Guest Opinion: The Real Benefits of CUSOs
CUSOs are the secret weapon of the credit union industry.
That was a phrase that we used with our board of directors when we last updated them on the eight CUSOs that we own. CUSOs are vehicles that credit unions can use, often on a collaborative basis, to gain economies of scale, increase specialization and expertise, and deliver innovation. Through CUSOs, credit unions can gain many of the advantages that mergers promise, without all the mess.
Unfortunately, we have done such a good job of keeping CUSOs a secret that many credit unions do not realize how effective they can be.
Workers’ Credit Union owns one CUSO and has a minority position in seven others. They range from a wholly-owned CUSO that possesses an insurance license, which enables us to share in insurance revenue generated through insurance sales to the credit union and our members, to CUSOs of which we are part owners – mostly less than 5%.
These others include broker/dealer services, two separate student loan programs that allow us to provide our members with affordable student loans, an insurance provider, a member business loan processor/servicer which makes us a competitive business loan provider, a research and development shop that brings the best and brightest credit unions minds together to develop innovative products, and a plastic card security firm.
If Workers’ had attempted on its own to replicate the benefits provided by CUSO collaboration, we could not have afforded to do so. These CUSOs are our business partners in each of these areas. They help us deliver these services to our members and help us generate gross income in the millions. It is certainly more cost effective than doing it on our own.
Our credit union also works with many other CUSOs that we don’t have an ownership stake in, not only the large national CUSOs, but some more regional ones. Simply stated, they help us to be more competitive, effective and efficient with even the largest banks in our market.
Starting a CUSO is not unlike any other new business. It requires a lot of hard work filled with risk and it almost never works like the business plan promises. Since they are a new business venture, they usually involve multiple owners and egos, and they do have their share of inherent challenges. Some will succeed, some will fail; others will perform well, and some not so well. We have had some failures with CUSOs, decided not to join some others, and several of our CUSOs have experienced some challenges especially with the slow pace of our economy.
We are currently working on a few new CUSO opportunities. We are exploring an information technology CUSO to reduce our costs and gain additional strategic expertise by collaborating with this CUSO and its partner owners. We expect to make a decision within 60 days. The biggest management decision we face with this CUSO is that we would have to convert to their technology platform to gain those efficiencies.
Another CUSO opportunity that we just started to explore is in insurance. The credit union currently has a referral relationship with a local insurance company to sell auto and homeowners insurance to our members at significant discounts. We are considering expanding the scope of our involvement and are reviewing other vendors and CUSOs.
We are also exploring the possibility of starting our own CUSO – even buying an agency to give us a jumpstart and the possibility of starting a new CUSO partnership. Recently, I met with the CEO of a Massachusetts credit union that purchased two insurance agencies and consolidated them into an insurance CUSO that they own. She was very open to discussing the successes and challenges of their insurance CUSO and was more than happy to help us. I left the meeting with a preliminary conclusion that it would make more sense for us to partner with their CUSO rather than start a CUSO of our own.
The spirit of cooperation in our industry is one of our biggest strengths and this is why CUSOs can work so effectively. This also leads me to another reason why CUSOs can be so successful. The best CUSOs are able to leverage credit union executive expertise to help manage the CUSO. I am a board member of a few CUSOs and I am often impressed with the great suggestions made by the directors that I work with. CUSO CEOs can tap into this expertise to help them effectively manage the CUSO and if the credit union CEO doesn’t know something, he/she can usually refer the CUSO CEO to someone on the credit union management team that can help.
CUSOs are one of the best examples of credit union collaboration and cooperation for the benefit of members. They provide a means to an end – allowing credit unions the capability to fulfill the financial needs of their members in a cost effective environment through efficient delivery channels. Plus, they attract the brightest and most innovative minds to the board table, bringing best practices of credit unions across the country, which is a priceless experience.
Doug Petersen is president/CEO of Workers’ Credit Union.
Contact 978-345-1021 or DPetersen@wcu.com