A proven strategy for credit unions looking for a leg up

“There is only one boss. The customer. And he can fire everybody in the company from the chairman on down, simply by spending his money somewhere else.” – Sam Walton

What Sam Walton started from a single mom-and-pop convenience store turned into the largest retailer in the world, Walmart. Part of this tremendous success was Walton’s laser focus on the customer. Shopping experience, customer service, price, product, and availability drove customers to Walmart again and again.

Walton didn’t build his business alone. He had a clear mission, created an internal organization with talented, like-minded people, and augmented his operations with outsourcing partners he trusted to fulfill his mission. The same strategy can help credit unions in today’s competitive environment.

In the early 1900s, unserved and underserved populations in the U.S. often relied on risky and unregulated informal financial services from moneylenders or saved their money at home. Credit unions proved they could meet demand for financial services that banks could not by pooling their savings and making loans to working-class neighbors and co-workers. Those that served urban and rural communities became an important source of microfinance.

Over a century later, credit unions continue to serve niche groups of customers, but the landscape has changed. Credit unions compete with traditional banks, online lenders, and FinTech startups for customers and market share, offering similar financial services and attracting members with better rates, better service, and lower fees. The not-for-profit model relies on keeping operational expenses low, so Walton’s strategy, outsourcing business functions to specialized vendors, is once again a pathway to growth.

Outsourcing for credit unions

Outsourcing for credit unions ranges from mail intake operations and document management to fulfillment, customer service, and underwriting and post-closing support services. These labor-intensive but non-core functions can be expensive when handled internally. Outsource vendors offer improved efficiency, lower costs, and help mitigate risks for credit unions by providing surge capacity, backup services, disaster recovery, and continuity of operations.

Good outsourcers take on risk and will codify their exposure in contractual arrangements. In other words, outsourced functions can be performed at a fixed price, benefiting the credit union. For example, a received envelope can be opened, and the documents can be extracted, scanned, and indexed for pennies a page through an outsource vendor. The vendor remains focused on delivering the service quickly and accurately to stay profitable.

Considerations for outsourcing

Outsourcing vendors can be found easily through web searches, word of mouth, and referrals from existing vendors or partners. That doesn’t necessarily mean all providers are the right fit for a credit union.

I recommend starting with those pre-vetted by the US General Services Administration (GSA). They are listed, along with the services they provide, in the GSA E-Library. This is a nice resource because the listing also includes established rates, allowing your credit union to leverage rates negotiated by the largest purchaser in the United States.

Another consideration is choosing an outsourcing partner that understands and has experience in your business area and is vested in your success. Normal business attrition and competition risk are mitigated if a vendor can fill functions as needed. Establishing a long-term relationship with outsourcing vendors allows credit unions to have a ready answer for disaster recovery and continuity of operations, ensuring that members never experience a lag in services. This backup offers peace of mind and large-business capabilities for small credit unions without extensive operational resources.

Finally, the quality of service with an outsource provider can be defined and mutually agreed upon. Just as the credit union expects its member services to perform at an exceptional level, so should its vendors, meeting quality or service levels, turnaround time, and accuracy.

Use the resources available to you

In this rapidly evolving global economy, credit unions face challenges that extend far beyond traditional banking, including increased interconnectedness, fierce competition, shifting consumer behaviors, and rapid technological change. To adjust to this landscape and remain competitive, even the smallest credit union must think like a scrappy entrepreneur.

So, I’ll leave you with another Sam Walton pearl of wisdom on outsourcing partners: “Communicate everything you possibly can to your partners. The more they know, the more they’ll understand. The more they understand, the more they’ll care. Once they care, there’s no stopping them.”