In my thirty years of forming credit union collaborations, I have come to see common lessons, especially in multiply owned CUSOs providing one or more back office operational services. I examine twelve of those lessons in these types of CUSOs. Read more on A Dozen Lessons Learned in Credit Union Collaborations By Guy Messick…
Never burn a bridge with former girlfriends. It can jump start a career. I stayed friendly with my high school girlfriend Maryanne who married John Unangst the President of Franklin Mint Federal Credit Union. John formed one of the first CUSOs in 1988. The CUSO provided mortgage services and data processing services to multiple credit unions. As a result of meeting John through Maryanne, I formed John’s CUSO. John became a director on the newly formed NACUSO Board and asked me to go with him to San Diego on his dime to a NACUSO Conference and play golf. My bags were packed before he finished his invitation.
In San Diego, I did a presentation to a four table conference. John suggested to the NACUSO Board that I be their General Counsel. My most attractive feature was that I was free. So began my representation of NACUSO. I thought I could handle this gig as CUSOs are essentially small businesses and I had a lot of experience representing small businesses, including being the attorney for the local Chamber of Commerce. I grew up in a small business. My parents owned two restaurants. Eventually, my practice evolved into the near exclusive representation of credit unions and CUSOs.
The part of our practice that gets my juices flowing is helping credit unions create and expand CUSOs and other collaborative relationships. How can we structure a relationship between organizations and people that will reward all participants on a personal and professional level? Collaboration is not easy. It is not altruistic. It is finding people with the right values and incentives to work together to achieve a common goal. It is a challenge but when it works, it can provide amazing results.
I get it. You want to merge with a peer sized credit union. Together you will have more scale, twice the number of branches, twice the membership size, twice the assets…twice, twice, twice. Having all things twice should create the golden ticket of economies of scale. But after the merger you seem to have twice the payroll but not twice the benefits. What happened? The dirty little details get in the way.
- If you don’t trim the payroll, you don’t save money. People are the highest cost of operations. Unless you have fewer employees after the merger, you are not going to save money. Are you willing to make those decisions?
- If you don’t trim the vendors, you don’t save money. The continuing credit union needs to quickly decide what vendor to use for each service. Having multiple vendors for a service within a credit union does not create efficiencies.
- Be ruthless in you vendor selection. Past relationships with vendors are great but that is not a reason to keep a vendor if the vendor is not competitive on price and quality. Buying a foursome at your credit union golf outing is not a sufficient reason to keep a vendor.
- The cost of terminating vendor relationships is a cost of the merger and should be calculated into the decision. This is especially true for core IT services where the termination fees can be excessive.
- The staff expertise needed to run a credit union of X size is not the same as running a credit union of 2X size. The general level of expertise has to increase significantly if the size and complexity of the operation increases significantly. There are all-star employees working at smaller credit union who could work at any sized credit union but the overall expertise level at smaller credit unions is not equal to the overall expertise required at larger more complex credit unions. If the merger puts you in a peer class that is significantly larger, are you willing to make the necessary changes in staff? That is a significant hidden merger cost.
- Larger credit unions tend to have different operational processes and a more formalized protocol and policy structure, which is often required to ensure consistency in member loans and regulatory compliance. Are you ready for that?
- The technology tools in a larger credit union tend to be more extensive and expensive than in a smaller credit union. Do you understand that cost and has that been a part of the analysis?
- If the merger puts your credit union within the jurisdiction of the CFPB, are you ready for the enormous costs of that oversight?
- Do you have the attitude to analyze the profitability of services and cut services that cannot be self-sustaining?
- Have you gotten past the post-merger identity of the CEO and directors? Does the board have the vision and talent for a larger, more complicated organization?
- How are you dealing with the staff issues? What will be the organizational structure and who is in each of the slots? How are those decisions being made…by unemotional analysis or by cutting internal deals to be “fair”?
- How are you dealing with different salary levels and employee benefits? Do you have to pay retention bonuses to keep key employees around for the transition?
- Can you close branches? Do you have keep unprofitable branches open?
- Is there a strategy to tear down the “us vs. them” walls and tribe-like behavior that sometimes occurs post-merger?
- Do you have the metrics to measure the success of the merger?
That was the title of the January 4th article posted by Emily Waite on GonzoBanker. The article is geared to encouraging the 6,000 banks that share less than half the market to come together in the spirit of collaboration so they can compete.
Waite states “Today, banking executives are struggling to stay current in an industry growing ever-more complex with increased regulation, changing customer expectations and digital disruption.”
Sounds so familiar, which is why we are proud to have over 3 decades of collaboration history under out belts in the form of the CUSO. There are estimated to be over 1,200 CUSOs in the US and we’re excited to be able to confirm that number with data after the CUSO Registry is complete this week. Reminder: If you haven’t registered your CUSO, please do so before March 31st.
This year my husband and I traveled to Roswell, New Mexico for 4th of July and the International UFO Festival. It’s not to be missed. On Saturday morning we decided to take a walk around town. Just a couple of blocks off the Main Street and at the end of the historic district we came upon this beautiful home/credit union:
The Florist Federal Credit Union. Founded in 1969 the credit union only serves florists, their families and their employees. They offer business loans, deposit accounts and merchant card services. Their VISA cards are gorgeous (flowers of course) They are $7.8 million in assets with just 900 members. This is old school, single sponsor, in a house, listening to their members needs and providing the unique products their target audience wants. I wonder if they still have a credit committee? They are financially strong and as long as there are flowers and florists this credit union should be around for a very long time.