When credit union service organizations (CUSOs) first arrived on the scene in the early 1980s, established service providers within the credit union movement weren’t quite sure what to think of them. Many viewed them as a threat.
During the past three decades, however, CUSOs have come to embody collaboration and innovation. They now occupy an essential niche within the competitive landscape. They help scores of credit unions operate more efficiently and offer more services.
Guy Messick has helped organize dozens of CUSOs during the past three decades. He firmly believes that if there were no CUSOs today, credit unions would be “behind the eight-ball, and wouldn’t have a lot of options” to help them compete with the growing number of players in financial services.
The Media, Pa., attorney also serves as general counsel for the National Association of Credit Union Service Organizations (NACUSO).
“What’s truly exciting about CUSOs is that they provide opportunities to create opportunities,” Messick says. “Once you’re in a collaborative, cooperative relationship such as this, other opportunities come to you that would not have but for the relationship.”
Jack Antonini is relatively new to CUSOs—and to credit unions. He assumed the post of NACUSO’s president/CEO in December 2010. Before that, he was president/CEO of Cardtronics and previously had been president/CEO of USAA Federal Savings Bank.
Still, it didn’t take Antonini long to recognize what CUSOs offer the credit union movement.
“CUSOs are hotbeds of innovation,” he says. “Typically, innovation costs money. Doing research and development to come up with new products and services is an expensive proposition. Given the fact that most credit unions have less than $100 million in assets, they don’t have the resources to invest in innovation. Through CUSOs, credit unions come together to do what they can’t do alone.”
► Both small and large CUs use CUSOs to reduce costs and improve member service.
► Many CUSOs are reshaping their business focus from providing products and services to creating products and services.
► Board focus: Doing business with CUSOs is one way to spend within the CU movement and channel earnings back to CUs.
As of year-end 2011, 476 credit unions had wholly-owned CUSOs, and 2,139 credit unions had either loans to or investments in CUSOs, according to CUNA’s economics and statistics department.
NCUA implemented its first CUSO regulation in 1984 when only a few CUSOs existed. Ed Callahan, who was NCUA chairman at the time, was an advocate of credit unions working together to better serve their members. With the new regulation in place, CUSOs began to multiply.
Before 1993, most CUSOs were set up as a way for credit unions to provide investment services. This was before credit unions gained the authority to provide such services themselves. After 1993, many CUSOs’ goals shifted.
“The trend is to go deeper into the operational side to reduce costs and to achieve a higher level of service,” Messick says.
As a result, CUSOs have sprung up that allow credit unions to reduce their back-office expenses. Open Technology Solutions, for example, is a CUSO that provides technology support for three large credit union owners. By joining forces, “they each save up to $2 million annually from operations consolidation,” Messick reports, “plus another $2 million a year due to better bargaining power with vendors.”
Large credit unions aren’t the only ones banding together to reap savings in the back office. A California CUSO called CU Shared Resources has five credit union owners—ranging from $30 million in assets to nearly $400 million in assets—that all share a core processing system. They split the costs of not only the core processor, but also the necessary add-ons, such as firewalls and intrusion-prevention and detection systems, and create savings for all five owners.
Saving money has been a key driver behind new CUSOs. Meeting members’ rising expectations for financial services is another. Today’s diverse CUSOs enable credit unions to offer mortgages, business loans, shared branching, mobile banking, credit and debit cards, and state-of-the-art home banking.
CUSOs are facilitators for the credit union movement, Antonini says. “CUSOs enable credit unions to offer a broader range of products and services than they could offer on their own.”
Operational savings and a wider range of products and services translate into tangible member benefits, Messick says. But there are other CUSOs, such as CU Realty Services, that deliver other types of benefits to their member credit unions.
Members can go to participating credit unions’ websites to find multiple listing service (MLS) offerings, plus referrals to real estate agents who agree to rebate 20% of their commission to members. That resulted in savings of $1.8 million for home buyers and sellers in 2011, according to CU Realty Services. Some participating credit unions estimate a 25% increase in their purchase-mortgage business, according to Messick.