From a Bartering to More Multi-Owned Groups, CUSOs Continue to Morph
Prior to the early 1990s, the CUSO concept may have looked like this: a CEO of a small credit union picks up the phone to ask the CEO of a nearby, much larger peer for help with say, training.
Likewise, a credit union league would have provided information on compliance, but nothing like the plethora of services offered by subsidiaries and service corporations these days.
"It was credit unions informally providing help to each other. It was very loose," said Tom Davis, president/CEO of NACUSO,
NACUSO has certainly seen the evolution of the CUSO model having launched in 1985 to help credit unions explore the use of CUSOs and the delivery of nontraditional products and services. Over the years, the association's focus has evolved to helping credit unions form multiowned CUSOs and participate in collaboration and the cooperative business model.
Davis said from 1993 to 2001, more credit unions started forming solely owned CUSOs to offer new benefits like investment services. Multiowned CUSOs, with specialties such as information technology and credit card processing started springing up in 2001, a trend that continues to this day. Over the next 20 years, the industry could see multiowned CUSOs providing "fully integrated operational services in a network organizational structure."
To explain that new model, Davis uses a hypothetical example of a credit union with excess capacity in its collections division. There might be 17 hours of excess capacity that the CU is paying for, but the collectors are not being as productive as they could be, he said. The CU could seek out others in a network to possibly purchase what is needed from a CU. The pricing might even be better than going outside that circle.
"We think at some point the number of CUSOs might outnumber credit unions," Davis said. "Not in large numbers but multiowned CUSOs are increasing. We think they're the backbone to support."
For the last 20 years or so, the industry has kept many of its core service relationships within the movement. There are two schools of thought on how this has affected credit union operations. One believes in keeping the alliances within CU land to avoid dilution while others argue if non-credit union entities have an optimal solution to offer, have a genuine understanding of how different the CU model is and even better, can back it up with a track record, then why not form partnerships.
NAFCU Services Corp., the wholly owned subsidiary of NAFCU, has partnered on both sides of the fence to bring discounted services to CUs since its launch in 1975. Its Preferred Partner program contains 28 firms that have undergone a stringent criteria process to ensure they would be able to meet the industry's unique needs, said David Frankil, president of NAFCU Services Corp.
"Those that are successful understand credit unions and have taken the time to adopt their solutions to fit credit unions," Frankil said. "The ones that are not that focused typically drop out at that level [of NAFCU Service's screening process]."
In its early days, the trade group's subsidiary had a list of preferred vendors but the interaction was a bit passive, meaning while helpful, there was no real sense of how they could bring "true value" to CUs, said Frankil, who took the helm in 2006. The program has since evolved to a more holistic approach that helps CUs solve real life problems.
The biggest difference between how the alliances have morphed centers on the most pressing issues for the industry, Frankil explained. Among the top CU priorities are coming up with solutions to grow. Over the past 18 months, there has been a renewed focus on revenue generating opportunities, he noticed. Insurance, debt protection and credit protection are a few popular income streams. Finding out where the new members are coming from, building loyalty and retention and cross selling are also on the front burner. Productivity is just as critical as CUs seek out ways to reduce costs and operate more securely.
In the 1990s, the industry began dipping its feet into the technology realm. Frankil said it has since become one of the most explosive changes to impact the industry. On the positive side, technology can reduce costs exponentially. The down side is threats to security are at an all-time high as hackers and phishers continue creating ways to infiltrate. In all, technology has become the great equalizer.
"I think you would be hard pressed to find a bank that doesn't have a robust site with high interactivity," Frankil said. "There are some credit unions that just don't have the technology. But you have to be able to assure members that their sites are secure, if not more secure than their competitors."
Twenty years ago, the model of shared services was certainly in the toddler stage. Today, information comes so fast and furious that members expect their CUs to keep pace. NAFCU Services has strived to keep the industry in the thick of it all through the launch of its CULookup.com site that pairs seekers with CUs and offers more than 30 financial calculators. Last week, the site added a CU and bank rate comparison section. Plans are underway to add state-chartered CUs to CULookup.com.
"There's this whole debate on national branding. I question whether it would be unique to your credit union. It's not a tagline or a logo," Frankil.
Rather than go that route, NAFCU Services partnered with GeniusRocket.com, a firm that connects talent with companies looking for new marketing and advertising content. The idea was to empower CUs to compete with ads that had some custom features without the pricey expense t do so. At last count, 115 CUs garnered 293 ads.