A CEO’s worst nightmare: waking up one morning and finding out that their core processor, loan origination system, online banking, or mobile banking provider has been sold to a private equity firm. Maybe a huge national conglomerate or, worse yet, a market competitor. Of course, a change like that does not happen overnight, but in any case, the credit union has now gone from a client or customer that had some clout or a direct line to the company CEO to a proverbial gnat on the elephant’s ass.
Limitations kept us tied to banks
There was a time—because of economies of scale, limited investment capital, and regulatory barriers—when credit unions had to depend on third-party vendors that limited and constrained the control we had over our own destiny. How many times has it happened over the years where you had little or no influence over who was handling your credit union’s most critical data or how the toolset worked that supports your primary sources of revenue?
I still cringe remembering the credit unions who had sold their credit card portfolios to MBNA in 2006 just months before reading in the Wall Street Journal that their members would soon be getting new plastics with the Bank of America logo after the acquisition.
My forty-seven years in credit unions have taught me that the strategic decision to exercise ownership or partnership with a collaborative CUSO is most critical when deciding who will be handling our most valuable assets and product delivery systems. I remember when we depended on a correspondent bank relationship for clearing our share drafts, data processing, and cash for our teller drawers. It was our limitations of scale that forced our cooperative strategy to build the earliest CUSOs to provide access to the major credit card brands.
It does not make much difference who has the contract to cut the grass in the summer or plow the parking lots in the winter, but it sure does when you decide who will have significant control over your database. Or who provides the tools that generate a significant percentage of your revenue like your lending portfolio or your off-balance sheet member brokerage or investment services.
Chose a partner, be an owner
The barriers of the past to controlling the technology environment we operate under, the delivery channels we utilize, or the brands we introduce our members to are no longer the challenge. We have the scale, we have the investment capital, we have the consumer brand recognition, and we have much more regulatory freedom to differentiate ourselves in a market that demands the uniqueness that our philosophy and our cooperative business model provides.
The collaborative CUSO model maximizes our ability to make the investment in those key strategic business relationships I mention. All things being equal—service, support, pricing, and product design—why would a credit union look past the opportunity to own the relationships it most depends on? Why would you let your data reside in the hands of others outside of our industry? Why would you let your strategic revenue products be subject to the winds of a corporate merger, private sale, or public offering?
Our credit unions are financially stronger than ever and our capacity for capital investment is significant. Our members are best served when we make decisions to work and build together with others who share our common values. Investigate initially for your strategic partners among the hundreds of CUSOs. Invest in and own those CUSOs if they fulfill the strategic needs of your members. Make our network of credit unions and CUSOs work for the benefit of your members and the long-term vitality of our cooperatives.