We are moving into a new era of CUSO development. There are many reasons for new strategic prioritization of these entities and the evolution of the model, but first and foremost is the need for scale in our operations. Scale matters more today than it ever has as we compete in the retail banking marketplace against larger and larger competitors.
In today's financial services marketplace, credit unions need to compete across an ever growing number of service channels, with an ever increasing menu of products and price levels that will win in the marketplace and return value to members. These competitive challenges require economies of scale. It is easy to identify the trend as we witness the ever increasing size corresponding service advantages of the banks we compete against. The global, national and regional banks continue to invest in omni-channel solutions, data analytics, segmented marketing, lead generation, mobile and marketplace lending, while maintaining large branch networks, call centers and ATM systems. Even the largest credit unions are growing much faster than the average size credit union as they build brands, create new products and maintain a lower operational cost per account. Scale allows each of these competitors to invest in new opportunities and serve their customers in a manner of their choosing.
The most disturbing brand survey that I have seen in years highlights this trend. JD Powers recently announced that the major banks (Chase Bank, Bank of America and Wells Fargo) are winning in the millennial marketplace because of their use of data and mobile channels. Service is defined by convenience, not in-person transactions, for this incredibly important segment of our market.
We need to quickly diversify our model to be more digital and web/mobile centric. We need to use our price advantage to compete in marketplace lending against Rocket Mortgage, SoFi and Lending Club. We need to reach the millennial marketplace through the web and on mobile devices. All of this requires investments that are best offered in a scaled environment.
CUSOs allow us to invest in these channels, products and tools at a price point we can afford while simultaneously lowering the risk of innovation and the required investment.
CUSOs have always been the industry tool for creating scale. We have invested in collaborative CUSO models in order to create technology platforms, start member business lending companies and create investment services platforms, just to name a few. Each of these has been successful because they have allowed the industry to enter into new competitive products and markets without having to fund it and take the risk as individual institutions. Even more importantly, credit unions are uniquely able to use collaborative business models because of the nature of our cooperative institutions. We were built to cooperate and share risk.
So why do I think we are moving into a new era? Some of us are seeing this from the front lines. NACUSO, a well-attended conference that is coming up in the first week of April, highlights all of the positive trends in the industry. There are sessions that are dealing with investment and insurance services, mortgage and business banking and a wide assortment of innovative technologies. The interest in the conference is at high level and the formation of CUSOs is a central theme.
There are also facilitating sessions at the conference that can help credit unions meet each other so they can form new CUSOs. There will be facilitated groups on marketplace lending, technology operations, digital disruption, business services, payments, investment services and mortgage lending.
We know that credit unions are talking about forming CUSOs. Often the only thing holding them back is that they just don't have contact with enough like-minded organizations. What we have found is that the key to success in forming a CUSO is to find the right partner at the right time. These sessions will do just that.
The evolution is upon us. It started in our DNA and is evolving because of the competitive environment. In the end, CUSOs make sense because they enable us to provide better service to our members and compete in a very challenging environment.
Kirk Kordeleski is CEO for the Edge Consultancy. He can be reached at 516-528-5057 or [email protected].
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