An Emerging Segment of the Credit Union Movement

While credit unions have created ancillary organizations to both unite and promote the system throughout their almost 100 year history, over the past 10 years a new segment of organizations has emerged to serve credit unions. These are CUSO’s, owned by multiple credit unions, serving local, regional and sometimes national markets. While CUSOs owned by a single credit union to serve its members are not new, the multi-owned CUSO is rapidly becoming a source of credit union innovation and competitive power. Today there are at least 128 of these organizations with more being formed each month. While following the CUSO authority of both state and federal statutes, there is no single business model or legal structure. Some are incorporated (Inc) businesses, some are Limited Liability Corporations (LLC), others partnerships and some even cooperatives. Some have a few credit union owners and others like PSCU Financial Services and the CO-OP Network have hundreds. Some, such as CUMAnet in New Jersey, focus on a local market and some are national in scope. Whatever the structure, however, each organization’s goals are based on the fundamental credit union principal of cooperation, that is working together for a common objective. In addition there are several organizations not owned by credit unions, which embrace some of the same business principals such as the National Cooperative Bank and Liberty Enterprises. Other private firms serving credit unions are experimenting with cooperative efforts in their credit union relationships. Two examples are the business partnership between Wescom CU and Symitar in developing data processing applications and the “patronage dividends” given by insurance firms to recognize the volume from credit union users of the firm’s services. What’s Different About These Cooperatives What’s significant about these cooperatives is their growing impact and scale, not the concept. Users, Inc. was a data processing cooperative founded by its credit union users in the late 1960′s, long before the term CUSO was invented. While the firm today is part of the Fiserv family, there are three or four credit union-owned data processing companies with a viable market share who are attempting to bring unique value to the owners using the same cooperative model. It is important to recognize these cooperative organizations not just because of their success, but also due to the common factors that contribute to their success. They are an industry with similar business issues. The business areas in which these multi-owned cooperatives are involved are numerous. At one extreme are CUSO’s that have a high research and development effort-and therefore less of an operating structure-such as OFS and Member Gateways. At the other extreme are firms focusing on one principal business such as the CO-OP Network’s surcharge free ATM network or FSCC which coordinates over 750 “outlets” or branches that its credit union owners can use to serve their members. Even with different business goals, CUSO’s share some common features: *There is credit union ownership in whole or in part. Some CUSO’s may have, for example, a privately owned general partner and a majority of credit union owned shares (Trust for Credit Unions) while others are 100% credit union owned-CU*Answers (formerly WESCO). *There is an operating firm with full time staff and professional management directing the business of the CUSO. Managers report to a board or ownership on the success of the business. *These firms have their own capital, have revenue streams (that is not dependent on owner’s subsidy), frequently sell to credit unions beyond the owner group, and can grow the business as market circumstances provide. *The business model can easily be expanded beyond a local or statewide market to a regional or national reach. In many respects these cooperatives represent the entrepreneurial or venturing opportunities of the credit union system. One factor propelling cooperatives to their leadership role in certain businesses has been the integration of the Internet in their business model. Firms such as CU*Answers and CUSO Financial Services have integrated the Internet as a means for providing unique value to their customer base. The reach of the Internet has made national solutions now practical rather than just a series of regional efforts. For example the ATM Cooperative is now in almost all states with its network whereas 10 years ago there were separate ATM cooperatives in fifteen different states. What Does the Future Hold? Deregulation gave credit unions the opportunity to respond to consumer needs in a variety of ways. However, organizational experience and regulatory conservatism has made starting new businesses within the credit union structure very difficult. Multi- owned CUSO’s bring scale, capital, risk diversification and expertise to the starting of new businesses. As member needs continue to grow and credit unions search for new sources of revenue in a low interest environment, CUSO partnerships become a critical way to create competitive advantage, and if successful, a good return. The success of CUSO’s contributes to further success both through reinvestment in the existing cooperative and through the spawning of competitors who want to replicate some of the first mover’s returns. But the most fundamental factor may be the continuing need for cooperation if credit unions are going to provide products and services with added value. In almost no area of financial services are credit union’s market shares significant. Even where they hold a meaningful amount, such as the approximately 15% of the auto financing market, this result is not aggregated in any way that can be used to represent credit union clout with dealers or manufacturers. In addition, credit unions spend almost $8 billion on external services and products each year to run their businesses. Opportunities will continue to occur where credit unions can own their own solutions rather than rely on third parties. Now that many successful models exist, it appears the cooperative model is emerging as a key to future success.