In the hype over whether CUSOs will continue to have the ability to share security commissions without NASD registration, we must not lose track of the fact that CUSOs have the most impact on the credit union industry when credit unions use CUSOs to work cooperatively. The power of combining for a common cause is the heart of the credit union concept. There are compelling reasons to use cooperative CUSOs for new ventures. The costs and risks of new ventures are shared thereby reducing the costs and risks to each credit union. Combined credit unions bring more economic power to the marketplace which can result in enhancing the ability to (a) obtain favorable terms with vendors, (b) exercise more control over the business venture, (c) own the intellectual property and (d) hire and retain highly qualified staff. Why engage in new ventures? We cite two reasons: providing more value to members, and the economic well being of the credit union. It is the mission of credit unions to serve the financial needs of its members. In today's world, members need and expect much more from their financial service providers and will migrate elsewhere if the credit union does not provide a full array of financial services, e.g. investment, insurance and trust services. The future economic well being of credit unions could be adversely affected unless credit unions can find ways to keep operational services costs in check and to grow revenue sources. There is ample evidence that the current credit union financial business model is not sustainable over the long-term. The drivers of change inherent in market, competitive, technological and regulatory forces are putting downward pressure on credit union net interest margin and return on assets over the long term. Credit unions cannot make enough spread between their interest income and cost of funds to stay competitive in the marketplace. In order to meet these forces of change and be successful in the long-term, credit unions must consider evolving to an "other income" model. There are three ways of generating more income: 1) adding new products and services, 2) expanding into new markets, and 3) increasing non-interest revenue. CUSOs, specifically cooperative CUSOs, can be the vehicle to generate this "other income." There are instances of the cooperative model throughout the credit union system in both financial services and operational services CUSOs; e.g., Financial Services Cooperative CUSOs: investments and insurance, personal lines property and casualty insurance, trust services, mortgage banking services, auto brokerage, and indirect lending. Operational Services Cooperative CUSOs: data processing, credit card servicing, shared branching, ATM network management, and human resource sharing. However, these examples of the cooperative model are scattered throughout the credit union system and are not the dominant theme. Moving toward a new business model How do credit unions examine and create cooperative arrangements? As consultants to the credit union industry, our practices have dedicated a considerable amount of time and effort over the past several years to meeting with collective groups of multiple credit union boards of directors and executive management teams to explore the benefits of the cooperative model and opportunities of shared business ventures. There are generally three objectives to these "joint visioning sessions" with multiple credit unions: 1. To share each credit union's respective experiences and vision for the future * How does each credit union see the future? * What are the drivers of change in our environment? * Why do we need to change? 2. To provide a forum to learn from each other and create knowledge together. Learning forms the foundation of the new credit union, and "learning as you go" is the solution to dealing with constant change. 3. To determine the extent to which the participating credit unions share similar values, goals, philosophies, and to begin preliminary discussion on potential cooperative financial and operational services business opportunities. Participants leave the "joint visioning sessions" with expanded thinking on the possibilities for the future of their respective credit unions, and the role that the cooperative model can play in their overall business strategy. Given the drivers of change in our business environment and the importance of the cooperative model as a viable strategy, what will the credit union of the future look like? Credit Union Networked Model There are three phases in the evolution of the Credit Union Networked Model: *

Phase I of the Credit Union Networked Model consists of a network of CUSO relationships, in which a credit union owns an equity interest in these relationships with other credit unions and/or third party providers. *

Phase II of the Credit Union Networked Model will evolve through the growth and integration of these CUSOs – as other credit unions join each of the individual CUSOs and as the CUSOs themselves integrate; e.g., the broker/dealer and trust services CUSOs. *