We created CU Holding Company in 2003 in order to deliver economies of scale and offer incubators for innovation to the CUSO’s credit union owners and clients.
Currently, CU Holding Company has five subsidiary businesses: a full-service marketing agency called Beyond Marketing; a payday lending service called XtraCash; a mortgage company called TruHomes Solutions; a payroll services company called Co-operative Payroll Solutions; and a research and development company called Members Development.
CU Holding Company is wholly owned by Mazuma CU of Kansas City, where I used to work. The subsidiary CUSOs are multi-owned by various credit unions and CUSOs.
Structure and Return
CU Holding is a corporation and pays taxes on income. Its subsidiary companies are LLC partnerships and roll up to the holding company; they do not pay taxes. Owing to CU Holding’s structure, it can share capital among the subsidiaries, lease employees to them, share brick-and-mortar among them, and the like. No one subsidiary dominates the holding company, and the subsidiaries, being of differing disciplines, offer a diversity to the larger holding company. This diversity has served the CUSO well; when the lending subsidiaries are having a rough year, the operational ones tend to do well and vice versa.
The subsidiary companies are all more or less in a state of young growth as opposed to maturity. Thus it is well that the holding company can invest capital in the various subsidiaries as needed for new expansions. Because the subsidiaries consolidate into CU Holding Company, the older, more established subsidiary companies in essence fund new opportunities, and ones doing well in one cycle can help others lagging in that cycle.
The subsidiary companies market themselves from coast to coast but to varying sorts of credit unions depending on their services and the state of the markets.
In terms of consolidated income, CU Holding has generated an ROI of 324% to Mazuma Credit Union’s bottom line. In addition, CU Holding has also received sizeable dividends from the subsidiaries. The Board decides how dividends will be deployed to fuel future growth, or if dividends will be distributed to Mazuma CU.
CUSO Philosophy and Obstacles
Our philosophy at CU Holding is to find like-minded partners to collaborate on unique innovations that solve problems for the good of the movement. Accordingly, our feeling is we don’t have to have majority control in any of the businesses if that is not in the best interest of the members or the industry. Moreover, in none of the subsidiaries is it required of a user also to be an owner. Nor do we aggressively push for ownership; it’s just an option if someone is more comfortable with that relationship.
We continuously analyze and adjust our target markets at the subsidiary level to ensure we are serving needs in the marketplace. Oddly we have found our biggest barriers at the local level. We’ve noted a false perception that the CUSO is a guise for pre-merger activity. Such thinking seems to reside primarily within our own region; the further away from “home” you get, the less you run into that kind of feeling.
Actually, we believe the three greatest barriers CUSOs face are 1) reluctance to cooperate owing to a desire for retaining control; 2) too much attention to seizing market share from other credit unions and CUSOs instead of from banks and alternative financial service firms; and 3) a perception that collaboration is too difficult or takes too long.
Advice to Others
My advice to a credit union considering launching a CUSO is to recognize that the entrepreneurial environment is much different from the credit union one. There’s far more risk, but of course the reward can be far greater, too, though this often requires patience. Five years can often pass before a CUSO shows a profit, and that is a concept many people are not used to.
You have to understand that the CUSO marketplace is a very fast-paced, innovative environment that cannot be stifled with normal policy and procedure. If it is stifled, it loses its start-up drive and energy. This thwarts the creativity needed for finding unique solutions to industry needs.
It’s also important that you know why you want to get into a CUSO and what you want to gain, and then to find like-minded people to work with. The best place to go for connecting with people and ideas about CUSOs is NACUSO, at least that’s what I did, and still do. When I was serving in Mazuma Credit Union and was asked to figure out CUSOs, I had no knowledge of what they were or how to build them. My network of colleagues at NACUSO has been my resource for ideas, methods, people, and more. I could not do it without NACUSO.