re able to go in to one application and from that application create their ACH origination, pull down their ACH file, initiate their wire, get their check information as well. So we’re receiving a lot of positive feedback and hopefully we can share that with more institutions.
Robert McGarvey:
Now, when you flipped the switch and turned this on, did you hold your breath?
Jaime Agostino:
Well, as Eric said, this was a long process. So we did our first system, which was the domestic wire system, we did that back in 2018.
Robert McGarvey:
Oh, okay.
Jaime Agostino:
And we took our time. We worked directly with Aptys, we went through the requirements that we needed for that system. We have a big project management team. We meet on a weekly basis and go through all of those things. And we did one system at a time. So we did wires back in 2008. Then we did what we refer to as our Middletown ACH. We did receipt, I think that was third quarter of 2018. Then we did the originations in early ’19, and then we did another segment of credit unions for ACH in late ’19. And then we just did the checks here in July of this year. So I mean, it was a multi-year project, and we did the same thing with all of them. We would sit down, go over the requirements, plan out every detail, and then when we were ready to go live, I mean, we felt very confident each time.
Robert McGarvey:
Did nothing go wrong?
Jaime Agostino:
I mean, it’s a conversion. There’s always little, a hair in there.
Robert McGarvey:
There’s always something that goes wrong, I know.
Jaime Agostino:
But to be honest, they were very minor. And what was great about working with Aptys is they had someone dedicated onsite with us. Every time we went through one of these conversions, we were able to have someone onsite. And that first day, I mean, we would have meetings. I mean, we were prepared. We’d have the morning meeting, see how everything’s going, make sure there were no issues, were we getting any calls from members? And then we’d have an afternoon meeting, and then we’d have an evening meeting. And it’s being prepared and making sure that you’re going through that process and being ready to make any changes if we need to. But any obstacles that we ran into, they were very minor and they were quick fixes, and Aptys was right there working with us through it.
Robert McGarvey:
How much sweating did your members have to do? Did they have to do any labor in this process?
Jaime Agostino:
We try really hard to make it as seamless as possible to the members. We do that by detailed communication. I mean, we start communicating with them eight to 10 weeks prior to this go live. And we provide them with materials. We give them guides to how the new system will work. We create video guides. We also do live demonstrations. We communicate any changes so that they’re aware.
So we try to make sure that we are doing a great job of making sure that they have all the information they need. And because of that, we see the success that we do. And so that was a huge benefit. So I don’t think they really, I mean, yes, it’s learning a new system, so I’m sure there’s a little heartburn, a little anxiety on their end, but we try to make it as seamless as possible for them.
Robert McGarvey:
I’m sure you know. I know I’ve often asked credit union CEOs why they’re using a particular junkie mobile banking platform, and they’ll say, “Yeah, it is pretty junkie, but we don’t think our members are ready for change.” I’ve heard that over and over again. And I think arguably the members are ready for change. I think oftentimes it’s the management of the credit union that’s not ready for change, but that’s a whole different discussion.
Eric Dotson:
Yeah. And Robert, just to add one thing that Jaime talked about, circling back to what we discussed early on is that there were so many different systems that their customers were using. Imagine going from that to now you have one system and all of the screens are laid out the same, and all of the processes are the same, and where you find data in the system is now the same. So it reduces that learning curve for customers because you go from ACH to wire and it’s like, “Oh yeah, this looks the same.” And it just simplifies that whole learning atmosphere that that customer has to go through when they’re using the system. And that’s another benefit to having everything on that single platform.
Robert McGarvey:
Would you agree with this? It’s sort of analogous to 25 years ago, going from using Word Perfect and Lotus 1-2-3, blah, blah, blah, and just using Microsoft Office where everything looks and acts the same.
Eric Dotson:
You’re exactly right. And I’ve used that before when I’ve talked with customers. It just simplifies…
Robert McGarvey:
It has to be a person of a certain age, otherwise they’re going to say, “What? Lotus, what?”
Eric Dotson:
We’re showing our age here.
Robert McGarvey:
But I vividly remember those days. And each one had its own unique arcane architecture.
Eric Dotson:
That’s right. And so that makes it easy. In fact, I had a customer once, they said, they were going through this iterative approach to getting onto the system, and the financial institution was holding back and they had implemented one of the payment channels and they were holding back the other payment channels. The customers came to them and said, “Oh, just turn it on. We’ve got this. It’s easy. We see how this works.” And so they actually moved through the project much more quickly than what they had originally planned, just because the customers were like, “We got it. Just turn it on.”
