As the largest U.S. banks plow hundreds of millions of dollars into technology investments to reinvent digital customer experiences, credit unions must find ways to keep pace with innovation or risk becoming irrelevant.
Member intimacy will always be a key differentiator, but credit unions must pair this with the convenience and delivery channels modern consumers have come to expect. Here again, CUSOs are well positioned to convene the experts and resources necessary to meet these challenges.
An intriguing aspect of CUSO regulation is that neither their ownership nor customer bases are limited to the credit union community. Conceptually CUSOs could serve as an avenue for collaboration with noncredit union entities.
Fifty-one percent of a CUSO’s revenue must be derived from credit unions—a condition that rarely poses much of a constraint.
NACUSO was established in 1985, a year before CUSO regulations were amended to provide a legal framework to better realize their potential. Prior to that, Messick explains, similar entities existed in the form of credit union-owned cooperatives.
Traditionally, a group of credit unions would identify a common need and join forces to launch a CUSO. In a promising recent development, however, entrepreneurs have taken a more proactive role in spearheading their formation.
“It’s a model that’s gaining steam,” Antonini observes. “It’s a way to share the risk of a new technology and to improve the odds of adoption and critical mass.”
Messick agrees it’s becoming more common for noncredit unions to take the bull by the horns.
“CUSOs are a sound means by which entrepreneurs can enter into the credit union space in an effective manner,” he says. “If they can share management and revenue, that’s a better proposition in the long run than being a mere service provider.”
It’s also a great path for someone with a compelling new product or service to attract investors without resorting to venture capital, and to jointly build out a solution for a ready market.
“Credit unions still do their due diligence, but after that they’re more invested,” says Keith Kelly, co-founder/CEO of Rate Reset, a CUNA Strategic Services alliance provider.
He also marvels at the “amazingly fast fundraising process” (three to six months) as compared to Wall Street alternatives.
There’s no single path to CUSO success. In fact, there isn’t even a single definition of success.
“Most credit unions that invest in a fintech aren’t looking primarily for financial return,” Messick says. “That’s the icing on the cake. What they really want is a seat at the table to influence services and products that will be helpful to them.”
Some of the most successful CUSOs are created to contain costs, generate loans, or serve other purposes.
Messick suggests credit unions calculate a baseline before investing so they can compare pre- and post-CUSO performance. “I’m confident that in most cases they’re saving a lot of money after a startup period. I’d like to see more credit unions do that analysis to help their boards and examiners see the full benefit of the collaboration.”
GLEN SARVADY is managing partner at 154Advisors and a payments and technology expert.