ST. PETERSBURG – There's a true rags to riches credit union success story playing out in St. Petersburg, Fla., the home of Payment Systems for Credit Unions. Formed back in 1977 by the CEOs of five credit unions – GTE FCU, Suncoast Schools FCU, Pinellas County Teachers CU, Publix Employees FCU, and Railroad and Industrial FCU -PSCU is now the largest CUSO in the country owned by 510 CUs. PSCU has just announced a major realignment that will see it close down four regional offices (Jacksonville, Fla.; Herndon, Va.; Honolulu, Hawaii; Novi, Mich.) and open an operations center similar in scope to its 180,000 square-foot St. Petersburg headquarters. Phoenix was chosen because there is no real natural disaster threat in that area; for its high-tech infrastructure as technology has taken on greater importance for PSCU; and because it is expecting the Western U.S. – especially California – to be an area of growth for the next several years. Once the initial start-up and moving costs are out of the way, PSCU expects to realize an annual $2 million savings by consolidating the facilities. The realignment is part of a three-year strategic plan. About 600 of PSCU's 750 employees work in St. Petersburg. The 150 employees in the four regional offices will be offered jobs in either St. Petersburg or Phoenix – their choice. Employees will have about a year to make a decision, and PSCU will pay for those employees and their family members to visit one or both sites. All employees will be paid above market rates, said PSCU President/CEO David Serlo, who doesn't want to lose a one of them. "Our desire is to retain all of the employees, and give them the city of their choice to work. We will make it very attractive for them," said Serlo. The Phoenix facility is expected to open in July 2002, with an initial 150 employees and then staffing up to 300 employees. Step inside PSCU's one-year-old headquarters and there's no questioning the importance placed on employees. The following quote: "Staff is our most important asset" attributed to Serlo, adorns a wall that features a long line of candid photos of PSCU employees. Employees enjoy a full work-out room complete with weights, treadmills, and other exercise equipment. Trendy iMac computers give employees Web access in the two-story eatery, which also features televisions rigged with cable, and a large covered patio. There's a room dedicated for video games to give the stressed-out employee a breather. The modern building was even designed by a former PSCU employee, who has since left to start his own design/build firm. The perks are not for nothing said Serlo. A lot of PSCU's employees spend their days or nights on the phone in its 24×7 call center, where pressure can run high. The call center is the backbone for all that PSCU does. While call centers are historically hit by 50-60% turnover rates, PSCU's turnover is about 28%. PSCU's 180,000 square-foot St. Petersburg headquarters is actually two separate buildings standing side by side. The 100,000 square-foot building was opened last year, with the 80,000 square-foot building currently in renovation mode. In all, the two buildings and the 12 acres of land they sit on cost PSCU $18 million. PSCU's three-year strategy is designed to keep the company on the growth track for years to come. Serlo said it would be easy for PSCU to survive with its two core credit and debit card products, but growth would level off. The credit card side of the business has been flat compared to five years ago, said Serlo. Business is booming for PSCU though. Its net income rose 19% to a record $122 million in 2000. Business was so good last year PSCU returned a record $14.4 million patronage dividend. Serlo said PSCU has been able to grow quickly in a short time-span largely because of the success of CUs. In 1989 PSCU served about 250 CUs representing 800,000 cardholders – today it serves 510 CUs representing more than six million cardholders. Serlo said he is particularly amazed by the growth in CU card business over the years given the competitive environment of credit card marketing. But now that credit and even debit cards are such mature products, PSCU is seeing declining numbers from some of its CUs, spurring the need to look for other growth areas. To achieve growth, PSCU is diversifying. This was first seen last year with the emergence of ePSCU. PSCU has committed an initial $20 million for ePSCU over its first three years. Most of PSCU's 510 CU owners are of the medium to large variety. Serlo said ePSCU will be offering products such as Net banking and bill payment that will be attractive to all sizes of CUs. Despite failures in the CU e-com space and the hordes of players out there, Serlo believes ePSCU will be successful because of PSCU's established 24×7 call center operations. "Our value is not the software. We're not in the business of R&D, but of quality customer service demonstrated by our call center capabilities. We're not going to invest millions in developing new technologies, we'll let the CheckFrees do that," said Serlo. He stressed that PSCU has a duty to try to bring more value to the CUs that have supported PSCU over the years. "Credit unions expect us to leverage the call center that they paid for to bring more value to them. That's what we're doing," said Serlo, who is a proponent of continually investing in an organization to maintain high service levels and meet market demand. ePSCU has already partnered with major IT players like CheckFree for bill pay with