CUSOs provide affordable access to technology and expertise.
In 2017, during the aftermath of Hurricane Harvey, $3 billion asset Credit Human Federal Credit Union in San Antonio needed to provide members with pre-approved, short-term emergency funds. It found the answer in a credit union service organization (CUSO).
The CUSO, QCash, offers a cloud-based payday loan alternative, says CEO Ben Morales. The credit union wasn’t looking to generate loans or fee income. It simply wanted to give members instant access to funds.
“They wanted to automate and make their preapproved loan process more efficient,” he says. “Our engine does that well. So we made some adjustments to our system and built in some new capabilities, and we were able to help them.”
The takeaway: Technology and collaboration make credit unions stronger, individually and collectively, Morales says. “If you’re part of a CUSO, the tide raises all boats.”
By design, the CUSO model provides solutions. On an everyday, get-your-hands-dirty level, CUSOs solve problems and ease frustrations.
Given today’s competitive environment, never before has the CUSO model been more important to credit unions.
“Through the CUSO model, credit unions can reduce costs and obtain high-level technology and expertise at less cost than if they did it themselves,” says Guy Messick, general counsel for the National Association of Credit Union Service Organizations (NACUSO). “I don’t know how cooperative financial institutions can meet today’s challenges without leveraging the advantages of collaboration and economies of scale.”
Many credit unions believe they can’t compete or innovate, Morales adds, but CUSOs give them that opportunity. “Through CUSOs, their voice will be heard, and they get the benefit of bigger ideas.”
At year-end 2017, 946 CUSOs registered with NCUA, 74% of which serve a single credit union.
“It’s a huge advantage for credit unions,” says Jack Antonini, president/CEO of NACUSO. “Banks, for example, don’t naturally collaborate. They also have anti-trust issues. So it’s a lot harder for them to do what we have a legal right do. Our cooperative principles are a really big deal.”
Here are some newer entrants on the CUSO landscape.
The seeds for Constellation were planted in 2014, when Kris Kovacs served as chief information officer for $2.9 billion asset Coastal Credit Union in Raleigh, N.C. He read an article about a bank that was releasing its 150th app for small-business customers.
“That’s when we started to think about what a credit union app story would look like,” says Kovacs, who’s now president/CEO of Constellation. “We were doing some design work on mobile applications at the time. We eventually concluded there’s a different model for credit unions. Our model is about aggregating services into a single application.”
Kovacs began three years of research, and in 2017 he led the rollout of Constellation Digital Services, a cloud-based financial services marketplace and platform that allows credit unions and members to choose which services to use inside of a secure banking experience.
The company’s model calls for developers to become service providers and partners on the new platform. Developers can create “tiles” or services, and credit unions can purchase those services within the marketplace.
CULedger also leverages the power of collaboration to create solutions for credit unions through innovative technology. In this case, CULedger and its investors are exploring the possibilities of distributed ledger technology.
A distributed ledger is a database that’s consensually shared and synchronized across a network of multiple “nodes.” Participants at each node can access the records across the network and own identical copies of it.
Any changes or additions made to the ledger are reflected and copied to all participants in a matter of seconds or minutes.
CULedger President/CEO John Ainsworth says the CUSO’s founders hope to provide solutions in three areas for credit unions: member authentication, lending, and payments.
Ainsworth says the “hub and spoke” of CULedger’s strategy is authentication. The company will roll out a proof of concept this fall, with plans to announce pilot programs at eight credit unions and system partners later this year.
As its offerings evolve, CULedger could also produce huge benefits in another contentious area for credit unions: compliance. “We want to raise the bar on know-your-customer compliance,” Ainsworth says. '
“Credit unions can become a trusted authority on identification. We can take what was a regulatory requirement and not only reduce costs but turn it into a member benefit.” CULedger is comprised of CUNA, the Mountain West Credit Union Association, Best Innovation Group, credit union system partners, and credit unions. Ainsworth says the company’s approach extends beyond dollars and cents.
“It’s not a competitive CUSO model,” he says. “We see ourselves as an enabler to enhance or offer complementary services to other CUSOs to make them more efficient.”
CU Lending Cooperative
CU Lending Cooperative (CULC) gives credit unions access to marketplace lending, a relatively new type of online lending that connects consumers with multiple lenders. When a borrower applies for a loan on a marketplace site, proprietary CULC software instantly qualifies the applicant and matches them to a participating credit union where they’re eligible for membership. CULC’s cloud-based system creates the necessary account records in the credit union’s core system and funds the loan.
CULC President/Founder Mike Joplin says the pitch to borrowers includes the benefits of credit union membership. “We bring the credit union highly desirable new members,” he says. “It’s up to the credit union to aggressively onboard and upsell that member, further deepening the relationship we created.”
Joplin also is CEO/co-founder of CU Revest, an asset management company that recovers chargedoff consumer loans. The company rehabilitates and recovers qualified members, returning them to good standing with their credit unions. In the process, it turns charged-off debt back into capital.
“There’s no way a credit union could do this on its own,” he says. “By allowing credit unions across the nation to join forces, we can create a real economy of scale.”
NEXT: CU Reset
CU Rate Reset
CU Rate Reset, a CUNA Strategic Services alliance provider, allows credit unions to combat competitors that use big data to horn in on members’ business. The company gives members the ability to reset loan and deposit terms in minutes.
CU Rate Reset’s latest solution, Knock Knock, provides two-way interaction between the credit union and the member to deliver “just-in-time” offers. These offers are based on real-time triggers obtained from credit bureau information or the credit union’s loan origination system.
CEO/Co-Founder Keith Kelly says Knock Knock and CU Rate Reset’s other member-interactive solutions not only help credit unions compete, they build relationships with members.
“Inside of Knock Knock, members can see their spending habits,” says Kelly. “It analyzes members’ spending activity and offers advice. For instance, if a member carries a credit card with a high-interest balance, it might recommend a balance transfer.”
Kelly, a former retail mortgage banker, loves the collaboration he finds in the credit union movement. “Credit unions know they can’t compete effectively with Rocket Mortgage given the size of their ad campaigns,” he says. “But collaboration allows us to pool our resources and generate as good if not better solutions for our members than even the fintechs have to offer. Together we have a lot of data, and collaboration allows us to put some action behind it.”
CU Micro Loan Fund
This CUSO handles administrative functions for micro loans ($50,000 and less) from originating credit unions to Business Impact Northwest (BIN), a community partner that works with local entrepreneurs.
Four credit unions own CU Micro Lending Fund: $1.3 billion asset Harborstone Credit Union, Lakewood, Wash.; $18.6 billion asset BECU, Tukwila, Wash.; $5.3 billion asset OnPoint Community Credit Union, Portland, Ore.; and $550 million asset Verity Credit Union in Seattle.
BIN nurtures the business owners until they’re ready to borrow, says Laurie Leno, Harborstone’s chief financial officer. That way, “we as credit unions can provide funds to educated small businesses” that might have difficulty obtaining financing. BIN, which has a loan portfolio of $8 million, funds $2 million to $3 million in new loans each year, says Joe Sky-Tucker, the organization’s executive director. BIN’s clients typically are small operations that “simply provide an income for their families,” he says. “They aspire to grow.”
That said, the loans perform well, Leno says.
“These folks are so dedicated, they’re not willing to walk away from the loans,” she says. “They’re all great stories.”
Sky-Tucker says credit unions’ embrace of those stories is what makes the arrangement work.
“There’s no reason monetarily for the credit unions to do this,” he says. “They see a community need—creating a thriving small business community—and we help meet that need together.”
Adds Leno: “The whole thing makes us feel pretty good.