Talents Are at the Heart of CUSO Innovations

The distribution of knowledge and expertise is not even in this world, and credit union service organizations have long been a way for credit unions to capitalize on their strengths while helping others in the movement.

And often the core of the CUSO is the talents of its employees.

Sometimes the person who starts out in marketing, but somehow becomes an expert in computer systems integrations, might be the person a credit union picks to find better digital solutions within their operations.

The manager who can see a way to sustainably fill the needs of small and medium-sized credit unions might be the one to knit together affordable services to allow those credit unions to keep up with the rising complexity of the credit union environment.

And that guy who bought the Google glasses and stood in line for the new generation iPhone? A credit union might want to sign him up for a CUSO to create mobile phone apps.

Credit unions are believers. They had invested nearly $2.8 billion in CUSOs at the end of 2018. Those investments have risen about 40% since 2014, compared with 30% for assets. They’re providing an avenue for revenue beyond interest, fees and passive investments.

CUSO investments seem to follow credit union size and margins, with those entering or exiting clustered around $50 million in assets. Consider the medians for these four groups:

• Steady CUSO investors: The 2,107 credit unions that had CUSO investments at both year ends 2017 and 2018 had median assets of $141.8 million and median ROA of 0.69%.
• Newly arrived: The 166 credit unions that started CUSO investments in 2018 had median assets of $58 million and median ROA of 0.59%.
• Newly departed: The 74 credit unions that exited CUSO investments in 2018 had median assets of $47.3 million and median ROA of 0.45%.
• Abstainers: The 3,086 credit unions that had no investments in either 2017 or 2018 had median assets of $12.8 million and median ROA of 0.47%.

The crop of new CUSOs includes:

Digital Banking Services, an Austin, Texas-based CUSO formed in early 2018 by the Dallas, Texas-based Credit Union of Texas ($1.4 billion in assets, 140,785 members).

CU Sol, a CUSO formed in early 2018 by U.S. Eagle Federal Credit Union in Albuquerque, N.M. ($1.1 billion in assets, 77,782 members) and Coast360 Federal Credit Union of Maite, Guam ($391 million in assets, 49,595 members).

CU APPS, a CUSO formed early this year by Providence Federal Credit Union of Portland, Ore. ($137.3 million in assets, 16,182 members).

Brett Wooden, COO of Providence FCU and CEO of CU APPS, said he began helping to develop mobile phone applications after discovering he could cross the distance between imagination and realization with a little (or a lot) of help from his friends.

“I’ve always been an ideas guy,” Wooden said. “I thought it was so amazing that you could take this idea in your head, have the designer design it and have the programmer program it, and have a live, working app on the phone or iPad.”

He started in consulting, which led him into an app company, where he created apps for lobby management, loan calculations and other one-off apps for credit unions. His career took him from his Portland roots to credit unions in Texas and New York before coming back home to work for Providence FCU.

The idea for launching the CUSO came after a conversation he had with Providence FCU President/CEO Shirley Cate. He recalled telling her, “I still get emails from credit unions wanting me to build apps for them,” adding, “I told her I felt there was a need out there for customization of apps for credit unions and making it cost-effective, where they’re not being charged hundreds of thousands of dollars.”

CU APPS is working with Consolidated Federal Credit Union of Portland ($243.8 million in assets, 15,018 members) to make a loan origination app for its mortgage CUSO. The idea is that the mortgage CUSO can offer the app to smaller credit unions to compete with Rocket Mortgage, and charge a fee based on originations.

The app would allow the member to then check the status of the application, or get an automatic decision and pre-approval letter based on their financial records. Like other programs, it would allow members to upload PDFs, scans or photos of tax returns, pay stubs and any other required income verification.

“It’s a way to automate and expedite the process so that the member isn’t waiting,” he said. CU APPS is targeting credit unions that don’t offer mortgages now, but might if the process was less burdensome.

Last year, 1,850 of the 5,482 credit unions tracked in 2017 and 2018 by the NCUA originated no real estate loans. Of them, 1,278 had less than $10 million in assets, and 522 had $10 million to $49 million in assets.

Wooden is a self-described “early adopter” of technology. “I bought the Google glasses. I wait overnight to get the next iPhone,” he said.

Wooden blames his affinity for app development on the crowd he fell in with during college – four friends whom he’s collaborated with over the years to design apps and create businesses. “If you have an idea, you can pretty much do it if you have the right people, and the people I surround myself with know how to do it.”

In Dallas, Credit Union of Texas’ Digital Banking Services has in its first 16 months helped automate another CUTX subsidiary and launch a wave of digital innovations within CUTX from its website to its employee computer dashboards. It started with six employees and now has 12.

Lisa Nicholas, president of DBS, comes from a background that mixes technology and marketing. She was vice president of marketing for Amplify Credit Union of Austin ($995.4 million in assets, 60,156 members) from 2011 to 2016, and then its SVP and chief digital officer from October 2016 to January 2018.

Nicholas said her team’s goal is to understand technology from the point of view of those using it, whether that’s members or employees.

“Unless we’ve been in their world a little bit, we can’t understand to a full extent the problems and challenges they’re faced with,” she said.

One of their first projects was to help CUTX’s leasing CUSO, Fairlease, whose employees were bound to a paper-bound web of processes that others had tried and failed to untangle. “When we went in there, they were laughing at us,” she said. “They thought we would be like every other vendor that tried to change their process.”

They were wrong. Within four months, DBS had rendered the CUSO’s processes paperless. The resulting efficiency gains allowed the business to redeploy three of their 45 employees.

DBS then began working on the mother ship, as part of CUTX’s core conversion. It created a common employee dashboard that is customizable for departments and individuals. Each employee can see records for the members they’re serving, their progress toward monthly goals and tasks to be done.

In March, DBS launched new websites for CUTX and Fairlease. “The CUSO was formed because CUTX believed digital transformation, and changing the way we interact with our members, was crucial for us,” Nicholas said.

Why not go outside? “If you ask some of these vendors if they’ve actually delivered on it, they delivered one or two pieces, but we’re transforming the whole organization,” she said. “You can do one piece, but if you don’t connect all the back-end pieces, the execution fails.”

CU Sol’s CEO is Walter Agius, who is also CEO of Lendsys LLC Software and CU Lending Edge, companies based near Los Angeles, Calif., that develop loan origination and automated decisioning software.

Agius served four years as president/CEO of California Bear Credit Union in Los Angeles, which had $118.6 million in assets and 18,552 members when he left in March 2007 to help launch Lendsys and CU Lending Edge.

U.S. Eagle and Coast360 realized there was a yawning gap between the limited resources of small and mid-sized credit unions, generally under $500 million, and the rising complexity of lending.

Agius had long worked in that space. The credit unions bought a stake in CU Lending Edge, and hired Agius to run CU Sol.

Its first priorities are offering services to connect credit unions with expertise in online lending and in calculating losses for the new Current Expected Credit Loss standard to be required by the Financial Accounting Standards Board.

CU Sol is collaborating with another CUSO, Deep Future Analytics, owned by Nuvision Federal Credit Union ($2.4 billion in assets, 187,237 members), both in Huntington Beach, Calif., and loss modeling expert Joseph Breeden, through his company, Prescient Models LLC of Santa Fe, N.M.

“Our value-added for them is we can focus on the smaller and mid-size credit unions, and we can do it more cost-effectively than they can,” Agius said. “That’s a challenge for nearly every vendor in the marketplace. There’s nobody else out there saying, ‘Let’s help small credit unions.’”