Robert McGarvey:
Now, have you done similar work with other credit union type entities?
Eric Dotson:
Yes, we have. And we’re actually going through some right now. And I’ll say we just did a bankers’ bank recently that was similar. They actually did everything all at once. Now that’s one that you sweat about a little bit, right? You’re turning everything on at once. But we’ve got a couple of corporate credit unions that we’re working with, Catalyst and Alloya are a couple of them that are just starting this process. They’ve gotten on ACH, but there’s plans to look at some of the other payment channels and planning out the projects now for when they want to do that.
But that’s the great thing about the way we try to work with customers. Again, don’t rip everything out. Let’s do one at a time. Let’s get the pieces in place that are most important now, and we’ll continue to bring in the other pieces when you’re ready.
Robert McGarvey:
That suggests to me that this is a universal corporate credit union problem, though. If you’re also talking with Alloya, for instance, and Catalyst, you’re covering a lot of the corporate credit union universe right there.
Eric Dotson:
That’s right. And it is, like I said, it’s a universal problem. Multiple systems that everybody’s using for payments and really…
Robert McGarvey:
And the results of all those mergers that got you to where you are today.
Eric Dotson:
That’s right.
Robert McGarvey:
And those are always messy and ugly. So interesting. In the meantime, payments has changed completely from what it was 10 years ago.
Eric Dotson:
And that’s the thing I think that most everybody’s looking at is they’re at this point, this kind of inflection point in the payments history, so to speak, an evolution period where they’re looking ahead going, “Well, I’m not ready for that. I can’t do faster payments with what I’m doing today.” And so they’re looking for how do I get that infrastructure in place that will simplify my steps into the future? And that’s what we try to help all of our customers with is let’s get everything fixed. Let’s get everything in place today that you can, and then it’s going to make faster payments. Whether it’s RTP or FedNow or the next thing that comes after that, we’ll be able to adapt to those much more easily because of the digital platform that you’re on and that you’ve got everything in place for your customers.
One of the things we just released is, and for corporate credit unions, an important piece is to allow their member credit unions to do faster payments, their member credit unions want the corporate credit unions to be a funding agent at either RTP or FedNow. So Vizo, for example, needs something that helps them to manage that funding mechanism.
So with the clearinghouse, for example, in order for them to serve as a funding agent, when I say a funding agent, rather than the member credit union having to have an account and having funds at RTP, Vizo can now go in as the funding agent, they can create an account for all of their member credit unions. The funding and the actual transaction information comes through the RTP to Vizo so that they can then provide the funds to their member credit union based on the transactions that come through.
Managing that today is extremely manual. They have to log in, they have to download the data, they have to look at it, analyze it, they have to post it, they have to communicate it, report it down to their member credit unions. With PayLogics, we actually are working with Vizo to create a module that’s called a funding module, that automates that process so it can then log in to RTP, collect the information that needs to be there. And it’s really going to be an API interface there. So we’ll bring that data in. The system will automatically post, report, and provide screen access to the member credit union so that they know what transactions have come in. That’s part of facilitating that transition to these newer payment types.
Robert McGarvey:
And that allows the whole industry to compete a little bit more smoothly with the fintechs I think.
Eric Dotson:
You’re exactly right. And it allows for those credit unions anywhere they may be in the country, that is if they’re thinking about faster payments and the huge change that might present for them, this facilitates that. Now, that allows them to jump in more quickly than ever before. And so we’re seeing a lot more interest now because of that, in opening the door for those credit unions to be able to access real-time payments.
Robert McGarvey:
Well, Bitcoin essentially, correct me if you disagree, but Bitcoin moves as fast as you can type and historic credit union payments move at a different rate of speed.
Eric Dotson:
That’s correct. But with the RTP and the FedNow, that changes, right? Those are real-time payment mechanisms so that those transactions go end to end immediately. So that’s the change that’s coming with RTP and FedNow.
With the Bitcoin, that’s a whole other type of payment structure. You’re talking about the digital transaction type that they create a virtual transaction that will get to there eventually. And I think the industry is still evaluating how do they step into that space. There’s some that I think are dabbling in it today, but eventually that’s going to get there. And I know that the Fed’s even looking at how do they provide a virtual type of a monetary approach to Bitcoin or to another solution. And so that’s happening in the industry.
Robert McGarvey:
Yeah, I’m something of a Bitcoin skeptic, at least as far as the US goes, at least as far as 2021 goes. You ask me about 2025, and I have no idea, man.
