Five years ago, six credit unions integrated several essential back-office functions to gain scale without merging.
The operational expense and income ratios for the group have decreased from 90%-94% to 80%-81% on average, even with some of the credit unions reinvesting cost-savings.
When six credit unions founded rkGoBig in 2014, the group had one clear goal for the credit union service organization: Help small credit unions scale their operations without merging.
It took the cooperatives 10 months to map out an initial three-year shared services integration plan, which included a common core system, online banking solution, and debit card processor. The plan also integrated the credit unions’ collections, compliance, and vendor management efforts.
The idea of joining forces to achieve scale is nothing new, but that doesn’t make it easy to coordinate.
“Bank holding companies have been doing this for a long-time” says Peter Barnard, CEO of rkGoBig. “But it takes a lot of time and hard work to achieve convergence among six different institutions.”
rkGoBig defines convergence as “making many back-office processes, procedures, and practices similar while maintaining the identity of each credit union.”
For the credit union participants to increase efficiency and save money, the CUSO spent much of its initial years planning, negotiating, streamlining processes, and converting systems. Since CreditUnions.com featured the efforts of rkGoBig in a 2015 article, all of its founding partners have successfully converted five centralized functions: core processing, card processing, compliance, collections, and vendor management. Some functions have required the CUSO to add dedicated staff members; for others, the CUSO relies on trusted partners.
The group currently is building shared intelligence to better serve members and help other small credit unions compete in the evolving world of financial services. rkGoBig also is in the process of expanding from six to nine credit union partners. The asset sizes of the CUSO’s individual credit unions range from $60 million to $200 million, but rkGoBig negotiates as a single entity with more than $900 million in combined assets and 105,000 members.
Here, Barnard talks about the growth of rkGoBig, achievements of the past five years, and lessons learned along the way.
How do you evaluate new credit union partners to ensure they have the same level of commitment as the founding organizations?
Peter Barnard: It’s a process. The formal name is the Partnership Assessment Service. We work with the potential credit union partner for a period of three to six months. During that time, the credit union participates in all aspects of our CUSO, including our CEO council, operations council, and our data/analytics team. They are a full party to the conversation with complete and utter transparency.
The credit union must pay a significant fee prior to the assessment. We can only manage a few of these assessments each year, and the expenditure of time and effort during the evaluation is irreplaceable, so we want potential partners to have skin in the game. We also want to make sure the board of directors has given their input and approval before the process moves forward. Our original partners put in twice the amount, and knowing everyone had real member money invested changed the whole dynamic.
We also run the numbers and analyze whether the CUSO would be beneficial to the credit union financially. The math is demonstrably better when you join forces, but these partnerships require credit unions with something to gain and something to give. That’s why we spend hours with potential partners, traveling together and on conference calls, to see how we all work together.
Personality and trust are also important. It’s not just the financial analysis.
Which new credit unions are in the process of joining rkGoBig? Have any credit unions gone through the process and decided not to become a partner?
Destinations Credit Union
Viriva Community Credit Union
Department of Labor FCU
Century Heritage FCU
SPC Credit Union
PB: SPC Credit Union ($170.0M, Hartsville, SC) is fully signed and is now a full partner in the CUSO. IRFCU ($61.2M, Athens, PA) is finalizing the signatures on the operating agreement and onboard to become a full, equal partner in the business.
There is one more credit union in western Pennsylvania that has board approval, but we’re not ready to announce officially yet. Just like with our founders, timing is important. Once you make the decision, it’s two to three years of work to bring it all together.
Half a dozen or so haven’t made it to the assessment phase. After a period of a few weeks, and prior to them executing our statement of work for the assessment, we knew the fit just wasn’t there. We or the credit union gracefully stepped back. For example, one credit union just wanted a new core.
How did rkGoBig select key vendors, specifically its technology partners?
PB: We created a CEO council composed of the CEO of each founding credit union and me. The council met via video conference every week and for two days face-to-face every month. This group made all plans and decisions. For the big system buys, we voted and accepted only unanimity before progressing.
The Many Vendors Of rkGoBig
RkGoBig created a council of CEOs to make plans and select vendors for the CUSO. Before making a big system buy, the council voted and would only move forward if a vendor earned unanimous approval.