more alliances down the road. Serlo said ePSCU is currently talking to aggregation leader Yodlee for a possible alliance. "ePSCU is a good bet on its own, but it needs the infrastructure. It can ride the coattails of PSCU which has been in place for 24 years. They have that entrepreneurial spirit, the latitude to be independent. They have the best of both worlds," said Serlo. ePSCU is headed by Tom Miles, the kind of guy who likes coming to work not knowing what's going to happen next in the fast-paced e-world, said Serlo. Only about a year-old, ePSCU has 150 CU clients, and is looking to soon launch online lending. PSCU has also given a high-tech boost to its tried and true credit and debit products, with the launch of EasyToCU, a solution that allows cardholders to view their credit card information in real-time from their credit union's Web site. Aside from technology, PSCU is diversifying with the addition of an agent bank service that will help CUs sell their credit card portfolios. Serlo is not necessarily a proponent of selling card portfolios. "Credit unions should think if a bank will pay them $1.25 on $1 for their portfolio maybe there's more value there than they think. Maybe they'll start marketing to their members." But selling portfolios isn't going away, said Serlo. PSCU has seen the marketplace changing and more CUs opting to sell for liquidity and other reasons. PSCU has formed a relationship with National City, Kalamazoo, Mich. to facilitate National City's purchase of CU card portfolios. PSCU can act as an advisor and evaluate a CU's card portfolio to help the CU decide if selling is the best choice. Under the agreement, if the CU does sell, PSCU retains its part of the business, and the CU keeps their name on the accounts. PSCU is in essence acting as the broker of portfolio sales. The first transaction took place on May 31. It is a move that protects PSCU's card business, said Serlo, but also helps CUs and members by keeping them in the equation. Serlo stressed that the relationship with National City is by no means exclusive and he hopes corporate credit unions will look to get involved. "There's absolutely no reason only banks should be involved in buying credit union portfolios. Corporate credit unions have the ability to do this and add yet another valuable service to what they do. This would keep it in the credit union family," said Serlo. PSCU has also launched a collections service and a portfolio advisory service. The collections service can provide collections assistance or take over a CU's collections on card products. Serlo said this service is great for the CU that is dealing with high turnover in collections or wants to rely on the expertise PSCU has on staff instead of investing more in hiring new employees. Diversification of products and services was the fuel for the realignment, said Serlo. "When you go from a two product company, to a multiple product company, you have to evaluate how you're structured," said Serlo. Enter the realignment and the new Phoenix facility. "We'll have two identical looking facilities able to back each other up. A more efficient way to do business," said Serlo. PSCU is also partnering to grow its business. Earlier this year it formed an alliance with CO-OP Network, Ontario, Calif., to deliver ATM, point-of-sale (POS), offline debit and credit related products to CUs. That deal is key, said Serlo, because it makes PSCU more competitive with VISA DPS. "VISA DPS has been offering credit unions online/offline debit as well as driving ATMs. It's a good opportunity for us to grow in the West, and driving ATMs makes us compete more effectively with a VISA DPS," said Serlo. PSCU has three sites scoped out in Phoenix for its new facility. Serlo expects the facility will be about 70,000 square-feet, and that PSCU will initially lease the space. "One of the benefits of dot.com companies going away is there's some good, cost efficient office space available out there," said Serlo. Looking back on PSCU's history, Serlo said the turning point for the organization came when PSCU decided to bring more of its operations in-house, which really started in 1987 with the decision to move away from contracting out its operations to Telecredit, its long-time partner. PSCU then contracted with First Data Resources, but only to do transaction processing. The controversial move caused some animosity among some PSCU board members and eventually helped spawn Card Services for Credit Unions, also in St. Petersburg. CSCU farms out most of its operations to Equifax, which purchased Telecredit. "It caused a big stir. It was our first really long-term strategic plan to do business different. PSCU was now really going to get into the business, taking over the cardholder customer service piece as well as the CU operational piece through our four regional offices. First Data's role was limited to processing the transactions," said Serlo. "When we made that decision there were a lot of credit unions that chose not to move with us. Credit unions were justifiably concerned whether or not we were going to be around in a year or two. But because of the vision and courage that the board had when they made that decision they put me in the position to do other things, like the e-commerce and collections services we're doing now. If we were still a small company contracting everything out we couldn't partner with the large organizations we are now to bring e-commerce products to credit unions," said Serlo. [email protected]