Credit union participation in CUSOs continues to increase. At mid-year 2008, 27.2% of credit unions have an investment in or outstanding loan to at least one CUSO. While this is an increase of over 10 percentage points since June 2002, the majority of credit unions are not utilizing in-industry experts and resources.
Source: Callahan's Peer-to-Peer Software
Tighter Margins Determine Growth Models
When asked about his outlook for 2008, one CEO remarked, "The ability to grow intelligently depends on both the price slope and the cost slope. We’ve found that as products mature, the price slope is declining at a faster rate than the cost slope, leading to the interest rate squeeze." Tighter margins and increasing expenses have some wondering how best serve members and continue growing.
CUSOs are playing an increasingly important role within the credit union network, moving beyond the back-office into front-line innovators. As credit unions realize that the “do it yourself” business models of the past may constrain future growth possibilities, increasing numbers are turning to CUSOs and bridge networks.
CUSOs Provide Efficiencies and Develop Solutions
CUSOs are a critical way for credit unions to achieve scale and gain efficiencies. CUSOs themselves, however, are reducing redundancies and expanding into new areas by building a higher-level of networks. WesCorp’s Dennis Toda, VP of Enterprise Strategies, discussed the Corporate’s involvement with the CUSO industry: “There is no value in re-inventing something that is already invented. Extending industry network’s alignment between institutions creates efficiencies and increases speed to market.”
One example provided by Toda was Pacific Processing Partners which specializes in item processing for Hawaii credit unions. By working with an existing CUSO and extending that partnership to all Hawaii-based credit unions, WesCorp was able to halve processing costs for those credit unions, while avoiding the start-up costs of creating a new CUSO.
CUSO Industry Expansion and Contraction
As CUSOs mature, they have begun to reflect the credit union environment. In the past two years high-profile CUSO mergers have occurred, as credit unions gain attention for “mergers of equals”. Recent CUSO mergers include CO-OP Financial Services and CUSC, and Wescom Resources Group and eCU Technologies. While these mergers eliminated some redundancies, CUSOs are also expanding into new business lines, such as Kinecta Federal Credit Union’s ($4.4B in Manhattan Beach, CA) purchase of Navicert Financial (Nix Check Cashing Facilities) through their wholly-owned CUSO, Kinecta Alternative Financial Services, LLC.
As credit unions seek economies of scale or new products and services, CUSOs will continue to grow in viability. Networks of niche businesses can deepen relationships by providing for members' financial needs in the 21st century.