The key vendors selected include:
CU*ANSWERS — core processing, mobile, online
WorldPay — debit and credit card processing
eDoc — doc imaging and eSig
Xtend Services — extended hour call center, misc. services
Vizo / MYCU Services — bill pay, ACH, share draft processing, mobile
Maple Street — vendor management and strategic vendor negotiation services
AffirmX — compliance monitoring
When CreditUnions.com talked with you in 2015, rkGoBig was still in its honeymoon phase. What have you learned? What challenges has the CUSO overcome since then?
PB: We’ve learned the economic model works. We go to scale where scale pays, and we stay local everywhere else. For example, card processing is an area where scale pays but sponsoring a local farmer’s market to connect with your community is not. Almost anyone would say it’s obvious, but we’ve done the hard work to prove the cost model works.
Another big learning for us is that there is a huge difference between a group of well-intentioned people who talk about collaboration and those who make it happen. I’ve spoken to so many people who are excited to try this until they understand the true scale of change. This collaborative model demands a lot of big, physical changes to the credit union. We’re talking about changing your core, back-office operations, card processing, compliance, and more. The scale of change can be daunting.
We’ve also learned it takes time to develop a shared vocabulary and build trust. People join because they have something to gain — they want their credit union to survive and grow — but they must contribute as well. We’re still in the early days of rkGoBig in terms of developing a shared IQ to help small credit unions survive and thrive, but we are continuing to capture the energy and passion.
How have the cost savings measured up over the past five years?
PB: Where we are today represents $5 million to $5.5 million in savings. The 5300 data shows it was costing us 90-94 cents, on average, to make $1 when we started. Today, it costs 80-81 cents to make that same dollar.
Our initial big hairy audacious goal was to achieve a 25% reduction in operating expenses. We’re en route to that, but it is a work in progress. The CUSO never tells a credit union partner what to do operationally. Each one independently decides how to reinvest those cost savings, whether it means building a new branch or another new initiative to benefit members.
What are rkGoBig’s plans for the future?
PB: We’ve spent a fair amount of labor building the concept and structure and would like to develop a new hub or federation of cooperative banking in other geographic areas or through small groups of credit unions with a common bond.
If there are credit unions that have strong groupings in their area, we’re interested in helping. There is a philosophical side to this. I like having conversations with people who are like-minded, hard-working and equally resolved to supporting small credit union charters. However, there is a practical side to this, too. There are a few inflection points for asset size. In the credit union system, those might be at $500 million, $1 billion, $2 billion, and $5 billion. The idea of the federation is to keep going to scale.
What advice do you have for smaller credit unions looking for merger alternatives?
PB: Think hard about merging away a credit union that’s been in existence for decades. The leadership of a cooperative that’s been through hard times should explore all legal alternatives to merging.
There’s a sensation of hopelessness that this big credit union has 16 branches and it would be better service for our members if we just merged. But that misses the point that a small credit union might be the only financial institution in a rural town or for a specific employer group. That local institution is valued by its members, just like consumers are embracing the idea of buying local. Here is better than there, small is better than large. It’s not hopeless, it’s just not.
rkGoBig is just one example of a group that came together to increase the likelihood of small credit unions surviving and thriving. The idea that small credit unions can’t compete is wrong — David has been beating Goliath for ages. You just have to believe in it and do the work to prove it.
5 Tips To Collaborate
Peter Barnard, CEO of rkGoBig, offers his advice for successful collaboration.
Take the idea as far forward conceptually as possible. There doesn’t need to be a finished business plan, but make sure the concept is mature enough to take the next steps and engage future partners.
Write it down. Put the concept for the new collaboration on paper. rkGoBig created a Statement of Work that it used as its signature document to begin forming the CUSO.
Require a meaningful investment. There is no magic figure for founders to contribute, but the amount should be big enough to be meaningful and small enough not to tank any of the credit unions involved.
Give it time. At a minimum, plan weekly video conferences as well as at least two full days for face-to-face meetings per month for the first year. The frequency of meetings could be decreased if the idea is simpler or faster to market.
Fight for it. Fight hard to hire either a facilitator or, preferably, someone capable of managing the entire collaboration. This will ensure everyone is held accountable and will move the new organization forward.