USA Federal Credit Union has entered the crowded and competitive market of small business services with its purchase of an equity stake in Member Business Services.
Member Business Services began its life as a department within San Bernardino, Calif.-based Arrowhead Credit Union, but is now a CUSO co-owned by Arrowhead CU, SCE Credit Union in Irwindale, Calif., and West Covina, Calif.-based First Financial CU, in addition to USA FCU.
Mary Cunningham, CEO of USA Federal Credit Union, told The Credit Union Journal her CU wanted to get into business services, but, like most credit unions, did not have the expertise in house.
"We did not want to take the time to build it up; we wanted to align ourselves with a back-office support system that was already developed. We did not need a turn-key program," she explained. "We are a heavily loaned out credit union-more than 100% loaned out at all times -so the fact Member Business Services had a depository side was important. Many of the other companies we looked at were focused on the lending side. We wanted to align ourselves with someone that had the other side of the balance sheet."
Representatives from USA Federal began looking at different partnering possibilities in January 2005. As part of the due diligence process, Cunningham visited Arrowhead CU to observe its tellers in action. She said she was impressed by the way tellers could toggle back and forth between regular members and business members on the same workstation. "It was slick and impressive," she recalled.
Cunningham said it took about six months to sign the deal with Member Business Services, and another quarter for the conversion. She said software had to be installed to USA Federal's systems, and tellers had to be trained to be able to "confidently offer those services to members." "Overall, it seemed like a really good fit for what we wanted to accomplish here," she said.
USA Federal's investment in Member Business Services was approximately $300,000. Cunningham said she was pleased the credit union is, "more than just a client/user, but a part-owner as well."
In a related move, USA FCU said Jennifer Ventimiglia will serve as its vice president of business services. Ventimiglia formerly was the manager of the credit union's Carmel Mountain branch, north of San Diego.
"Jennifer has a very good background from the dark side," Cunningham joked. "She has a business banking background, but has embraced the credit union philosophy and is very enthusiastic."
Member Business Services upgraded to CUSO status Jan. 1, 2003. Cunningham said the nearly three years of experience carries benefits. She said MBS has a team of experts to make recommendations on underwriting, it assists a CU in filling out the Small Business Administration participation license and it helps in hiring the person who serves as the liaison between the credit union and Member Business Services.
Where USA FCU could use even more assistance is with the competition in the business services space. Cunningham acknowledged entering the cluttered market is "very challenging." She said the credit union began getting word to its members by going through a listing of all of its SEGs.
Then, it mined the member database to determine which members-there were several hundred-already were operating a business.
"Initially, we went after the low-hanging fruit," she said. "In the past couple of months, we have quietly approached the members and said, 'Are you aware we now offer a full line of business services.'"
The next steps include a "very aggressive" marketing campaign, Cunningham continued. USA Federal has budgeted for TV ads in 2006.
"It is daunting, but we will be going for a niche below the typical commercial bank. Our credit union has a military background, and many of our members retire and want to open a business. We feel it is a very natural step for us."
