Recognizing the Re-Structure of the Credit Union Industry.
The credit union industry is going through a radical structural shift. Have you noticed?
The examination of long past historical events permits one to have a sweeping perspective. The big changes can be seen as being influenced and propelled by a collection of small events. People who live during historical changes may or may not be able to connect the dots and understand the significance of the small events at the time. They are so rooted in their past experiences that they are blind to the major shift that is taking place right in front of them.For example, naval battles in World War I were dominated by battleships. All the major naval battles involved these mighty fortresses squaring off against each other. After World War I, Billy Mitchell, a colonel in the newly formed US Army Air Corps, had the temerity to say that a properly armed aircraft had the power to sink a battleship and the Navy should invest in air power and aircraft carriers. Mitchell was ridiculed for this paradigm breaking notion, even after he proved it in a live demonstration. The introduction of the aircraft as the most important strategic weapon in naval battles was so foreign to the past experience of the admirals that they were in a state of denial. As everyone knows, Mitchell was correct and the naval battles of World War II were dominated by aircraft warfare. Fortunately, there were some admirals that also saw the new age of air power and the United States was able to prepare itself to defeat its enemies.
For the first fifty years, there was not much change in the credit union economic model. Credit unions grew but the original model of taking in shares, paying dividends and living on the spread did not change. Credit unions helped each other with operational questions but they remained independent of each other.
Market and financial pressures no longer permit a credit union the luxury of operating independently. Credit unions that do not have a significant number of third party service relationships will not survive in the 21st Century. Extensive credit union collaboration through CUSOs is an essential lifeline to credit unions struggling to stay economically viable in today’s world and avoid a merger or conversion path.
Credit unions of all sizes are outsourcing selected operational functions to CUSO or non-CUSO service providers to keep operating costs down and increase service and expertise. A billion dollar credit union just did an inventory of its third party relationships and found it had over 200. Four billion dollar credit unions are sharing internal IT support services and planning to expand to other operational services so they can continue to combine back office operations. CUSOs have been formed to provide services across the operations spectrum.
We are losing credit unions to mergers and conversions at the rate of about 300 per year. No one knows for sure how many CUSOs there are but it is clear that the number is increasing and the rate of growth is increasing. While small credit unions may not have any CUSO investment, the large credit unions often have several CUSO relationships. The day is not far off when the number of CUSOs will exceed the number of credit unions.
CUSO professionals hate to be called vendors. Typically, the people who run CUSOs have worked in credit unions and the CUSO’s entire client and ownership base consists of credit unions. CUSOs are operational extensions of the credit unions and just an alternative means by which credit unions are providing operational services to themselves. With a nod to the cartoonist Walt Kelly, “We have met the vendor and it is us.
When CUSO professionals sign up for a credit union trade association event, they are treated as vendors. If the CUSO professionals want to have a booth that is fine but if they just want to participate in the educational and networking opportunities like any other credit union industry professional, they must pay the vendor attendance rates. This is wrong. It is time for our industry to understand that a CUSO professional is a credit union industry professional and should be treated as such.
Let’s recognize today that the CUSOs are not vendors but rather CUSOs are operational extensions of the credit unions they serve. Let’s recognize today that a credit union industry professional can work either at a credit union or a CUSO. Let’s recognize today that CUSOs are an essential part of the credit union industry and there has been a major shift in how the credit union industry is structured. Let’s renounce our denial and embrace this new reality so we can build a stronger industry to serve our members.
If you are like the World War I era admiral and can only see the way the industry was structured when you were young, step back and see things as they are, not as they were. We better have our airplanes ready to go because the world has changed.
Guy Messick is an attorney with the law firm of Messick & Weber P.C. in Media, Pa., and NACUSO’s General Counsel. He provides legal and consultation services to credit unions and CUSOs. Messick & Weber maintains a resource filled website at www.cusolaw.com. He may be contacted at 610-891-9000 or firstname.lastname@example.org .