Eric Dotson:
I’m with you on that. I tend to look at it and say, “Who’s backing that? Where’s the value there? How does that… And I know that the value is only what people put into it. And so it just to me, I’m still trying to figure out how that works.
Robert McGarvey:
Hey, if we were Venezuelans, I would only take Bitcoin from you.
Eric Dotson:
That’s true.
Robert McGarvey:
But we’re in America and the dollar is a fairly stable currency still. I’m pretty comfortable with it. So I don’t really need Bitcoin. In any event, I think we’ve covered a lot. I think I got what I wanted from you. Is there anything you wanted to say that I didn’t think to ask you?
Eric Dotson:
I’m going to let Jaime go first.
Jaime Agostino:
Oh, okay. All right. One of the great things about this is not only did we find, how do I want to put this? Aptys isn’t just a vendor to us. I mean, they truly have become a strategic partner. And Aptys, we like them so much that we actually, several months ago, jointly purchased them with two other corporate credit unions. So we purchased Aptys along with Alloya and Catalyst to be owners of Aptys.
The corporates came together. We were talking because we all have relationships with Aptys. And for us it was kind of a no-brainer because we’ve gone through all of these conversions to their system and we happily were willing to purchase Aptys with the other two corporates.
And so as I said, they’re not just the vendor to us. I mean, this is truly a strategic partnership for us to move payments into the future. And so we are just thrilled with how all of this conversion went and thrilled with the system and thrilled with the team there.
Robert McGarvey:
And it’s not just moving payments into the future, it’s moving corporate credit unions into the future.
Jaime Agostino:
Absolutely.
Robert McGarvey:
Whereas some people over the last 10 years have speculated that corporate credit unions, their need had disappeared with time. And whereas what you’re trying to do is prove that there is still a need for corporate credit unions and you can do it.
Jaime Agostino:
Absolutely.
Eric Dotson:
Yeah. And Robert, if I could add to that. It’s interesting, I think where the industry is at right now, and I’ve heard this a couple of different times, but I believe it wholeheartedly, is that financial institutions need to take a look at who they are and think a little bit differently than what they have in the past. They are becoming technology companies that happen to offer financial services.
Robert McGarvey:
I tell people, JPMorgan Chase is a technology company that does a little banking on the side, and they do it really well, but they’re a technology company.
Eric Dotson:
You’re exactly right. And that’s what’s happening. And I think with the corporates acquiring Aptys, that’s part of what that is. They’re a technology company. They needed a technology arm to deliver the things that they needed to be competitive in the technology space that facilitated their financial capabilities for their customers.
Robert McGarvey:
Now, Aptys will continue to work for clients other than those three corporates, right?
Eric Dotson:
Yes. And in fact, so the structure is we actually are still an independent LLC. We’re not part of Catalyst or Vizo or any of these. They just have the ownership of Aptys. And so we continue to provide services to bankers’ banks, and other banks and credit unions. And in fact, what Vizo and Catalyst and Alloya want to do is create a consortium of ownership, which is kind of unique, I think, where they’ve actually offered it up, not just to other corporate credit unions or to credit unions, but any bank or bankers’ bank that wants to participate potentially can.
And so that helps to establish the industry and the direction that the technology is going because you have the key stakeholders are the ones that really are kind of overseeing the direction of the technology and the development that needs to happen.
Robert McGarvey:
So this isn’t a CUSO though, which is one way to have shared ownership of a third-party entity. This is a whole separate way of ownership.
Eric Dotson:
It’s more like a FUSO, I guess, a financial institution organization.
Robert McGarvey:
Maybe this is the future. I don’t know. Certainly a lot of credit unions are kicking the tires of fintechs, wondering if they can afford to buy them. Well, you’ve certainly, you’ve ended on a high note.
Before we go, think hard about how you can help support this podcast so we can do more interviews with more thoughtful leaders in the credit union world. What we’re trying to figure out here in these podcasts is what’s next for credit unions? What can they do to really, really, really make a difference in the financial scene? Can’t all be mega banks, can it? It’s my hope it won’t all be mega banks, they’ll always be a place for credit unions. That’s what we’re discussing here.
So figure out how you can help, get in touch with me. This is rjmcgarvey@gmail.com, Robert McGarvey. Again, that’s rjmcgarvey@gmail.com. Get in touch, we’ll figure out a way that you can help. We need your support. We want your support. We thank you for your support. The CU 2.0 Podcast.