As Jack Antonini approaches the one-year mark since taking the helm at the National Association of Credit Union Services Organizations, the former bank CEO marveled at the number of collaborations CUSOs frequently engage in.
One thing he was not expecting to see was how competitive CUSOs can be.
That was one of the revelations Antonini offered when asked about the dynamics of CUSO relationships. Looking back on his eight months of service as NACUSO’s president/CEO, shared other personal insights on the ever-changing landscape of CUSO structures and innovation. Credit Union Times recently asked him to talk about some of the industry’s most pressing issues.
Michelle A. Samaad: From your vantage point, how would you assess the state of the CUSO industry?
Jack Antonini: It is becoming more evident that CUSOs are essential to the sustainability of credit unions. CUSOs provide financial services that earn much needed income for credit unions while providing valuable services for members. CUSOs provide operational services that save the credit union industry millions of dollars and raise the level of expertise available to credit unions. The number and the role of CUSOs are growing even while the number of credit unions shrinks. So overall, I would say the state of the CUSO industry is strong, and the CUSOs I’ve talked to are doing well, providing valuable services and income that their owners and customers need.
Samaad: CUSOs are known for being innovators. Regulatory compliance appears to among the fastest growing CUSO upstarts. What are some of the latest innovations you’re hearing about?
Antonini: Probably the latest CUSO innovations that I’ve heard about are related to bringing cloud computing to the credit union industry and filling some of the gaps left by the downsizing of corporate credit unions. For example, CUSOs are being formed to provide warehouse lending to mortgage CUSOs which was previously provided by corporate credit unions. CUSOs are providing expertise in specialized lending, e.g. student loans and time share loans. CUSOs are also being developed to share excess staff capacity among credit unions.
Samaad: What do you consider to be among the biggest threats to CUSOs?
Antonini: Proposed NCUA regulation of CUSOs has to be at the top of the list. Requiring audits and a formal approval processes to obtain approval to try a new innovative idea will stifle creativity and innovation, and add costs to organizations that are designed to save the industry money. We certainly don’t want to see CUSOs at a competitive disadvantage to unregulated third party owned competitors, simply because they are not owned by credit unions and not under NCUA scrutiny.
Samaad: As you know, the NCUA has amped up its efforts to scrutinize CUSOs, some say as a result of those CUSO relationships that led to business and commercial lending losses for their credit union owners and partners–what are your thoughts on the NCUA’s intentions?
Antonini: Since the NCUA chairman has argued in favor of lifting the member business lending cap, which we at NACUSO wholeheartedly agree with, it’s hard to imagine that some business loan losses that may have originated in CUSOs could be the reason for claiming CUSOs pose a “systemic risk to the insurance fund,” especially when the total aggregate amount invested in or loaned to CUSOs is only 22 basis points of industry assets. The NCUA already has effective authority over CUSOs today. NCUA can examine the books and records of a CUSO and if there is an issue of safety and soundness, they can direct the owner credit unions to remedy the issue, limit future investment or require divestiture. Financial services that are licensed with the Securities Exchange Commission and/or state insurance commissioners already have regulatory oversight to protect members as well as the CUSO’s owner credit unions. NACUSO’s position is that there is no demonstrated systematic risk by CUSOs to the credit union industry, and to the extent such risk exists, or could develop in the future, the regulators have the tools to protect the safety and soundness of the industry if the tools are diligently used. The harm to the industry by regulating CUSOs will be to stifle the innovation and collaboration which is necessary for the credit union industry to re-invent itself to remain viable in these troubled economic times.
Antonini: The danger in that specific regulatory proposal by the Texas Credit Union Department was the broad language that would limit CUSOs to only those activities that are authorized for credit unions in the state of Texas without consideration of the broader role that CUSOs have played in helping credit unions serve their members, including providing property and casualty insurance, investment services and other services that are not specifically authorized for credit unions to provide.
Samaad: In certain parts of the country, there are proliferations of CUSOs that offer the same types of services. Do you feel this creates unnecessary saturation within respective markets or is the number of CUSOs within a certain geographic boundary irrelevant?
Antonini: Personally, it would be ideal if we could combine the duplicative CUSOs into one more efficient CUSO that all the users would benefit from, but one of the things we value as Americans is choice and that includes which CUSO a credit union chooses to use for certain products or services. The owners of the CUSOs are certainly able to consider merging their CUSOs if that makes more economic sense than continuing to provide similar services in overlapping geographic markets. Most industries go through expansion and consolidation cycles. Just as credit unions are consolidating for economic reasons, I expect that there will be consolidation of some CUSOs in order to achieve greater scale. However, I do believe we will continue to see new CUSOs being formed for new and innovative purposes.
Samaad: Since taking the helm last December what have you’ve learned about the dynamics of CUSO relationships?
Antonini: They are more complex and more competitive than I expected coming in to the industry. There are great examples of collaboration, but there is also a lot of competition. The good news is that credit unions have plenty of choices.
Samaad: Looking ahead, how do you see the CUSO industry evolving?
Antonini: I hope to see more collaboration and more innovation, and more credit unions asking for creative solutions from CUSOs to problems and challenges they have. A lot of that depends on how the economy does, whether the industry works together to increase consumer awareness of the wonderful credit union alternative to high priced banking, particularly among younger consumers, and that means embracing and utilizing new technologies and social networks, that for the younger prospective members are second nature. I could definitely see a place for a CUSO just focused on helping credit unions attract younger members, advising them on what channels to use, how to communicate effectively and efficiently, etc.