CUSOs Owned by Multiple Corporate Credit Unions Create a Win-Win-Win Situation

The credit union industry is experiencing a wave of newly created corporate credit union-owned Credit Union Service Organizations (CUSOs). Recently, the corporate credit union network has demonstrated a significant desire to partner with one another to create these CUSOs. As President/CEO of CU Business Group, LLC, a CUSO equally owned by four corporate credit unions, I am clearly in the middle of this corporate partnering trend. But why is this an increasing trend now – and will this continue in the future? For years natural-person credit unions have used CUSOs to share costs, gain efficiencies and create opportunities to better serve their members. In the true spirit of cooperation, credit unions often band together and formulate a CUSO that brings significant benefits to the credit union partners and, more importantly, provides new or enhanced services to their respective members. Interestingly, however, it has been less common for corporate credit unions to partner with one another to form a CUSO. But this is changing, and rather rapidly. I believe the element of corporate cooperation creates a tremendous advantage for credit unions and their members. A prime example of cooperation in a corporate CUSO is CU Business Group. Northwest Corporate (Oregon) formed the CUSO in 2002 and soon after entered into a partnership with FirstCorp (Arizona). The two corporates share similar philosophies and both were looking to bring a business services solution to their member credit unions. So, rather than creating two separate entities, a costly endeavor for each corporate, they shared in the formation and initial operating costs of CU Business Group. In 2003 Empire Corporate (New York) joined the partnership for the same reasons and invested in the CUSO; and in early 2004 Mid-States Corporate (Illinois did the same. These corporates all wanted to avoid “reinventing the wheel” and found it much more cost-effective and advantageous to partner rather than compete. Therefore, they elected to partner with an experienced and knowledgeable business entity. Other corporate CUSO endeavors are under way in item processing and image archive. The Primary Financial CUSO, which offers the SimpliCD product, is owned by a large number of corporates and is an excellent example of the corporate credit union network working together. From the CUSO’s perspective, there were many advantages to expanding ownership and partnering with more corporates. The CUSO will capitalize on a number of significant benefits corporates bring to the table, including: * Trust and loyalty: Corporates exist to serve credit unions in their markets. In general, credit unions have a great deal of trust and a sense of loyalty to their corporate. They know the corporate, and the corporate knows them. This is a tremendous advantage for a corporate-owned CUSO. The CUSO can tap into that established relationship and enter into multiple markets with greater ease and acceptance. Also, corporates perform due diligence on the CUSO and its products, and credit unions know they can rely on this when a corporate brings the product to market. * Access to new and diverse markets: A CUSO owned by a single corporate typically has a presence only in that corporate’s market. When several corporates partner, the CUSO gains access to new markets and ultimately has a more widespread market presence. And, if structured properly, it’s in the corporate owners best interests to promote the CUSO’s products. * Significant volume potential: The profit potential of volume-oriented products such as business lending and item processing significantly increases as transaction volumes grow. Corporates are well positioned to deliver these types of services to credit unions in their markets, thus increasing the volume potential for the CUSO as more corporates enter into the picture. * Speed to market: Creating a CUSO and its product line takes time. Rather than having to build their own product, which takes time and resources, corporates that buy into an existing CUSO have the product available immediately. This means the corporates can begin earning a return on their investment from day one of the CUSO relationship. * Established and efficient delivery systems: Corporates have a well-established link to their member credit unions, whether it’s in transaction processing, business development, or communications. The CUSO can use this established delivery system to more easily reach credit unions. Corporates also excel at aggregation and efficient transaction processing, which significantly benefits volume-oriented products such as business loans, item processing and image archive. * Financial resources: An obvious advantage is that corporates generally have the capital to invest in CUSOs. By partnering, corporates share in the costs associated with the CUSO and therefore the corporate’s investment dollars go farther. This investment is typically far less than would be required if the corporate created the product itself. Corporates, in turn, receive the income potential from the new CUSO venture, and at the same time bring new products and services to their respective credit union members-truly a `win-win’ scenario. * Innovation and expertise: Corporates have significant talent and expertise on staff; the CUSO is wise to draw on this diverse talent mix. One of the corporate credit union network’s key roles is to stay ahead of the industry and develop new ideas and solutions for credit unions. Corporate experience and expertise in product development, pricing, and delivery hold valuable lessons for the CUSO. * Education: Corporates have a long history of providing financial education to their member credit unions. This is a large plus for a new corporate-owned CUSO in getting the word out about their services and product lines. * A “big picture” view: Corporates have expertise in many areas, including finance, payment systems and risk management. This depth and breadth of experience is of great value in seeing how the CUSO fits into the “big picture” with regard to the corporate’s member credit unions. A classic example of this is assessing how a particular business loan portfolio will fit within a credit union’s asset/liability structure and risk profile. The credit union needs to project what mix of pricing, terms and balances will improve their ALM position – and even more importantly, what combination of these factors may hurt the credit union’s position. I believe it is clear that corporates working together is a tremendous benefit for the credit union industry, and that this is a trend that’s here to stay. Corporate CUSOs create a win-win-win situation, one where the corporates, the CUSO and most importantly the credit union and its members all benefit and ultimately come out ahead.