Extending the Reach

Looking for new opportunities, we formed a CUSO holding company and within it a marketing company. This marketing company serves credit unions, even banks, has been profitable since inception and has extended our reach to persons otherwise not served.

 
 

Your world is changing dramatically, but you already know that because you see it in the papers, on the Internet and on TV. And you know it because you have made so many fundamental changes in the way you do business. Or if you haven't, why not?

Does this ‘discussion' sound familiar? It has been taking place in board rooms all across the country: in bank board rooms, manufacturing board rooms, technology board rooms, service sector board rooms, hospital board rooms, non-profit board rooms and more. But most importantly for us, not nearly often enough in credit union board rooms.

We read that credit unions are expanding their fields of membership and now encompass more than 86 million members. That's great, but it leaves 220 million Americans who are not yet members. We note as an industry that we are (far too slowly in my opinion) moving into business services so we can help those members who run small firms and aren't receiving help from banks. We, along with banks, are opening new branches at a furious rate. Our Internet and wireless reach is on par with or exceeds that of banks. But is this enough?

Mazuma Credit Union, with $317 million in assets and eight branches, decided much more had to be done because: 1) although we are authorized to serve 750,000 people in the greater Kansas City area, we are only reaching 50,000 and a good number of these are out of town; 2) net interest income is shrinking and we constantly confront the option to either raise fees (and be more like a bank!) or cut costs at a time when doing business effectively continues to become more expensive.

We decided we needed non-interest and non-fee income. Plus there were “underserved” areas that had nothing to do with the economic profile of neighborhoods and everything to do with reaching new markets.

A Credit Union-Specific Marketing CUSO

In 2002 Mazuma began to investigate CUSOs. We didn't have anything particular in mind; it just seemed like a good idea to be aware of how they worked and what they could do. By early 2003 we decided to start a marketing CUSO that would leverage the strength of our seven-person marketing department and fill a gap in the credit union system -- there really weren't any credit union-owned marketing companies around. A number of solely-owned and multi-owned CUSOs served investment needs, data processing, mortgage origination and servicing, auto leasing and sales, etc., but there were no targeted marketing companies with direct expertise in credit unions.

So we formed a CUSO holding company, gave it $65,000 in capital, and spun off into it our internal marketing department as a separate limited liability company. The holding company provided the new marketing company a whopping $35,000 in seed money out of its capital (not such a big investment that most credit unions couldn't handle).

We signed a contract with our new “baby,” Beyond Marketing LLC, to provide marketing services to the parent credit union, and started reaching out to other credit unions and smaller banks (GASP!! Work with BANKS! Hey, the needs and expertise are similar, so why not let them give us money for a change!) Since Beyond Marketing started operations in July 2003, it has been profitable and is providing credit union-focused marketing expertise to a variety of credit unions, CUSOs and banks -- initially in the Midwest , but now reaching across the country.

In mid-2004 the holding company worked with the holding company of our neighbor, CommunityAmerica Credit Union ($1.4 billion in assets; 120,000 members) to form TruHome Solutions LLC, a multi-own CUSO mortgage company with capital of $1 million. CACU wanted to improve their servicing operations while Mazuma needed faster originations and a better cost structure. During its first full year in operation, TruHome Solutions upgraded the service, functionality, control and opportunities for both credit union owners. We have also agreed to sell part of the mortgage entity to another credit union neighbor very soon.

Leveraging Our Success

So why am I telling you this? It's not to brag, although we are all proud of these new companies. And it's not as if the process hasn't been without some struggles and setbacks. The point is, there are small to mid-sized credit unions that are “underserved” with quality, dedicated credit union-specific marketing services. We can now offer those services at a good price so those credit unions can reach new members, namely Americans who deserve to be part of the credit union nation. And there are many citizens of Kansas City who are “underserved” with fast, efficient, member-sensitive credit union mortgage products and service. TruHome Solutions employs out-bound sales representatives to reach non-members with our offerings and, of course, we promote heavily to our existing members.

We are also in discussions with a local developer to create a check cashing outlet in a new urban supermarket. This is a revenue opportunity for Mazuma but it is a critical partnership for the grocer; he is losing business to an older market down the street where customers go to cash checks and stay to shop. Are there similar collaboration opportunities in your neighborhoods?

Change or Shrink; Look for Opportunities

The bottom line is this: credit unions must change along with the rest of our economy or we will face two serious results: 1) we will suffer declining income and shrinking market share/growth as other traditional and non-traditional entities find innovative ways to operate in our communities; 2) we will not reach all those Americans who should understand the credit union advantages and should be drawn in to our community.

It is nice to talk about attracting new members but it isn't going to happen by magic. We have to offer the products, services and experiences that are meaningful to them. And that is going to look much different than traditional credit union models. Our CUSOs were designed to be shared with other credit unions, as are many other CUSOs around the country. If you want to get in the game, just start checking your own neighbors for opportunities -- there are probably a lot more than you think. See you on the journey!

 

 

 

July 31, 2006


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