Why Credit Unions Need CUSOs

glowing lightbulbs in shape of gears and cogs
By Denise Wymore

7 minutes

Credit union service organizations continue to provide exceptional growth and innovation opportunities.

The first modern credit union service organization regulation was written in 1982, but credit union collaboration began well before that. One of the earliest CUSOs on record was founded in 1970, a shared branching network in Michigan called Service Center—now part of CUES Supplier member CO-OP Financial Services, Rancho Cucamonga, California, which has 772 credit union owners, according to data from the National Association of Credit Union Service Organizations.

Today, there are over 1,100 CUSOs in the United States. The majority of CUSOs offer basic products and services, with the top two categories being insurance and lending services. These organizations are important to the industry because they help credit unions work together to achieve economies of scale. Guy Messick, in his best-selling book Credit Union Collaborations, says, “Scale is king and picks off the weaker credit unions left and right. There are only three choices for credit unions to grow scale quickly: merge, buy bank assets and collaborate.” 

On an annual basis, CUSOs provide millions of dollars in net income to the credit union industry through lower operating costs and additional fee and interest income.

The Anatomy of a CUSO

Creating a CUSO is not difficult. The biggest hurdle to such collaboration? Ego—the belief that you can do it yourself and don’t need help. As credit unions merge into mega-credit unions, our fear is that this belief will become more prevalent. But remember: CUSOs are not the enemy. The enemy continues to be big banks, fintechs and disruptors like Amazon. When the original 13 colonies signed the Declaration of Independence, they were facing a life-or-death situation against a larger and better capitalized foe. Ben Franklin summed up the choice when he said, “We must all hang together, or most assuredly we shall all hang separately.” 

With that out of the way, let’s explore the several CUSO models that exist today in more detail: 

  1. Wholly owned, single customer. A credit union can own or partner with a third-party insurance agency, for example, and receive a share of the commissions on sales to its members if the CUSO is properly licensed. This model is quite common.
  2. Wholly owned, with multiple non-owner customers. Example: myCUmortgage LLC, Beavercreek, Ohio. This CUSO is wholly owned by $4.9 billion Wright Patt Credit Union, also in Beavercreek, and currently serves more than 50 credit unions. 
  3. Multi-owned, with both owner and nonowner customers. Example: Member Loyalty Group LLC, Vernon Hills, Illinois, a Net Promoter Score survey CUSO owned by five large credit unions that has over 100 credit union clients. 
  4. Multi-owned, with only owner customers. Example: Member Support Services LLC, Cranbury, winner of the first NACUSO New CUSO of the Year Award in 2016. Three mid-sized CUs in New Jersey decided to partner to combine various back-office functions to achieve economies of scale without a merger. 
  5. Collaborations with entrepreneurs. Non-credit unions (entrepreneurs and vendors) may be co-owners of CUSOs. Example: Constellation Digital Partners LLC, Raleigh, North Carolina, which is owned by several credit unions and also collaborates with entrepreneurs.
Denise Wymore
Member & Advocacy Officer
National Association of Credit Union Service Organizations
Creating a CUSO is not difficult. The biggest hurdle to such collaboration? Ego—the belief that you can do it yourself and don’t need help.

    Showcasing CUSO Innovation

    Seven years ago, NACUSO added an event like TV’s “Shark Tank” program to its annual conference. In the Next Big Idea Competition, conference attendees vote to determine the winner. The competition continues to grow each year and has become one of the best places to showcase new CUSO ideas and get early adopters and investors. We are seeing a growing number of new, innovative, one-of-a-kind CUSOs emerge—many geared toward attracting and retaining millennials.

    Keith Kelly, co-founder and CEO of Rate Reset, McLean, Virginia, won the Next Big Idea Competition in 2016 and again in 2018 with the launch of its KNOCK KNOCK digital lending platform. Rate Reset allows members to be in control of routine administrative tasks that have historically been time-consuming for both front-line and support staff. Members can “reset” existing loan products without the cost and hassle of refinancing. KNOCK KNOCK is a bilateral communication channel that allows for “just-in-time” member offers. 

