NACUSO annual meeting highlights options for CUs

LAS VEGAS-The new-found popularity of credit union service organizations, (CUSOs) was startlingly evident by the capacity crowd drawn to the annual meeting of the National Association of Credit Union Service Organizations (NACUSO) here recently. "Can you believe this?" exclaimed Ken Sorrels, a veteran NACUSO member and president of Dallas Teachers CU, whose CUSO, Credit Union Services, Inc., (www.cusi.org) generated $1.5 million in revenue last year from its primary service, auto brokerage and auto leasing. "I remember the early days," he said. "There were just a bunch of us sitting around in a circle talking about CUSOs. Back then, not many even knew what CUSOs were!" They sure know now, chimed Bob Dorsa and Dan Balagna, president and chairman, respectively, of the organization. Owing to the passage of the banking modernization bill, the Gramm-Leach-Bliley Act, which extends insurance and securities sales to banks and the continuing consolidation in the financial services industry (big, bigger, biggest) forming CUSOs (or partnering/joining with existing ones) is now recognized as an act of necessity, if not survival, for credit unions, they acknowledged. A "Give the members what they want" understanding permeated the meeting, as attendees in search of guidance on new business opportunities available through CUSOs learned from the experts how it's done. The selection and presentation of the annual "CUSOs of the Year" highlighted the critical role a CUSO can play in the credit union mix of services. This year, the category had to be divided, explained Balagna, because of the equal importance of operational CUSOs. Previously, the award was given to a retail financial services CUSO. Now that the back office, data processing, collections, legal and other product delivery service CUSO is proving to be an essential to credit unions, it merited recognition as well, noted Balagna. Winning hands down in the retail financial services area was XCU Capital Corporation, Carlsbad, Calif., (www.xcucapital.com) a subsidiary of Xerox FCU. Now with over three-quarter billion dollars of assets-under management, the CUSO formed in 1987 (one of the earliest out of the block) is headed by Mark Allen, CEO. XCU Capital's primary business is delivering insurance and annuities to members of the CU nationally, explained Allen. "We stand out, I guess," said Allen, modestly. "In the past, it's been hard to compare CUSOs. Now that we are starting to see some benchmarking, it will be easier to gauge the level of business a CUSO can generate. We've never had that before. We only had brokerage firms to compare ourselves with." XCU Capital now has 36 investment specialists and 20 support staff that work with its 11 credit union member/partners. Allen noted that 39% of the company remains available for purchase, but he's not on a money-hunt. (Reason? Xerox FCU is well-capitalized at 11%, noted president/CEO Bill Cheney. So with that $45 million in backbone, XCU Capital can choose its partners carefully.) More important, the pair assured, is the voice given to partners. An annual long-range planning session includes all partners, whose input is sought and their opinions find receptive ears. An outside director now sits on the board as well (he is Gene Johnson, a director of Eli Lilley FCU, said Allen). "The point is to discuss initiatives that will benefit all our members, not just Xerox." The premier operational CUSO selected was WESCO (West Michigan Computer Co-Op, Inc.) of Kentwood, Michigan, which was formed in 1970 (making it a grandaddy CUSO) and is now the 17th largest CUSO in the country (www.cubase.org). CEO Randy Karnes delivered a strong and powerful message to those who attended his presentation at the meeting (it was SRO, by the way) and WESCO's winning recognition may finally result in credit union CEOs' eyes being opened to the "other," too often unrecognized CUSO option. "I believe that credit unions could benefit far more often and with greater impact by considering operational CUSOs and the power of creative ownership. Operational CUSOs focus on improving the business relationships that credit unions use to provide service to their members. They can have an immediate impact on what you do today, what you might do tomorrow, and how it all works," emphasized Karnes. WESCO's online and in-house proprietary data processing system, called CU*BASE is their flagship product, and has made them one of the leading service providers in the Midwest. WESCO now serves 110 credit unions, and through them, over one-half million members. "`The DP business is shrinking', people are always telling me," said Karnes. "`How can you compete?'" (see page one story for the latest DP merger). "I say, `Huh?' You think bigger is always better? It's not. The true purpose of a technology provider is to increase the personality of the credit union to its members." WESCO is owned by 46 credit unions, 34 in Michigan, 12 elsewhere. Together, that ownership reflects 12 states. "Ownership is optional," stressed Karnes. "As a CEO of a data processing CUSO, I would urge you to look for opportunities where you own the intellectual property rights for the services you provide. These rights will give you the creative control to make a difference in the marketplace and make a positive change to credit union services." NACUSO President Bob Dorsa also noted the strategic importance of operational CUSOs, with a particular twist. Small credit unions, he said, should not think themselves out of the market because of their size. There is power in participating, especially for lower asset-CUs. "Small credit unions are wondering how they can compete, not just with community banks and thrifts, but with large credit unions as well. If they don't have the capital to offer all these alternative services and products, their members will seek them elsewhere. But by combining in partnerships with other credit unions, of all sizes, these choices become economically viable for them. This is true especially in the data processing area. Operational CUSOs present an outstanding competitive tool for smaller credit unions. I don't think that concept has been fully realized yet, but I hope it soon will be." -caburger@cutimes.com