Many Talk About Collaboration; Few Deliver
Collaboration is about leveraging resources – such as talent, money, customers and data – to achieve results better, faster and cheaper. Smaller companies need collaboration to compete with larger companies because they don't have the scale to innovate and maintain quality products and services at a competitive price. Credit unions need collaboration to ensure access to technology and transaction channels, which serve our members in the global marketplace.
There are many success stories of credit union collaboration. CO-OP Financial Services is an example of enabling credit unions to compete with ATM, debit, credit and shared branch transactions in an industry aggregated fashion at a competitive price. The CO-OP ATM network has roughly 30,000 ATMs accessible to credit union members, more than just about any bank. Our trade associations are collaborative solutions for industry advocacy. There are many collaborative ventures in lending solutions, insurance, investment brokerage, technology and others. Each generates an advantage to the participants that helps them meet their mission.
Bethpage Federal Credit Union, SECU of Maryland and Bellco Credit Union have a uniquely deep collaborative relationship. We share technology and related vendor partnerships, leveraging size for better solutions at cheaper prices. We share operations including a call center, real estate and consumer lending origination and servicing, collections and deposit operations. Combined, the three credit unions have more than $10 billion in assets and more than 750,000 members. Each of those members receives the same high quality service, and each institution experiences savings only available to larger institutions. Open Technology Solutions and S3 Shared Service Solutions were selected by NACUSO as CUSOs of the Year in 2015.
Why Isn't Everybody Doing It?
Collaboration is hard work. Sharing ideas and challenging one another drives best in breed solutions, but takes a lot of time and effort. In order to get the best group thinking, it requires a lot of communication. The organizational culture needs to evolve to fully support the governance process of collaboration. You relinquish much of the control over decisions and have to trust in your partners. Sometimes, you don't like the outcome, but you have to embrace the direction of the group decision. That can be hard for some staff members to accept. Like any change, some people don't adapt. Often, you have to change some of your favorite vendors for those you may not like as much. It takes practice to collaborate effectively.
We believe most CEOs are aligned with the basics of collaboration, but most efforts are pre-empted by lower level managers fighting for their turf. For needed collaboration to get off the ground, CEOs have to demand it become a strategic reality and force the culture evolution. The most important way this CEO shaped the culture was to require every new initiative to start with, “What are the partners doing on this?” Eventually, no initiative was presented without those conversations having taken place first. Often we find we can leverage the work someone else has already done.
Loan Participations Make for Great Collaboration
In another form of collaboration, Bellco buys and sells loan participations. We have bought real estate loans, sold auto loans, and bought and sold member business loans. Partnering with other credit unions is an efficient means of achieving better balance in our asset mix. It is a great tool to manage interest rate, credit and concentration risk. Performing due diligence, managing agreements and providing valuable reporting is crucial to good relations with partners.
It's Time to Collaborate
A new opportunity for collaboration has opened up. It's the most positive and useful change we have seen in regulatory relief in many years – unlimited member business loan participations. Every effort to increase the member business lending cap through Congress has failed. Consistently rated the second most important legislative need after defending the tax exemption, we have done nothing to improve our situation legislatively. But, here comes the NCUA to the rescue!
Credit unions like Bellco have been at or near the cap and have had to sell loans to the market, both through participations and whole loan sales. Meanwhile, we could not afford to be a participation buyer because it was held against our already stressed out cap. The revised MBL rule exempts purchased participations from the cap. Accordingly, Bellco and other credit unions that face the cap can sell member loans and then buy MBL participations (I know, no swapping). This allows us to diversify geographic concentration common with keeping only local loans.
Buying MBL participations adds a strong yielding, low risk asset to the balance sheet while diversifying the portfolio. If more credit unions buy and sell loans, more small businesses will have access to credit and continue to build and grow their businesses. Ultimately, this means more jobs for Americans and more lending for credit unions. The NCUA has opened the door to providing more credit to small business.
Loan participations are a terrific form of collaboration. A positive benefit is that you deepen a relationship with another credit union. That leads to other possible partnerships. Once you are talking, you may find other ways to benefit each other. So, let's get started today. Everyone needs to contribute to this very positive development. Buy an MBL participation!
Doug Ferraro is president/CEO for Bellco Credit Union. He can be reached at 303-689-7964 or firstname.lastname@example.org.