Under Construction: Who Will Fill The Void?
DES MOINES, Iowa-The credit union community has now had more than a month to digest NCUA's conservatorship of three more corporate CUs, the agency's legacy asset disposal plan, and its new rules for corporates moving forward.
Over that time it seems only more questions and uncertainty has emerged over what those moves mean for both the future of corporate and natural-person credit unions.
Among those questions: Who will handle item processing for many CUs? Wire transfers? Provide overnight liquidity? To whom should many CUs, especially smaller CUs, turn for investment and ALM advice? And perhaps the biggest question of all: can CUs find or build an "in the family" solution, rather than turn to banks and other providers?
Jeff Russell, EVP of The Members Group here, summed it up succinctly when he told Credit Union Journal, "It will take many players to replace what the corporates did."
Diana Dykstra, the new CEO of the California and Nevada CU Leagues, noted there are groups throughout the U.S. talking about what happens next, including a Corporate Realignment Task Force that is supported by the two leagues.
"The payments part is under attack by outside vendors, so the Task Force is looking for how that can remain a system option. There will be consolidation, but I can't tell you if there will be 15 corporates, 10 corporates or five corporates," Dykstra said. "Around the country, everyone wants to make sure we maintain a system solution if possible. But corporates won't look like they look today."
Stan Hollen, CEO of CO-OP Financial Services, Rancho Cucamonga, Calif., said his understanding is NCUA's first preference for providers of many services is a corporate solution followed by a private-party solution. He noted the corporates "are going through consolidation and there will be some strengthening of the remaining players, including the bridge corporates. I think the corporates will be able to fulfill most of what they do today, other than investments. For ALM and investments, corporates may take an advisory role."
Vendors Say They Are Ready
Hollen said the remaining corporates, along with the bridge corporates, should have the ability to accommodate most of the payments functions currently taking place. But private providers are also champing at the bit.
Mark Atchison, VP of offerings development for Fiserv, which has 3,200 clients that use it for item processing, plus a clearing network with about 850 clients, noted that historically the company has "thoughtfully tried to avoid" directly competing with its clients, and corporate credit unions are just as much Fiserv clients as natural-person CUs. But now, he related, some natural-person CUs have approached it about providing certain additional services "Are we going to enter the fray? We will, and in talking to our marketing team we want to take a 'white knight' type of approach," he said.
Atchison said he has spoken with a number of Fiserv clients about their interest in exploring alternatives in payment processing and his impression is there are plenty of CUs out shopping. "There are not any qualified buyers yet, because credit unions have 24 months to make a decision. They want to make a thoughtful decision while they watch the corporate situation play out."
Shai Stern, co-chairman of Los Angeles-based CheckAlt Payment Solutions [formerly Skyline's DirectFED], sounded a similar note. He said CheckAlt has a direct link with the Federal Reserve so its CU clients are not dependent on corporatea, they can have a direct relationship with the company for check processing as well as remote deposit capture. "I'm not sure how the industry is going to shake out, but everything corporates were doing we can do. We have been processing checks for more than four years. Remote deposit capture the same," he said.
How payments will be settled is "still emerging," observed TMG's Russell. He said the "great thing" about the corporate system was settlements were unlike anything else in the financial world. The ability to move money between CUs efficiently and the same day was "very superior to the bank world," he declared. "There will be a movement back to ACH settlement directly between financial institutions," he predicted. "It will be more fragmented moving forward. The Fed is working to enhance the ACH system, but there will be some loss going forward."
Dykstra, who until last month was president and CEO of San Francisco Fire CU, said in the next 30 days "we will start seeing more clearly where our path is, which people are going to partner. We all knew this was coming and now people are saying let's find a solution and move forward. We are confident there is a system solution. Credit unions need to participate in a solution that benefits us all."