Credit unions that feel they are too small to expand their service offerings should consider forming or joining a CUSO, says a panel of three CUSO experts who spoke at a recent the Pennsylvania Credit Union Association-NACUSO convention in Harrisburg, PA.
League Service Organizations, such as the Pennsylvania Credit Union Association were “the original CUSOs,” because their original mission was to help the credit unions expand services, says Wayne Grinnik, CEO of Keystone Business Lending Solutions LLC, which is owned by seven credit unions in Western Pennsylvania. For example, in Pennsylvania credit unions quickly germinated credit cards through group purchasing efforts with the league service organization.
CUSO are filling that role today, but they’ve evolved from offering group purchasing to providing services like marketing arrangements or shared branching options, Grinnik, who was joined by Cosimo Manzo, CEO of First Heritage Financial LLC, and Rick Wargo, executive vice president and general counsel for the Pennsylvania Credit Union Association.
“We can vet ideas in a very safe environment,” Grinnik says. “You have that trust that you aren’t going to steal ideas. We like to incubate and launch ideas to see if we can make them work.” Key Stone Business Lending Solutions, based in Wexford, PA, loan underwriting, training and a few other services for credit unions wanting to get into member business lending.
““How do credit unions, as cooperatives, cooperate with one another?” Grinnik says. “Can we incubate? Can we lease you space? Those are opportunities that we look for. … As we started to grow and there was more demand, we recognized there was an opportunity to take this idea national.”
First Heritage Financial LLC, a Philadelphia, PA-based CUSO that helps provide mortgage loans, invested significant time in developing a function CUSO structure, says. Manzo. One of the biggest challenges was “getting personalities together,” he says. First Heritage is wholly owned by American Heritage Federal Credit Union ($1.1B, Philadelphia, PA).
“What’s a reasonable return for this gamble? That’s what every credit union asks themself in creating a CUSO,” Manzo says. “If you’re a fledgling CUSO and expecting dynamic returns, that’s a recipe for disaster. It’s a difficult concept for people who are putting up money.”
Credit unions considering forming CUSOs should understand the size and scope of what they want the CUSO to do and clearly define its purpose and ways to measure its success, says Guy Messick, NACUSO general counsel.
“What do you want from your CUSOs? What do you expect? Will it be a fire-breathing, profit-breeding activity or will it be a beast of burden?” Messick says of questions credit unions should ask about their CUSO effort. “What’s a fair rate of return and what do CUSO executives expect?”