LAS VEGAS-CUSOs can and should be a driving force behind innovation in the credit union industry, but they face many of the same challenges their owner credit unions do, according to a panel of CUSO executives.
A key lesson for CUSOs that credit unions can learn from as well is finding and definining one's niche, without letting that niche define-and confine-the organization, according to John Best, chief technology officer for Wescom Resources Group, a wholly owned CUSO of Pasadena, Calif.-based Wescom Credit Union. WRG provides online/mobile banking, bill pay, service bureau hosting, desktop MRM, and programming/consulting services.
"Be open to new markets, but only if there is a critical mass of business waiting that the CUSO has a good chance of winning," he told attendees of a breakout session at NACUSO's Annual Conference here. "When it comes to new products, make sure they are deployed live in-house before deploying them for a client."
Best said CUSOs should leverage the concept of "by a credit union for a credit union," as it is the "secret sauce" that makes CUSOs "better."
"A CUSO needs buy-in from 100% of the staff," Best said. "Make sure it has backing from everyone."
In Search Of Answers
Bob Frizzle, chief financial officer for CU*Answers, a data processing a Grand Rapids, Mich., CUSO owned by 110 credit unions, is seeing the benefit of taking ownership.
"Over the last 16 years we have transitioned from licensing products to owning our own products," he said. "When you own the product you can be much more responsive to the client."
For those looking to start their own CUSOs, Frizzle said the important factor is to look at what has been successful. "Without need there is no market. And whatever the CUSO does, it must be a disruptive solution."
According to Frizzle, patronage is key to success, so any CUSO should demand it up front. He said at CU*Answers each owner has one vote, but it returns patronage dividends based on the business generated.
United We Stand
Jim Giacobbe, president of United Solutions Company, a national CUSO based in Tallahassee, Fla., has a Darwinian view of the business world.
"If there is not a patent pending, then it was your idea," he said. "Get the business at all costs. The CUSO wants to live up to the clients' expectations, but it needs the revenue to continue working."
United Solutions has been in business for 30 years. Giacobbe said it provides 25-plus products and services, including core data processing, imaging services, Check 21, mobile deposit capture, co-location, and e-backup/recovery.
"When starting a CUSO, keep IT costs down," he advised. "Look for strong, low-cost alternative IT products. Do not build something that is too complicated to maintain. When budgeting for IT expenditures, be sure to include the costs for annual maintenance."
Surprise, Surprise, Surprise
When asked what was the biggest surprise in starting their respective CUSOs, CU*Answers' Frizzle said market research can be deceptive. He also offered an analogy to an underground trade.
"Sometimes you have to be like a cocaine dealer and get people hooked on your service so they cannot stop," he said to laughter. "As new technologies come, be ready to make changes."
Best of Wescom Resources Group said CUSOs must be willing to burn down their own fort.
"This can be difficult for management to understand, but sometimes it is necessary," he said. "The cause can be a variety of reasons, including the climate changing or technology changing. Look at mobile banking. It does not mean toss the baby out with the bathwater, but sometimes it costs less to start over than to retrofit."
Giacobbe said there have been "plenty of products" United Solutions wanted to offer, but for various reasons it could not make money off of them, so it had to pass.
What is the biggest challenge to moving the CUSO model forward? In one word, growth.
"Credit unions have to find a way to grow in a cost-effective manner," Best said.
Added Frizzle of CU*Answers: "Everybody seems to need something, want something, but what is the right product?"
Giacobbe said United Solutions is spending a great deal of money on security products, "So we need clients to understand something they do not see."