Two of the largest credit union service organizations, both based in California, report that business is good, despite numerous financial and regulatory challenges.
President and CEO Stan Hollen said CO-OP Financial Services in Rancho Cucamonga is arguably the largest CUSO, owned by 1,200 credit unions and serving 3,500 institutions in total. Hollen said recent statements by NCUA regarding return on investment and what value a credit union derives from a CUSO miss the point because the CU regulator is overly focused on risk.
"CUSOs provide dramatic cost savings to credit unions that cannot be looked at strictly on an investment return or a dividend," he said. "Some CUSOs help credit unions reduce operating costs."
All CUSOs face various challenges, Hollen acknowledged. Some involve capital, some involve operational issues. He noted CO-OP has many lines of business. It perhaps is best known for being a payments processor, but it also is a national shared branching provider, handling image processing for checks, as well as credit processing.
"One of the biggest issues is the looming deployment of EMV cards," Hollen said, along with keeping up with rapid developments of mobile payment technology, especially person-to-person payments.
On the credit processing front, CO-OP provides both full-service and pass-through credit processing. It has a strategic alliance with The Members Group on full service. Hollen said it provides pass through processing on debit, "which is going very well."
"We continue to invest in innovation and companies that fit," he said. "We recently invested in Alkami [Plano, Texas], which we think is a leading edge home banking and mobile banking provider. We also invested in Finivation [New York], a boutique software firm that is at the center of middleware development."
CO-OP is in the process of rewriting its "Sprig" digital wallet product to offer out-of-network, person-to-person payments.
"We will be rolling that out in a very big way toward the end of the second quarter," said Hollen. "It is live today, but there will be a major upgrade of the system."
Shared Branching
Despite numerous dire predictions in recent years, Hollen said credit union branches are "still alive," and there is a "real opportunity" for shared branching to grow. CO-OP serves 33 million credit union members through shared branching and ATMs, and processed 2.8 billion transactions last year. Last year Hollen said, the CO-OP Network had zero unscheduled down time, thanks to two primary switches that are highly redundant.
"There are 16,000 credit union branches and we have 5,300 of them connected," he said. "We are working to get them aligned with the CO-OP Network of ATMs. Shared branching has used a swirl logo in the past, which has been changed to a CO-OP logo. We are aligning these for consistency."
One project in the works is teller automation, which Hollen described as advanced video capability that allows a remote teller to provide after hours or primary functions in a branch through a machine that looks much an ATM. These remote tellers will be housed in a facility in Fort Worth, Texas, known as the CMC, for CO-OP Member Center.
Security is something CO-OP works on every day and invests a lot of money in, Hollen reported. He said the CUSO has in place a "very well developed" business interruption plan with a full backup in place. CO-OP has released several white papers on DDoS [distributed denial of service] attacks, Hollen said, as it invests in software and third parties help prepare its systems against various types of hack attacks.
"Our primary purpose is convenience and access for credit union members," he said. "We support the credit union system as a whole, and we support Children's Miracle Network Hospitals, the national credit union cause. We have a very high customer satisfaction record we are quite proud of. Last year we returned record patronage again. We exist solely to benefit our shareholder credit unions."
CU Direct
Tony Boutelle, president and CEO of CU Direct in nearby Ontario, Calif., said the biggest issue for most CUSOs is that they are working in a niche market which makes it is necessary to create scale.
"Most CUSOs are challenged by that," Boutelle said. "In our case credit unions make up 20% of the auto lending market, with banks and captives making up the rest. CO-OP and PSCU have had success setting up scale, and I think we have, too, but it can be difficult doing so when serving 20% of the market."
Strategically, CU Direct and other large CUSOs need to convince credit unions that owning their delivery channels is important, according to Boutelle. He said credit union engagement is key, and in the first quarter CU Direct has been "doing well." It had the best month of March it has ever had.
"We are seeing large credit unions going live with us in recent months," he reported. "There is an appreciation for what we can do as far as controlling the delivery channel. We are adding value to the delivery channel and at a lower cost."
Looking ahead, Boutelle said most new product investments involve mobile.
"The members are mobile, so we need to be there with them when they are ready to buy a car," he said. "Our AutoSmart mobile app now can be linked with a credit union's own mobile app. We need to continue to refine the technology so we can push out notifications and be a tool for consumers that buy a car."
CU Direct's studies show 90% of consumers use their phones for at least some part of the process when buying a car, Boutelle said, meaning putting tools right in front of folks in an easy-to-use way helps credit unions.
"We push out pre-approved loans through phones, which also helps to make the credit union available for its members."
CU Direct recently launched AutoPREMIER, its concierge auto-buying program. The service includes negotiated pricing with dealers in certain markets, and the concierge helps set up appointments and financing before the member gets to the dealership.
In February, CU Direct unveiled OnSpot Financing, which provides infrastructure to credit unions to develop their own lending networks with merchant partners in a number of industries well beyond auto lending. Fields include medical surgery and equipment, education, home improvement and furnishing, pools and spas, and vehicle repairs and accessories.
According to Boutelle, OnSpot Financing is CU Direct's way of helping credit unions get into merchant and medical lending areas. He pointed out most consumers use GE Care Credit or GE Capital, making this is an opportunity for credit unions to replace high-rate credit.
"It is all on tablets as it is difficult to put a loan application on a phone," he said. "These are smaller loans, but there are millions of opportunities."
All of these programs, along with a relaunch of the CU Direct website earlier this month along with new branding, are designed to drive more engagement with credit unions, according to Boutelle.
"Our goal is to get more lending connections to credit unions to help them drive loans," he said. "We are reorganizing people in the field so they can be more effective selling and servicing."
NACUSO: No End In Sight For Need
Jack Antonini, president of the National Association of Credit Union Service Organizations (NACUSO), is upbeat about the future of the CUSO industry — if for no other reason than they are necessary.
"CUSOs continue to be formed to help credit unions," Antonini said. "Everyone has been challenged on loan growth. Consumer credit was damaged during the recession. Loan growth was better in 2013 than it had been in years, but still was not that big. Some CUSOs are helping credit unions buy loan participations. Others are helping to generate loans or process loans faster, perform business loans or even handle collections."
Credit unions know their members want mobile banking and other technology solutions going forward, Antonini noted, as well as compliance. He said forming a CUSO allows several credit unions to pool together their resources, get better pricing and solve problems, whatever the topic.
The biggest challenge facing many CUSOs is making people aware of their existence, Antonini said. There is an extremely large volume of third-party solutions marketed to credit union executives, and typically CUSOs do not have the marketing budgets to compete with, for example, big technology vendors.
"Building awareness is a big part of our Annual Conference [taking place April 14-17 in Lake Buena Vista, Fla.]," he said. "We are doing the 'Next Big Idea' competition again because it was so popular last year. One presenter this year is a technology solution that helps credit unions with loans. Robert Herjavec, the nice judge from [ABC television show] 'Shark Tank,' will be a keynote speaker and will be a judge for Next Big Idea."
