Credit Union Service Organizations (CUSOs) are at the forefront of innovation in the credit union industry today. Since the first CUSOs were established in the 1960s, CUSOs have served as the “industry solution” to needs that could not be met by either a vendor or individual credit unions operating as separate entities. (To learn how credit unions are sucessfully outsourcing to other credit unions, click here).
CUSOs provide credit unions with an outsourced solution to the current challenges of narrowing interest margins and rising operating expenses. By providing a shared infrastructure and pooling staff resources, CUSOs enable individual credit unions to enjoy lower operating costs and greater staff expertise.
CUSOs also provide credit unions with the ability to spread operating and financial risks across multiple institutions, thereby lowering the barrier to develop new products and services. Finally, CUSOs enable credit unions to provide greater member value by offering faster speed to market.
In 2004, over 2,000 credit unions reported having made either a loan to or an investment in a CUSO. While significant, this suggests that nearly 7,000 credit unions do not have a CUSO relationship. Given the scale, expertise, and risk-sharing benefits CUSOs can provide credit unions—particularly small credit unions—an increasing number of credit unions are establishing and/or joining CUSOs.
The Sum Is Greater Than Its Parts
One innovative CUSO that is benefiting its credit union owners is Capital CUSO in Topeka, Kansas. Capital CUSO was established in 1994 by four Topeka-based credit unions—Educational Credit Union ($91 million), Kansas Super Chief ($117 million), Rubber Workers, a Division of Credit Unions United ($93 million), and one other credit union—as a solution to a common problem: branching. Unable to provide their members with adequate branch services as independent entities, these four local credit unions established Capital CUSO to build a single branch, the first branch for each credit union.
Since then, Capital CUSO has opened a second service center, launched other successful initiatives including Credit Union Mortgage Services, a provider of second mortgage and home equity line products, and participated in the Credit Union ATM Network CUSO with several other local credit unions.
According to CEO Greg Winkler, Capital CUSO is successful because it “fills a need for small credit unions that cannot staff up or cover operating expenses on their own.” The CUSO serves as a “low stakes table” for small credit unions that can collaborate with like-minded partners struggling with similar issues, says Winkler.
The Cutting Edge of Outsourcing
Several years ago, only a few credit unions were making business loans. Sensing a tremendous opportunity for credit unions to expand their service offerings, Larry Middleman, then-chief financial officer of Northwest Corporate Credit Union, led an effort to establish the CU Business Group CUSO in Portland, Oregon.
“We saw that there was so much opportunity for credit unions to make inroads in business lending,” says Middleman. Although there are a number of business lending service providers today, “three years ago this was cutting edge.”
CU Business Group’s innovative value proposition quickly attracted the attention of other corporate credit unions. Today, CU Business Group is owned by eight corporate credit unions and provides a comprehensive set of business lending products and services.
According to Middleman, two critical success factors in CU Business Group’s model are “our corporate credit union ownership structure and our holistic approach to business lending services.” The corporate owners help develop business through their extensive networks. In addition, the holistic approach to business lending allows credit unions to select either a specific service or outsource their entire business lending operations to the CUSO.
As market innovators within the context of a cooperative framework, CUSOs can offer credit unions an effective outsourcing solution.