A business services CUSO launched in July of this year is already reporting, coincidentally enough, as much business as it can handle.
CU Business Capital, LLC, a CUSO of Eastern Financial Florida Credit Union, said it is on track to sign on 35 credit unions as clients and/or partners in 2006, at least 20 of which will be what it calls "Tier 2" investors putting up $25,000 each. It is further on track to add a full complement of equity investor credit unions by year-end 2006.
CU Business Capital (CUBC) is positioning itself as a "one-source model," and stressing that it provides to credit unions a "complete package" of services for small-business owners that goes beyond the business loans many credit unions consider as their member-business-related offering. That includes deposit services and cash management, two services that are critical to business relationships and which generate significant income, often in excess of what is earned from business loans. Also available are underwriting analysis, commercial equipment leases, vehicle leases, SBA loans, commercial real estate, business checking, business debit cards, portfolio servicing, lines of credit, loan participations, consulting and training, and more.
"Most credit unions only originate loans, and limited loans at that," said Bert Bryan, president of CUBC. "A lot of credit unions struggle with how can we get all that right. There is no other provider in the credit union movement that can help them to do all that. This allows them to be as competitive as any bank in the market."
Both Bryan and Murray Halperin, VP-sales and marketing, told The Credit Union Journal they believe business services at credit unions are at the front-end of an enormous market opportunity. "We're like the surfer who sees the wave approaching and who is getting ready to ride that wave all the way in," said Bryan. "We're taking credit unions on a path that is irreversible."
"All (business opportunities) have a timeframe," added Halperin. "The timeframe for business services is hitting right now. Mortgages are slowing down and there aren't many alternatives. Margins right now are brutal."
For that reason CUBC has been spreading the word it is ready to work with any credit union or CUSO in the country, regardless of asset size. Indeed, it reported it will soon finalize an arrangement with one CU of less than $5 million in assets. While it will be a challenge for the CU's staff, Bryan credited the CU's CEO for turning to member business services as a way to grow the operation.
Another reason CUBC sees an opportunity is the belief that many attractive and potential select employee groups (SEGs) have been tapped by credit unions that serve groups. Halperin noted that most CU business development reps meet with the human resources exec at the potential SEG, and often are challenged to turn that visit into a signed contract. Business services are an incentive to the business itself, he said, and appeal to the CEO and CFO.
"It's easier to penetrate from the top down instead of trying to push up to the CFO and CEO," said Bryan. He added that one credit union, which serves a Fortune 100 company, is targeting smaller vendors that serve that sponsor company for business services.
CUBC, in addition to the business services it originates itself, has also entered into partnerships with other companies to provide other pieces, including Certegy for certain technology services and Lending Solutions (LSI) for call center support. Through the partnership with LSI, for instance, business owners or operators who call with questions or need assistance hear the name of their own credit union when the phone is answered.
It has also partnered with Weiland Financial Group, well-known within the banking community for providing commercial billing analysis. The goal, said Bryan, is to "distill down to a manageable problem" the deposit-side demands of the business account relationship that many credit unions are not able to deal with due to the limitations of their core solution. Under the relationship with Weiland, a credit union uses its existing system and creates an extract of certain information that is then provided to Weiland via an Internet protocol. Weiland then performs all of the deposit analysis.
"For instance, we can identify data from the extract and work with the credit union to create a whole new set of checking products," explained Bryan. "The credit union system usually has no mechanism to track the detailed charges and deposits and numerous checks of the average business. With this you will not need a new core solution."
The deposit side of the member business relationship is perhaps the least understood aspect of the relationship for many credit unions. Deposits, along with cash management, are usually more profitable and a steadier source of income than lending. Halperin noted that at any one time only 30% to 40% of businesses actually need a loan; but nearly 100% need a deposit relationship. He further noted as an example a credit union that signs up 250 member business accounts. Of that group, if they utilize just two cash management features, a credit union would earn approximately $350,000 in income annually, while providing savings to the business owner.
"The approach we are taking is very unique," said Bryan. "We have tried to design an offering that will allow the credit union to see a very good return and provide an opportunity for member growth."
CUBC, which came about in part because of demand on Eastern Financial Florida CU from other credit unions for help in developing business lending policies, offers several levels of training for CU staff and management. Halperin said it particularly encourages board members to go through at least one day of training so they understand what's coming" and understand how business deposits and loans work. "We try to give them a picture of what the potential is and the risks are," he explained.
Demand Not Surprising
Halperin said he isn't surprised by the demand the new CUSO has experienced, saying that with all the bank name changes have come personnel changes, too. "The business owner doesn't know who their banker is anymore," he said.
Nevertheless, despite that demand Bryan said the CUSO is built upon a sustainable business model, which is why it will likely take on 35 clients in 2006 even though it might be able to handle as many as 50 credit unions. "But more important than anything else is the ability of the credit union to absorb" the new offerings, he added.
There are three tiers of credit union involvement. In addition to Tier 2, outlined above, and in which a credit union gets a discount on services, there is the highest level, Tier 1, in which credit unions can become equity partners by investing. Those CUs, which will be limited to seven total (including Eastern Financial), get board seats. Bryan said those Tier 1 CUs will all be the same size as EFFCU ($2 billion) or larger. In July EFFCU told The Credit Union Journal it had invested $500,000 to start the CUSO. At Tier 3 is the "pay as you go" relationship with the CUSO. All credit unions have the opportunity to portfolio their loans or participate them out.
"This definitely supports the core mission of credit unions," said Bryan. "This group is underserved, and it's a way to help smaller credit unions grow and prosper."
