Bringing members back
Among the newer CUSOs is San Diego-based CU Revest, which addresses one of life’s hard truths: Bad things happen to good people.
“People are suffering who normally wouldn’t have fallen victim to these economic times,” says Mike Joplin, president/CEO. “We reach out to those people and bring them back as members.”
CU Revest was launched in March 2013. It’s owned by Servatus, a company owned by Joplin, his wife Raechelle, and five credit unions.
Here’s how it works: A credit union turns over its charged-off accounts to CU Revest, which contacts the former members who owe money. Many have gotten back on their feet financially but have been left with no banking relationships.
“They’re prime candidates for coming back to the credit union,” Joplin says, “with the caveat that they pay what they owe. There’s no free lunch.”
Other than the charged-off paper, credit unions make no investment in the CUSO. “They give us something that’s worth zero on their books,” Joplin says, “and we give them back money and happy members.”
When CU Revest succeeds, it gets a percentage of the recovered dollars.
Kinecta Federal Credit Union in Manhattan Beach, Calif., for example, turned over 12,000 charged-off accounts to CU Revest at the end of June 2013. By year-end, the $3.3 billion asset credit union recovered more than $300,000 and welcomed back 300 members.
Getting the CUSO off the ground was “a daunting task,” Joplin admits, largely because he approached credit unions as someone from outside the industry. He had been in the debt-buying business since 1989, initially buying charged-off loans from government agencies and later from banks and finance companies.
Joplin discontinued all of that in 2012 to focus solely on credit unions, figuring that banks don’t value a restored customer relationship as much as credit unions do.
Credit unions also badly need capital, Joplin says, and CU Revest is a capital recovery model. “Credit unions have left 10% to 15% of their charge-off money on the table,” he says. “When you have $20 billion in charge-offs since 2008, 15% of that is huge.”
When Ongoing Operations, Hagerstown, Md., opened its doors in 2005, President/CEO Kirk Drake says he wouldn’t have predicted the fast pace of change the CUSO would face.
“It’s perpetual self-cannibalization,” he says. “When we create and roll out a product, that product generally is dead 18 months later.”
That’s due to rapidly advancing technology and users’ increasing expectations. The CUSO, which is owned by 18 credit unions and three CUSOs, now serves 500 credit unions. It started out offering disaster recovery and business continuity services.
Today’s credit unions rely heavily on not just their core systems, but also on numerous ancillary systems that allow them to be competitive and maintain margins. That drives the need for faster recovery and less data loss, Drake explains.
“When we started,” he says, “a credit union was happy with a 48-hour recovery. I had a client today who was upset because their recovery wasn’t done in less than four hours.”
The expectations keep rising. That’s one reason why Ongoing Operations, a CUNA Strategic Services alliance provider, will roll out an upgrade in the coming year that will enable recovery in just a couple of hours.
Ongoing Operations added cloud services to its business offerings in 2011. Cloud services provide scale in information technology, Drake explains.
“The difference is improved availability and performance, which enables us to meet changing expectations” in business continuity, he says. By using Ongoing Operations’ cloud, participating credit unions leverage the CUSO’s platform for their technology needs without the huge costs involved in building their own infrastructure.
For Ongoing Operations, the biggest challenge is the constant need for working capital to finance technological innovations. “We have 20 or so owner/investors,” Drake explains, “who have to provide capital for all 500 users. That has been a challenge since day one.”
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