Corporate Credit Unions and the 8-Track

This was originally written and posted for the CU Times. Here is the article in its entirety:

Corporate credit unions are quite the unpopular kid at prom these days. With fresh allegations of fraud from senior executives at some corporates, dismal investment portfolios, and lackluster capital positions, corporates are riding a wave of negative publicity. With massive changes to their business model on the horizon and the threat of further regulation, corporates face the same dilemma that the 8-track cassette tape faced:  obsolescence.

Unlike 8-track, the popular audio cassette technology from the 1960s and 1970s, the corporate credit union system has not been short lived. However, forces are changing the marketplace, arguably making corporate credit unions much less relevant. In its January 2009 ANPR, the NCUA suggests making changes to nearly every key component of a corporate credit union’s business model including payment systems, liquidity management, field of membership, investment authority, and capital structure.

Progressive corporates have seen the writing on the wall and have launched new internal programs in preparation for the NCUA’s upcoming systemic alterations.  CU Business Group represents a great example of this concept. A CUSO owned by eight corporate credit unions, CUBG provides mainly business services related items such as loan origination, servicing, and SBA lending. The CUSO model has been quite appealing to corporates lately as a way to branch out and diversify some of their services and revenue.  Many corporates are beginning to get into the CUSO game such as Southeast and Georgia Central with Member Business Solutions and Missouri Corporate and the Missouri Credit Union Association with their CUSO, Heartland Business Services.

The CUSO structure provides a solution not only for corporates, but also for natural person credit unions looking to overcome some of the current issues with corporates. Nearly all services offered by a corporate credit union to its member credit unions are being offered through CUSOs. For example, Palmetto Cooperative Services of South Carolina offers item processing, statement processing, and printing and mailing services. Originally started as a League Service Corporation, Palmetto now boasts more than 400 clients across twenty states.

Investments have been a source of much anguish from the corporates, but many alternatives are provided through CUSOs as well. CUSOs such as MaPS Advisory Services offer complete replacements for portfolio management.  When asked why a credit union would choose a CUSO over a corporate for investment options, Kevin Cole, CFO of MaPS Credit Union and Manager of Client Relations for MaPS Advisory Services, had this to say: “MAS can provide credit unions with an alternative to investing funds in corporate certificates that does not require uninsured membership capital.  Rather than credit unions investing in corporate certificates and corporates investing in mortgage backed securities and other bonds, credit unions can directly own the securities with MAS managing the portfolio to a written investment policy statement developed specifically for the credit union.”

Card and ACH processing is another mainstay of corporate credit unions, but again, many options are available to credit unions of all sizes. PSCU, The Members group, and CO-OP are just a few of the CUSO card processors out there today.  PSCU has over 600 credit union owners and CO-OP has one of the largest ATM networks in the nation.

As practically every operating aspect of a corporate credit union is available from other providers, natural person credit unions will begin to look elsewhere for products and solutions. In today’s economy, credit unions are avoiding risk at all costs, and that includes any potential issues that may arise from utilizing a corporate credit union. Such risks might include changes related from mergers and acquisitions, key employee turn-over, or further capital calls.

While the more modern cassette tape replaced the 8-track in the 1980s, the outdated standard still had a leg up on the competition in sound quality. That advantage was very short lived and within a few years of being introduced, the cassette tape killed 8-track. Corporate credit unions are currently at the same turning point as the 8-track.  CUSO’s and other providers can deliver the exact same services and products to natural person credit unions that a corporate credit union can deliver. While corporates do maintain some slim advantages, they will be quick to deteriorate as the NCUA hands down new regulations in the future.

CUSOs represent a unique opportunity for the credit union industry. Corporate credit unions can capitalize on that opportunity by creating new CUSOs to deliver their existing products in a different format or by adding new business lines. These new business lines could contribute significantly to the bottom line of the corporate, helping to diversify revenue and decrease reliance on products with embedded risk.  Natural person credit unions can also leverage CUSOs to collaborate on new joint ventures to better serve themselves and other credit unions.

Time and time again, new technologies over take old. New businesses enter a market and crush existing competitors. The companies, and business models, that survive have a major skill at their disposal: their ability to confront change. The corporate credit union model is being challenged and if corporates are going to survive, they need to confront that fact and embrace all the tools available to them to ensure that they do not become the credit union equivalent of the 8-track.

The Credit Union Social Media Disconnect

Do I really care about the latest marketing campaign that XYZ Credit Union is doing? “Have you seen the video on YouTube by GenY Star? It would make the perfect national marketing campaign,” bleets many of the social media sheep in the credit union industry.

Do you know why most credit union CEO’s don’t blog and aren’t on Twitter? Because nothing important happens in the credit union blogosphere. Yeah, we all get to network, see what each other are doing, and maybe catch a pearl of wisdom here and there. But the bottom line is the important stuff, the game changing stuff, is never really talked about online. Changes to the member business lending cap. That’s a game changer. A partnership developed between FSCC, CUSC, PSCU, Fidelity, etc that enables all credit unions to become shared branches automatically. That’s a game changer.

