Randy Karnes has been with the credit union movement nearly 30 years. During that time he has seen roles change and evolve, growth happen, and mergers and shake-ups of all types. Since 1994, Karnes has been CEO of CU*Answers — a credit union-owned CUSO that provides core processing, consulting, management, and technology services to more than 190 credit unions and their 1.5 million members in 18 states. Karnes’ success at the CUSO is a testament to the benefit of cooperative strategy in the credit union movement. And to Karnes, it’s not about collaboration, it’s about being a cooperative.
“Sometimes I hate the word collaboration, because collaboration sounds like something you socially do,” Karnes says. “Credit unions are cooperatives; they have a business charter to be a cooperative. I think that cooperatives have a greater understanding of what members need, because of the member-owner model.”
Originally called West Michigan Computer Co-Op, Inc. (WESCO), CU*Answers begain in 1970 as a non-stock cooperative that provided low-cost data processing services to credit unions.
In addition to the services offered through its own technology platform, CU*Answers partners with credit unions to help deliver services to members such as ATM, debit card, interactive voice response, Internet home banking, and item processing solutions. CUSOs provide a means for credit unions to reap the benefits of ownership by providing capital funding for research and the development of new products and capabilities, but with significantly reduced risk.
This is why CU*Answers was founded in 1970. West Michigan Computer Co-Op, Inc. (WESCO) — the CUSO’s original name — organized as a non-stock cooperative to provide low-cost data processing services for credit unions.
WESCO’s core data processing solution was still in development when the co-op started to realize its resources were limited. WESCO found that to keep up development, it needed to share both the expenses and the opportunities of its core processing solution with a group of users.
“Basically, the founding credit union started selling services and, as it went forward, it decided it would be best to have multiple owners,” Karnes says.
Inspiration From The Cooperative Model
According to Karnes, one of the keys to CU*Answers’ success is that its governance model is a mirror image of credit unions’ governance model. Because of this, the CUSO’s business motivations, its revenue motivations, and its investment motivations all align well with the customer-owner model that credit unions use.
“More and more credit unions are seeing the cooperative business charter as a way to gain advantage and CUSOs simply amplify that,” Karnes says. “It’s not the only way to do business, but it certainly is an intuitive way.”
Credit unions have expounded customer-owner motivations for decades, so it makes sense that the businesses established to interconnect credit unions have the same motivations, style, and design.
At CU*Answers, the strategy hinges on three things: Create a disruptive price that sends ripples through the market place, break into new markets, and share the associated costs and rewards.
“We live on the principles of creating a disruptive price, gaining access to new markets where we’re blocked, and creating shared execution models so credit union professionals can enhance their careers,” Karnes says.
More Than Processing Services
When Karnes joined CU*Answers in the mid-1990s, CUSOs were struggling to find relevance in the credit union movement. The service organizations went into a period of developing operational services to accompany the data processing that they already provided to credit unions.
CU*Answers serves more than 190 credit unions and 1.5 million members in 18 states.
“In essence we had an explosion of ideas about what to do beyond core data processing,” Karnes says. “We had opportunities because we shared distribution channels.”
CUSOs had an opportunity to share their approach to credit union operations and leverage their networks by working cooperatively. The result was shared call centers, accounting and bookkeeping firms, and collection agencies.
“That continues today. Today we look at everything we’re connected to and say, ‘let’s leverage our network again, leverage it to CUSOs, leverage it to other bodies,’” Karnes says. “You basically parallel the operational resources needed by a credit union and you say, ‘how can I use these resources?’”
The Power of Connectivity And The Financial Crisis
The turn of the millennium brought renewed attention to the connectivity and benefits of credit union networks.
“Connectivity is the key to everything,” Karnes says. By connecting larger groups of retail customers with larger groups of vendors, credit unions found themselves in the middle of a rapidly expanding networked world.
Networks align with the philosophy of the credit union movement and the decision to connect your entity with others in the movement in order to share services and best practices.
“The values found in a network bring the opportunity to get more out of the social side of the market place, the operational side of the market place, and everything,” Karnes said.
The 2007 financial crisis emphasized the network effect as well as the role CUSOs serve supporting credit unions. As credit union executives crunched and recrunched numbers to try and find ways to afford extending their businesses, CUSO networks provided a low-risk opportunity to take advantage of sharing employees, greater outreach, mortgage CUSO networks, and indirect networks.
The crisis challenged people to get the most out of their business model, and the way to do that is networking, Karnes says.
The financial crisis also made collective ownership more attractive. Since the crisis, more businesses are hedging their bets by joining a network and credit unions are doing the same thing by joining CUSOs. Credit unions extend their powers to reach and support their members by providing new member services through CUSOs. Services including data processing, disaster recovery, and indirect lending are better provided by a unified network compared to many fractured credit unions.
“The crisis challenged people to get the most out of their business model and the way to get the most out of your business model is networking and the cooperation,” Karnes said.
Credit unions also benefit from CUSOs in other ways. Because they are partial owners, credit unions earn income on their investment in CUSOs through the development of new solutions. This shared investment in research and development reduces the risk of developing new technologies to serve members of natural-person credit unions. This also allows credit unions with fewer assets to offer top-of-the-line services to members that they may not have been affordable otherwise.
CUSOs In The Future
Karnes says that CUSOs will continue to play an important role in the future.
“There is another awakening here. This is not just something that we do, it is something that we use to create businesses,” he said. “That is a very important point because I don’t want people to be cooperative, I want people to be a cooperative and there is a distinction between those two things. Being a cooperative and having a customer-owner business has advantages that can be leveraged for a competitive advantage.”
For CUSOs to go beyond where they are today, the service organizations need to bring bigger efforts to bear, drive bigger things to the market, and create bigger market-share expectations.