Technology CUSOs Beginning to Make Their Mark

COLUMBIA, S.C. – Credit union service organizations are nothing new, but emerging on the scene now are a new breed of CUSOs that are extending the “do-it-yourself” attitude and aptitude to the world of new technology delivery. “One of the most positive trends in credit union technology has been the emergence of credit union service organizations that provide technology solutions to peer credit unions. These CUSOs are beginning to shake things up on the technology landscape,” says Steve Williams, a consultant with Cornerstone Advisors. Williams cites five CUSOs in particular that have been created solely for that purpose and says they are gaining traction because of their strategic focus on member services, their emphasis on simple use and cost competitiveness, and because “they were developed with the heavy influence of credit union employees, these CUSOs seem to `get’ the functional requirements of the industry better than most of the traditional vendors in the marketplace.” Building a business with that in mind is one way, for instance, that Open Technology Solutions LLC plans to be a success from the word go. “Our staff views OTS as an opportunity to make a difference in how technology is implemented and supported at our member credit unions,” says Mike Atkins, chief operating officer of the Denver-based CUSO that’s a joint venture of Bellco Credit Union and Bethpage Federal Credit Union. “Many of our staff are certified in their specific areas of expertise and view the ongoing development of OTS as an opportunity to build a world-class facility from the ground up,” says Atkins, whose CUSO was formed to deliver core processor Open Solutions Inc.’s platform and other functionality in an ASP environment. Williams warns that the path may be pre-paved in some ways for technology CUSOs but is not without its bumps and growing pains that he calls “classic symptoms of the innovative start-up.” Ways that CUSOs present and future can avoid those pitfalls, he says, include developing a real financial plan, “getting serious about version control” and not making quality control an afterthought, keeping a tight focus on training, integration and architecture, as well as on product priorities. Atkins says his CUSO is learning those lessons, too. “Having just completed our first year of operation, we experience the same types of issues that other new companies experience,” he says. “Processes and documentation have been developed, but evolve over time as we develop more efficient and cost-effective ways to do business.” Experience also helps. For instance, OTS cut its teeth helping with the November 2003 conversion to the OSI platform at Bethpage FCU, taking away what it learned about testing methodologies and other crucial issues involved in such a sweeping infrastructure venture. “The conversion went very well and the benefits have been significant,” says Kirk Kordeleski, Bethpage FCU’s CEO. “We learned a great deal from the Bellco folks in the process of the conversion and in creating our joint venture. I think everyone is benefiting here, in fact.” The CUSO’s business plan also continues to evolve. “We view OTS as a vehicle to encourage collaboration among our credit union partners,” Atkins says. “Opportunities that surface at one credit union are discussed in context of all credit unions in the CUSO, focusing on ways to share in technology platforms, costs and ideas to ultimately create a superior product or service at a reduced price.” OTS currently hosts the core system, Web and IT security functions, unified help desk and more for two big CUs – $1.5 billion Bellco and $1.8 billion Bethpage, and for one indirect lending association – CU Direct Connect of Colorado, which processes about $100 million indirect loans a month for 61 CUs in Colorado and Wyoming, Atkins says. His CUSO has plans for more. “We are actively pursuing a number of large, like-minded credit unions to join OTS,” he says. “Ideally we will add five to eight credit unions over the next four years as joint equity owners in OTS, and we will continue to expand the scope of services we offer to owner credit unions. “We view the shared host system environment to be a starting point for collaboration.” Collaboration and integration are key concepts to the future success of these technology CUSOs, says Williams, the Cornerstone Advisors consultant. “The ultimate leaders in CUSO technology will not only be great front-end developers of Web technology, they also will be competent back-end integrators who can make their solutions interact powerfully with credit union host systems,” he says. And they will keep their focus. “The worst thing a CUSO can do is end up in three years with a dozen half-hearted sloppy new product developments,” Williams says. “Those CUSOs with clear product priorities could end up becoming category killers in credit union technology.” He also says that the first phase of emergence of technology-based CUSOs may be nearing an end. “In the next few years, we will witness the separation of those who hacked together some cool stuff and those that built organizations that had a meaningful impact on the credit union industry.” Here’s a look at the other technology CUSOs that Williams says are having an impact: * Prime Alliance Solutions. Formed by Boeing Employees Credit Union in 2001, this