“[CUSOs] provide a means to an end – allowing credit unions the capability to fulfill the financial needs of their members in a cost effective environment through efficient delivery channels. Plus, they attract the brightest and most innovative minds to the board table, bringing best practices of credit unions across the country, which is a priceless experience.” – Doug Petersen President/CEO of Workers’ Credit Union.
A Credit Union Service Organization (CUSO) is an organization formed and/or owned by one or more credit union(s) to provide a specific product or service within the industry. CUSOs provide credit unions a method to spur innovation, increase efficiencies through specialization, and gain economies of scale. CUSOs leverage the power of collaboration that already exists within the industry to offer several benefits such as:
- Economies of Scale
Economies of scale are achieved when a company produces goods and services on a larger scale while simultaneously lowering average input costs. CUSOs achieve economies of scale by producing goods or services for several credit unions rather than having a single credit union attempt to replicate the same benefit. By utilizing the power of collaboration, CUSOs can specialize on a given product or service which enables them to provide higher-value products and services at a much lower cost.
- Multiple Owners
The collaboration of several owners spurs more innovative products and services because there are several different viewpoints. Unlike most other vendors in the credit union space, CUSOs are required, by law, to have multiple owners. “There can be some overlap with the credit union, but the management team can’t be 100% the same,” says Guy Messick, an attorney with Messick & Lauer and general counsel to NACUSO. This is incredibly beneficial because there are more eyes looking over the books so if any problems arise, they will likely come to light before they become a serious threat. Because of this, it should come as no surprise that credit unions with CUSOs outperform credit unions with no CUSO.
- The Credit Union Movement
CUSOs, by nature, are focused on the overall health of the credit union movement. CUSOs care about the credit union movement because they are part of the credit union movement. Utilizing a CUSO ensures that capital investment stays in the credit union movement and is redistributed to credit unions and their members. CUSOs invest in technologies that ensure the long term viability of the credit union industry. CU Wallet is a great example. Without them the only alternative would be Apple Pay which has no stake or interest in the long term viability of the credit union industry.
- Competitive Advantage
CUSOs offer credit unions the ability to remain competitive by improving efficiencies and producing a wider array of products and services that would be unobtainable without CUSO collaboration. They enable credit unions to acquire scale and market power along with other resources such as capital and staff that far exceed their individual sizes. For example, Predictive Analytics requires a great deal of resources to properly execute. Credit unions will need to hire Data Architects to first build a data warehouse with as much transactional data as possible. A data warehouse can take up to 3 years to build and approximately $2 Million. Also, Data Scientists will be needed to generate predictive models using all of the transactional data. Data Scientists run about $150,000-$175,000 per year.
With a Big Data and Analytics CUSO; however, credit unions can install a pre-built, industry standard data model for less than $50,000 and only $40,000-$60,000 per year to support. An industry standard data model enables all credit unions to share the overall cost of development and support, and deliver much more powerful solutions. Instead of hiring Data Architects, Data Scientists, Report Writers, Data Engineers, ETL Developers, etc., credit unions can leverage CUSO collaboration to execute a highly robust Big Data & Analytics strategies for a fraction of the cost of doing it on their own or using a non-CUSO vendor.