U.S. Central Thrives on Back-Office Expertise and Anticipating Members' Needs
LENEXA, Kan. -- To natural person credit unions, U.S. Central can be difficult to understand. For example, it's the nation's top credit union, but it only has 26 members. It's the ultimate example of combining assets for the benefit of members, but none of them show up on Fridays to cash paychecks or request credit limit increases.
Nonetheless, U.S. Central Credit Union touches nearly every single credit union in the country. On those Friday paydays, members aren't lining up for teller service, but U.S. Central is every bit as busy, helping its member corporates avoid daylight overdrafts as they manage a flurry of deposit activity.
"There's no obligation or requirement to join U.S. Central," said Dave Dickens, senior vice president for asset-liability management. "We're not about market share. Instead, we're all about providing aggregate value to the credit union system."
Dickens said the industry's widely held view of U.S. Central as a liquidity provider is well-deserved because since its inception in 1974, liquidity has been the corporate's primary function. Even though corporates were already providing liquidity to natural person credit unions, it was on a regional basis. A national liquidity source protects against regional liquidity issues and provides more stability to the industry, Dickens said.
Despite advances in technology and changes in the way financial institutions do business, U.S. Central still maintains its overall liquidity role. For example, Check 21 made item processing big business at corporates. However, U.S. Central only plays an aggregate role, gaining access to Federal Reserve overdraft accounts in mid-May, so it can handle intraday liquidity for corporates, freeing them to concentrate on processing.
"With the growth of payments and the electronification of checks, some days corporate clearings were very large, and it looked like they would only continue to build," Dickens said. "So a few years ago, we realized that we should provide a source to cover daylight overdrafts. A daylight overdraft is a very significant event to the Federal Reserve."
U.S. Central also handles industry investments. The corporate received unwanted publicity earlier this year after it disclosed significant losses at year-end 2007 thanks to losses in mortgage-backed securities. Industry tongues wagged, but few stopped to appreciate U.S. Central as a buffer between those losses and the rest of the industry. Bank balance sheets weren't as lucky.
U.S. Central's investment division is divided into two distinct departments: trading and credit. While the trading desk reports to Dickens, U.S. Central's chief risk officer reports directly to President/CEO Francis Lee to avoid any potential conflict of interest.
"The credit department has power over the trading desk, and the NCUA regulates that separation of duties," Dickens said. "But, we have internal policies that are actually tighter than NCUA regulations. We maintain very detailed policies regarding how money can be invested."
Not that the NCUA doesn't trust U.S. Central, but the regulator maintains on-site auditors to ensure the integrity of the industry's coffers. It's unlikely to find anything questionable, however, because U.S. Central doesn't compensate traders according to profit.
"We don't tie any bonus to investment performance," Dickens said. "We're not here to hit a home run. If our investors did, and sometimes they do, all they have waiting for them is a nice pat on the back. But no big check."
Despite the lack of a profit incentive, investments are still a big business at U.S. Central. The corporate employs about 10 people to provide back-office advisory and reporting services to other corporates and shares another 60 employees on-site at other corporates, providing investment advice.
"What our members are counting on is a high level of mid- and back-office excellence," Dickens said. "Quite simply, that's the expectation."
As an institution primarily created to provide improved efficiencies, U.S. Central doesn't have the burden of guessing the desires of its members. In fact, U.S. Central's members dictate what products and services the corporate will provide next. It doesn't take much to keep a pulse on the wants and needs of your members when more than a quarter of them are represented on the board.
That close connection with so few members requires a shift in U.S. Central's sales approach, said Nicole Hinken, vice president of strategic market services. Rather than sell the pros and cons of services, Hinken said her team instead pitches how U.S. Central can help improve service to end users.
"For example, we're changing the conversation from ACH origination to how it can help small business members. How can we help members reduce payments cost and increase the efficiency of their own operations?" Hinken said.
Hinken said her employer's one-two punch of knowledge and genuine concern for the credit union movement makes U.S. Central stand apart from other vendors.
"It's an evolution of working with our members and realizing what they need, sometimes before they even know it," she said. "For example, we don't need to concentrate on the value proposition of our system. It's a given our systems are reliable and efficient. Instead, we can talk about how we can leverage our system to better serve credit union members."