    The CUSO’s clients include $24.7 billion PenFed Credit Union, Tysons, Virginia; $7.2 billion Patelco Credit Union, Dublin, California; $1.2 billion TruWest Credit Union, Scottsdale, Arizona; $1.5 billion Financial Partners Credit Union, Downey, California; and $9.5 billion Randolph-Brooks Federal Credit Union, Universal City, Texas. Rate Reset recently teamed up with myCUmortgage to add features to its mortgage experience. This is a great example of collaboration among CUSOs. 

    LenderClose, West Des Moines, Iowa, came in a close second in 2018. After starting National Loan Closings, Omaha, Nebraska, and earning $17 million in sales, CEO Omar Jordan formed LenderClose in 2015 to bring loan technology into the relationship-based credit union industry. The CUSO’s mission is to help credit unions capture younger members by developing state-of-the-art technology to attract and convert more millennials. 

    CULedger LLC, Denver, also a 2018 finalist, is piloting blockchain technology at several CUs with MemberPass, a digital credential that can be used to authenticate financial transactions between members of any CU on the blockchain network. MemberPass users can verify their identities using such biometric features as voice, fingerprint or facial recognition on their mobile devices.

    At the 2017 competition, Kris Kovacs took the stage and began his presentation with a powerful video. He spoke to us from the future, when credit unions no longer exist. Then he went on to explain his vision, Constellation Digital Partners. “The sky is the limit,” was his message. Constellation is a shining example of the next generation of CUSOs. With more than 11 initial credit union partners and more than 70 fintech partners, Constellation has delivered a revolutionary open development platform to deliver financial services to CUs and provides a unique opportunity to achieve a new level of integrated service for members. Rate Reset, CULedger and LenderClose are all working with the Constellation platform to develop the next generation of digital banking services for credit unions.

    Speaking of exciting ways to bring innovative ideas to credit unions, in 2018, two CUSOs—Open Technology Solutions, Centennial, Colorado, and The Veridian Group Inc., a CUSO wholly owned by $4.3 billion Veridian Credit Union, Waterloo, Iowa—recently partnered with other industry organizations to create VentureTech, an annual event that allows fintech companies to pitch their solutions to credit unions and CUSOs looking to invest in promising technology. Only fintechs that are actively seeking investment can present. Using the same technology as the Next Big Idea Competition, the audience votes for the winner using an app that provides instant results. 

    In 2019, NACUSO sponsored a “Best in Show” cash prize of $1,500 at VentureTech, plus a guaranteed spot in the 2020 Next Big Idea Competition. Illuma Labs, Plano, Texas, won the top honor, a real-time voice authentication platform whose core technologies arose from research and development projects with the U.S. Department of Homeland Security. The company will be competing at the 2020 NACUSO Next Big Idea Competition on April 22 in Orlando, Florida.

    As industry mergers fuel questions about the survival of smaller CUs, one CUSO has a different philosophy. Using the power of the sixth cooperative principle, “Cooperation among cooperatives,” this CUSO is invested in the future of small CUs. After all, even $110 billion Navy Federal Credit Union was small in the beginning.

    CU Evolution, Cross Roads, Texas, originated from $21 million Living in Fulfillment Everyday (LiFE) Federal Credit Union, Denton, Texas, in 2018, joined shortly thereafter by $14.5 million Family 1st of Texas Federal Credit Union, Fort Worth, Texas.

    “The CUSO gives small credit unions (under $100 million in assets) the strategies and tools to provide exceptional member and employee experiences in a rapidly evolving world,” says CU Evolution President Howard Bufe in a NACUSO blog. “The small credit unions that partner with CU Evolution are taken through a three-step process coined ‘Engage. Equip. Evolve.’” The CUSO doesn’t just write a plan and walk away, he says—its staff members see themselves as an extension of the credit union’s staff. 

    What a good example of the very essence of the CUSO model: We are better together.  cues icon 

    Denise Wymore is member & advocacy officer for the National Association of Credit Union Service Organizations, Newport Beach, California

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