Open the Door to the Next Evolution: Collaboration Is Not Optional
The credit union industry has always been unique in its willingness to cooperate, but the need to collaborate today is undeniable. Beyond just sharing success stories and informal networking, there are tremendous advantages to operational collaboration. Lower costs, increased efficiency and a better, more comprehensive solution are just a few of the advantages for credit unions that choose to collaborate. With expense ratios on the rise and interest margins challenged, collaboration is a key way to compete with large financial institutions and increased regulatory scrutiny.
We regularly hear credit unions talk about collaborating to gain economies of scale. However, I often think we are naove about what this will really accomplish. Our experience at Ongoing Operations and my personal experience as a credit union chief technology officer has convinced me of two things. First, scale is not about a 20% savings?it is about fundamentally changing the business model such that the relevancy of a large expense is minimized. Second, no matter how many credit unions work together, scale is not attainable in the IT area of credit unions without large numbers. The need to collaborate within the industry on back office operations is key to carving out the additional expense savings needed to survive and thrive. However, finding partners (perhaps outside of the credit union space) to bring scale is equally important.
Ongoing Operations' founders recognized the local need to collaborate in the business continuity area shortly after Sept. 11 when many Washington area credit unions found that their existing disaster recovery plans were not sufficient as security restrictions prevented them from accessing branches in government buildings and air travel was halted. Later, PSCU Financial Services pushed Ongoing Operations through investment to attain scale by expanding its geographic footprint and capabilities in order to help solve this problem nationwide.
The core challenge for credit unions post-Sept. 11 was how to ensure that their operations could continue during a wide range of potential crisis situations or more common, everyday service disruptions. The standard "we'll fly a backup tape to our core provider to recover" was clearly not enough, but building a complete solution independently for each affected credit union was equally untenable. And, as we learned, this was true for credit unions across the country, not just in isolated regions that had been impacted by one particular crisis.
A group of credit union executives chose to collaborate to solve their shared challenges around business continuity, and Ongoing Operations was born. After a year of in-depth meetings, this intentional collaboration paid off and seven credit unions chose to invest in the new CUSO. We now protect 21.5% of industry assets and more than 4.9 million members nationwide. With more than 125 clients in 22 states, we have quickly grown from a start-up organization to the leading provider of business continuity solutions for the credit union industry. It is important to note that it took quite some time and investment to obtain scale (approximately four years and $7 million dollars in capital). We also chose to partner with select companies outside of the credit union industry to benefit all of our clients with true IT scale.
What other challenges can collaborative solutions solve? There are countless other examples of credit unions joining forces on local, regional and national levels and the future is ripe with more opportunities. There are more than 770 CUSOs in the United States, 187 of which are multi-owned, and credit unions have collectively invested more than $1.14 billion in these collaborative organizations, according to Callahan & Associates:. But this is just the tip of the iceberg.
More consumers are turning to credit unions as their trusted financial partners, and members' expectations of 24/7 access to their accounts via online services such as mobile banking and other new technologies will continue to grow. As credit unions strive to increase overall efficiency while enhancing member service, the potential of "cloud computing" stands out as another clear opportunity for collaboration. Instead of individual credit unions continuing to invest capital and man-hours to own and manage their own IT infrastructure, centralizing those functions with a partner that understands credit unions' unique security and other requirements can significantly reduce costs and open the door to the next evolution in technology, collaboration and scale. All of the tools exist, the market exists, the need exists, but it will require credit unions trusting partners and looking at their business models differently.