Bank Conversions: How will the Vendors Vote?

In the second in a series of articles, CU*Answers CEO Randy Karnes addresses the conversion debate from the perspective of a vendor. Should vendors weigh in on the debate? Does their vote influence anything?


For all of the debate in the credit union industry today over whether or not credit unions should convert to bank charters, it is almost a whisper compared to the level of debate among credit union vendors. And it only makes sense. These vendors are trying to anticipate where credit unions are going and to formulate marketing and sales plans. They are trying to understand what it means to their futures should this option move from a seldom-used strategy to a generally-accepted one, and potentially to the ultimate strategy (almost a mandate) for a large part of the credit union marketplace.

As with credit unions, vendor conversations are not always as direct as they should be. It’s hard to determine whether the people who don’t comment simply do not believe this will be anything more than a random response to credit union issues, or if they are waiting for a wave of activity on which to capitalize. Are bank conversions something a vendor’s business plan must simply endure, or are they an opportunity for which business plans should be changed and positioned so as to take advantage? Most of us will not say out loud what we think.

Do Vendors Influence the Debate?

Some vendors would argue, what does it matter? Credit unions are going to do what they are going to do, and our opinion about that will not have an affect one way or the other. But I have serious reservations about this position.

While credit unions executives are independent thinkers, they can be influenced by the signals sent by all market participants. Should the major vendors who service credit unions begin to send signals that they are building business plans around credit unions becoming banks, it is possible that these signals will not just make it easy for some credit unions to become banks; they will actually add to the momentum of credit unions becoming banks.

And why not? Most of the vendors who service credit unions are for-profit, stock-based organizations with motivations that have not always easily aligned with credit unions anyway. These vendors often see the clarity in the thinking of the credit unions who would finally bring their credit unions over to their side of the equity question. This is not to say that I do not think that private and for-profit credit union vendors don’t have the credit unions’ best interests at heart. But I do think they are just going to roll with the idea of bank conversions and build business plans around them, and potentially have even wider profit margins than they have today.

Should CUSOs Take a Stand?

But what of operational CUSOs? These vendors owe their very existence—from start-up money to the business that fueled their growth to their ultimate independence—to credit unions and their members. There are millions of dollars of members’ money in play and directed by operational CUSOs. How should they vote? Will it matter?

While I do believe there are reasons a CUSO should service other industries and leverage their products by selling them to other financial service providers and other miscellaneous businesses, I only support this based on the fact that these revenues are directed back to credit unions through lower prices and other benefits to credit union operations.

I do worry, however, that CUSOs will use the precedent of servicing other industries as the reason they might easily accept those credit unions that have converted to banks as being same-old, same-old, no big deal. In doing so, are they in effect voting, sending a signal to the industry that might add momentum to the trend? What do you think?

Answering the Question

As a CUSO leader, I must now respond to my Board that has asked the question. How do we vote? As a business person, I vote to respond to the will of the credit union marketplace, taking no sides and leaving our organization to prosper through serving those who need us most, whether credit union or converted bank.

As a credit union industry professional, I’m torn. For years I have never doubted who needs us most: credit union members. The biggest problem of all is it will not be credit union members who ultimately decide whether our vote is good or bad. It will be the financial service professionals who lead their organizations who will respond to our vote. I hope they are as torn as I am in reconciling who needs them most.



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Feb. 13, 2006


  • Another dispassionate perspective from Mr. Karnes on a difficult issue for the credit union industry. He is to be commended for asking tough questions without any of the rhetoric that usually infects the conversion discussion.
  • Credit union conversions will have a domino effect on the ownership structures, customer bases, and business plans of credit union service corporations, corporate credit unions, and other vendors. Credit union trade associations will have the gut-wrenching decision whether to serve former credit unions or see some of their best members leave the fold. Credit union regulators are already wrestling (some say meddling) with the public policy and safety & soundness issues surrounding these conversions. The strategic implications for the credit union industry are enormous. The marketplace forces driving these conversions are real, compelling, and evolutionary (de-evolutionary?). Despite wishful thinking by some in the credit union industry who hope that these conversions simply go away, a strategically significant number of the largest 1,000 credit unions will inevitably seek conversion to the savings bank structure in the near future. I’m not Nostradamus, but I am convinced that the credit union industry is on the verge of a cataclysmic cultural shift. Change can be scary, but not recognizing and embracing compelling change borders on insanity. I swear to all of my friends on both sides of this issue that I am not crazy, just clairvoyant.
  • The usual high-level, thought provoking, ahead of the curve, require that you take a position type stuff, that we are used to getting from RK. Well said.
  • Interesting perspectives. As part of an organization that services both banks and CU's, it's true that for-profit companies have an obligation to their shareholders to maximize shareholder value, and that generally means trying to service that institution no matter its charter.
  • Ahh, yes... whether to bite the hand that feeds us or not, that is the question? The board of directors and management of the CUSO must leave their philosophical hats at the doorstep and act in the best interests of its shareholders. As for the credit union, I'm not convinced members do business for us because they buy into the ownership hype. I think it is more about convenience, price and more often about relationships and comfort levels. That having been said, it is up to the board and management of the credit union to decide what is in the best interests of their members. However, making members pay more in order to be classified a profit -vs.- non-profit model somehow just doesn't balance in my GL.