CUSO now has more than 60 credit unions and 12 mortgage companies using its loan origination software engine, “which we created as an entirely new way to originate mortgage loans,” says Dan Green, the CUSO’s executive vice president. He says the CUSO is growing fast and is avoiding some traditional technology growing pains by “managing new releases in such a way that our customers have advance notice of changes and training on those changes both before and after they are released.” Green also cites the CUSOs tight focus on its constituency for its success. “We’re a credit union company, built by credit unions, serving credit unions exclusively,” he says, adding, “We’re also lenders first, technologists second.” Prime Alliance currently has about 420 sites in use nationwide and hopes to reach 1,000 soon, Green says. It’s begun offering marketing services, too, and in the fall will release what Green says “is the first Web-based loan-origination system, and the first that approaches mortgage loan processing as a condition-driven rather than an activity- or function-driven system. Loans will close more quickly because the tasks required to close them will be clearly defined for the loan staff.” The Major Players * eCU Technologies. Formed by Pennsylvania State Employees Credit Union in the fall of 2001, this CUSO serves about 60 credit unions with consulting, home banking, online lending, report generation, e-statement, bill pay and other services, much of it through the Symitar system. eCU came about as a result of PSECU’s experience in hosting visitors from other credit unions, visitors who then wanted some help back home. “Eventually we realize that we had an opportunity to help other credit unions and possibly help fund our own research and development,” says Greg Smith, the big CU’s CEO. “And one thing about a tech CUSO that we have learned is that we get a lot of good ideas for PSECU from our client credit unions.” Smith cites some natural advantages for his CUSO’s success. “First, we are a credit union, too. Many of the programs that we sell to other credit unions are also used by PSECU. That means our staff can speak from direct experience that other technology providers, even Symitar, don’t have,” he says. “Second, even though eCU is a for-profit corporation, our parent corporation is a non-profit. I think that gives us a cost advantage and a dedication to service that many vendors don’t have.” * FORUM Solutions. Formed by FORUM Credit Union in Indianapolis in September 2000, this CUSO has its TAPS (Total Account Processing System) Lending solution in place at 37 credit unions nationwide, and has partnered with eCU to offer the system to other credit unions on the Symitar core platform. The TAPS system was developed in-house to improve turnaround and offer cross-selling opportunities for the loan business at FORUM CU itself and took off from there. “Demand is what drove us into the business,” says Doug True, senior vice president and chief information officer at FORUM CU and president of FORUM Solutions. In addition to the business it creates, the CUSO makes available to the parent CU ideas from client credit unions that are working in their own environments, and it provides the environment in Indianapolis “for the credit union to have a group of skilled technology employees on staff to help with a variety of needs that the credit union would probably not have if it was just serving the needs of our one credit union,” True says. He also acknowledges that there have been growing pains, which he says “have been a direct result of demand for our TAPS Lending solution, and while they are definitely painful, they are learning events that we take pride in experiencing. “We are a professional software shop, and we value the feedback that we receive from our credit union partners on how to improve FORUM Solutions and our offerings.” * Passageways LLC. Also in Indiana, operating in a smaller niche, is Passageways LLC, a year-old CUSO of Purdue Employees Federal Credit Union whose intranet-based collaborative work flow solution, essentially an internal portal, has been purchased by 14 credit unions. Two Purdue University students presented the idea for the portal to PEFCU, and “we were so impressed with the software and the applications that we partnered with the two students to help them get their business started,” says Bill Connors, PEFCU’s CEO. Connors says his CUSO, of course, competes with other portal offerings but has some cost and usability advantages, growing out of its initial development and deployment at its home CU. “The Passageways portal is scaled specifically towards credit unions and thus the functionality and modules can be scaled to a credit union’s specific needs,” he says. As for growing pains, Connors says, “We have some, but they are somewhat limited. Some of the difficulty was in ramping up to some unexpected growth. We now have six staff and finding the right fit for a small start-up isn’t always easy. “We solved some early problems with documentation and quality control by hiring an individual with previous experience at a non-credit union company.” Other than faster-than-expected growth, things have gone pretty much to plan, Connors says. “The company turned a small profit in its first partial year of operations. We think the real potential is in long-term growth,” he says. -