Building business together: Credit unions and CUSOs

Most CUs spend a lot of energy convincing members of the value of credit union ownership. Isn’t there equal value for a credit union in securing ownership in its own strategic partnerships? The benefits of credit union vendor equity are like the benefits of CU membership. A member wants long-term financial success for his family; a credit union also wants this success. A member seeks out service providers with his best interests in mind; a credit union should seek out vendors that are vested in the organization’s own niche. A member wants to be an owner and have a say in where the credit union is going; a credit union should have a voice and leadership in its own future. Consider the idea that today all CUs should invest in or seek out equity positions in technology. Traditional thinking is that only the largest CUs can afford to go off in their own direction and take on the management of their software products. Time after time, CUs that did not have the resources, diversity or ability to focus long-term energy on developing software products have failed. It’s a tough business, but is that enough reason for a CU to give up the voice and insight gained with an equity position in the development of such a key strategic tool? In other words, should the baby be thrown out with the bath water? The power of equity is the key. Can a CU tap into new models and focus on gaining that power without being the sole force behind developing the credit union’s technology? Today’s model is for credit unions to become collaborative partners in intellectual capital and have true voices in equity positions through those partnerships. Whether this means closely held CUSOs, a strategic partnership through serving other credit unions or looking to be a venture partner with third-party providers, credit unions need to be creative in securing their equity voices. It can begin the next time a CU considers finding a technology vendor or any other kind. Was a firm that offered an equity position included in the search? Have benefits been identified that can be achieved through having equity in a vendor’s offering? If the vendor doesn’t offer an equity position, how does its plan ensure the same benefits? How do CUs gain access to ownership rights? Can they have significant voices in the partnering companies? Will the company be viable and diversified enough with CU ownership? Without positive answers to these questions, CUs don’t stand a chance of realizing the power of equity. Access to the Big Picture Equity positions can give CUs better insight into their business solutions from start to finish. Unlike third-party relationships that often start and end with the sales cycle, having an equity position in a solution provider allows the CU to understand conceptually how the solution was formulated, designed, funded and conceptualized as an ongoing business. This gives CUs greater insight into how they will be treated as both owners and customers. What are the potential returns and how does the vendor plan to reinvest those returns? What is the vendor’s short- and long-term view of the marketplace? Does any of this measure up to how the CU plans to work with key solutions? Credit unions that have a voice through equity can work on models where the vendor’s success is related to the success of the product implemented with members. This is key to CUs where the business structure does not allow for many project managers or implementation specialists to be on staff. Implied technology does not always equal applied technology. Moving in the Same Direction David Keim, CEO of Western Districts Members Credit Union, located in Grand Rapids, Michigan, believes a partnership between a technology vendor and a CU is truly a marriage based on trust and reliability. “I believe it’s important to sit down and discuss with the vendor whether or not you are just being sold a piece of goods, or whether the vendor is actually going to sell you a relationship that becomes a long-term marriage,” says Keim. “I know what I am getting when I am aligned with a strategic partner. We have been involved with a top-notch software and technology partner (CUSO) for many years and we already have a basic trust with which we can build equity for the credit union.” CUSOs as Equity Partners Today’s most popular model is partnerships through CUSO charters, dividing both the risk and effort among multiple credit union owners. CUSOs offer the ability to secure new resources, different kinds of leaders, and focus on game plans that support credit union services based on the goals of CU clients. Properly postured, CUSOs can become the ultimate focus group for CUs. CUSOs are generally driven by their peers who wear two hats – a provider’s hat and a receiver’s hat. They have the ability to set in place many creative solutions for CUs, including controlling margins and setting goals. CUSOs can set the pace of change based upon the acceptance of change by its ownership, the credit union. They can set the amount of investments based upon the ability of their owners to implement and prosper from those investments. CUSOs also offer a structure that can parallel the political structure of a credit union. The value of this cannot be overstated. The creation and drive in building technology solutions can be almost the exact opposite of the patience and focus that CUs must maintain in serving members in a secure and evolving fashion. A CUSO’s structure can ensure that the vendor understands the CU’s investment decisions, the effects of change on members and the CU’s financials, and the conflict inherent in a politically structured, regulated industry. Equity Is More Than Stock Value For many the word equity implies a vested interest for a profitable return. In most cases, this is related to cash dividends or stock value. Today’s CU leaders need not only to bank on possible windfalls through vendor equity, but concentrate on the potential for longer-term returns. Vendor equity creates a participation-based return by guaranteeing access to products and services and integrating them into the CU’s strategic plan, and ultimately leads to the most important thing of all: the direct return to members through CU service. This is not a new idea, but a timely one. In the past, CUs have developed successful vendors who defined and outlined the CU marketplace so that many creative third parties have come forward. Guaranteeing the execution of CU goals may be the number one reason for a CU to seek out equity in finding its next solution.