I’ll bet we could fill an airplane with all the people in the credit union social media space. Literally. What would happen if that plane went down? Nothing. That’s right, nothing.  Now imagine filling that plane with the CEO’s of the credit union leagues, trade associations, CUSO’s, and credit unions. We would have a catastrophe. Innovation would be ground to a halt. The real partnerships and collaborations that were happening, albeit on a small scale, would cease.

Tim McAlpine recent wrote on the CUES blog about using social media to advanced your career. And he is 100% right. Social media can help to get your name out there. But we in the social media blogosphere need a greater goal than getting 500 twitter followers or blog subscribers. Trey Reeme and I recently had a conversation about this issue of social media being disconnected from the important things in the industry. Daily life at a credit union isn’t glamorous and fun. It is trying to find a way to help a teller do a process 1 minute faster. It is about finding a better checking product to match up with the maturity of your credit card portfolio. It is about patterning with neighborhood credit unions to form a multi-owned business CUSO to get around an individual credit union’s business lending cap because a.) business loans are profitable and b.) members need them.

If a flood was coming to the credit union industry, would you be invited onto Noah’s Ark to weather the storm? Right now, I wouldn’t be. And I’m not going to stop fighting for the credit union industry until I am.

Change of venue

Back in September, Nexcentri, the CUSO I worked for out of Tampa, and I parted ways. Over the last few months, I’ve had the opportunity to take some time off with our new baby, Mason, as well as experiment a bit with the direction that I wanted to take my career. I’m torn between the camaraderie and sense of family when working at a credit union or CUSO and the flexibility and opportunity for success, or failure, that working for yourself can bring. Ultimately, I’ve satisfied the entrepreneurial cravings within and decided to give the credit union industry something it really needs: another consultant.

I know, I know, we need another consultant telling credit unions what they need to do like credit unions need another impairment.  However, I’m focused on two very specific niches that are often overlooked.

The first niche is centered around idea development within credit unions and CUSO’s. I’ve spoken with many credit unions over the years and they basically fall into two categories, one that needs some help with generating innovative ideas and another that has many innovative ideas, but can’t give them the attention they deserve.  Basically, I’m helping grow (or plant) ideas from their infancy and assisting them into adulthood. Currently, I’m helping a CUSO on the east coast take an idea they’ve been brewing up for the better part of a year and develop it into a full fledged product that they will offer their customers. Everything from financial analysis and models to market research to delivery to the customer.

The second overlooked niche is in regards to conferences. We all love BarCampBank’s and believe that they would be greatly beneficial for the credit union industry to experience, but there has been no solid effort put forth to introduce the broad industry to them. I aim to fix that problem with The CUIR. The Credit Union Innovators Roundtable, The CUIR, will bring BarCampBank/unconferences to the credit union industry and introduce it on a larger scale. Directed towards leagues, associations, boards, and trade groups, The CUIR is a conference service that meeting organizers can use to bring a new flavor to their event. Imagine if your the annual meeting of your credit union was actually a BarCamp! Hopefully, by introducing the unconference to the credit union industry, we’ll be able encourage more innovation and collaboration, as well as the real key to success, execution.

One of the things that I’ve been harping on lately is the lack of executable concepts that float around the credit union industry. If we truly want credit unions to be successful, we have to give them actionable items that can impact their membership. Those may be ideas for new checking accounts, some new NSF thing, or a new technology product. Whatever the case may be, CU Innovators is here to help credit unions execute.

CU Innovators is currently looking for two more clients, credit unions or CUSO’s, to assist in making their ideas come to fruition.  If you’ve got a nagging idea or project on your plate, get in touch with us on our contact page, hit me up on Twitter,  or you can always try telepathy, but no promises.

United Van Lines wouldn’t move my website cross-country for me, so we’re in the process of moving everything from the Life and Times of a Credit Union Employee over to CU Innovators.  The RSS feed will automatically update, so don’t worry about having to re-subscribe. However, if you are a little anal like me, the new feed is here.  Also, if you are an email subscriber, you’ll be seeing a few changes as well (for the better), so if anything funky happens, let me know!

When Google/Microsoft/BofA/Wamu enters your market

Bank of America is still building out branches and their ATM structure like crazy.  Wamu is every where.  We even have super tough competition coming in from CU’s that historically have been in other cities and are 5 times our size.  What is a credit union to do?

Google just stepped into the browser marketplace with Chrome.  Building on other open source projects, they’ve thrown their development staff and large stash of capital behind launching a new browser project.  It is different then most other browsers, is smokin’ fast, and combines many common tasks into a simple process, like search.  Go figure.

The competition in the credit union space is only going to get worse.  In my CUSO side of life, there is really only one main competitor and they own the entire marketplace.  They are the Microsoft of my market.  So what are small CU’s, or small CUSO’s, going to do to stay alive?  Can we really survive based solely in niche markets?