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HELP! I Need More Net Income!

As someone who has worked with CUSOs for the past thirty years, I am often asked by credit union CEO’s what are the “hot” services for CUSOs?   “I need more revenue streams and I need to contain my operating costs.   What works?”

Fee Income

Revenue streams come in two flavors, fee revenue and interest revenue.  Looking first at fee income, investment services can provide significant returns. After paying the financial advisors and costs, credit unions can earn between 30%- 45% of the commissions shared with the credit union which can be 80% to 92% of the total commissions. There are many credit unions that have affiliated broker/dealer relationships that generate over a million dollars per year in commission income (note that this model is direct with the credit union and not through a CUSO).  The amount of capital needed to start up and support an affiliated investment services program is a pittance comparted to the capital needed to source, underwrite, fund, service and reserve for loans. The key to success in investment services is to hire the expertise to actively manage and support the program. For those credit unions that cannot afford to hire the expertise individually, there are CUSOs that provide that service on a collaborative basis at affordable rates.

The net income generated through offering property and casualty insurance services takes longer to grow. Buying an existing insurance agency tends to be the best way to enter the market. If the credit union has its own insurance agency CUSO, it can take about five years to become profitable. It takes time for the book to mature to a point that the CUSO is receiving a portion of the premiums from the underwriters based on favorable loss rates. Think of property and casualty insurance services revenue as a reliable annuity and not a quick hitter.

Title insurance can be very lucrative if offered through a CUSO title agency.  Title insurance agencies tend to earn 85% to 90% of the premium with the balance going to the companies that provide the insurance. With a strong mortgage loan program supporting the title agency, especially in a re-fi market, the earnings can be substantial.  The members pay the same rates as they would to any other title agency. There are states that require a title agency to have access to a title plant. In those states, the cost of owning and maintaining a title plant renders the title agency option uneconomical.

Trust services have never been a revenue generator but some credit unions work with a CUSO to provide trust services as it is a service needed by members and it can be a good defensive move. If the children of a deceased member are forced to use a bank as a trustee, the children’s business may be lost to the credit union.

Interest Income

CUSOs enable credit unions to acquire the expertise to offer additional lending products and contain the costs of lending. By aggregating technology and expertise, scale and skill are created to reduce the costs of sourcing, underwriting, closing and servicing loans.  Credit unions retain more “profits” from the interest charged while remaining competitive on rates.    Mortgage lending is much more lucrative with greater scale. A real estate broker CUSO can source new mortgage loans.  The business lending expertise is much more affordable if the costs are shared among several credit unions.  Auto lending opportunities are more available if credit unions can source loans from car dealers and national loan aggregators.

What is the advantage of having the CUSO make the loan?  Currently there four types of loans a CUSO may make: business, mortgage, credit card and student.   Mortgage loans are the most common type of loans CUSOs make. The challenge for CUSOs making loans is liquidity.   With the CUSO investment and lending limitation, CUSOs do not have the capacity to hold a large loan portfolio. However, this is not an issue where the mortgage  loans are closed and sold within a short period of time.  This is a model that exists in the commercial world and is facilitated by a highly structured secondary market. In this model, the credit union owners will usually provide a warehouse line of credit to the CUSO to fund the loans they refer to the CUSO.  Often the referring credit union will have the option to purchase the loans after closing.

Business loans are sometimes made by CUSOs.  It is not as easy to replicate the mortgage broker model for business loans. The sums are usually greater in business loans which puts more pressure on the liquidity factor and the secondary market is not as standardized and efficient. CUSOs are sometimes used to make loans to non-members and loans that do not meet the credit union’s lending criteria. Some credit union have a wholly owned CUSO that will buy foreclosed property from the credit union, some with environmental concerns.  A CUSO is used to reduce the legal risks to the credit union of holding a foreclosed property while the property is being marketed for resale. A CUSO is also used to shield the credit union from unwanted publicity in the foreclosure process.

Containing Operational Costs

Some credit unions have formed wholly owned CUSOs providing operational services on a fee basis. Some are successful but the majority of the CUSOs providing operational services are multi-owned and designed to use the scale of a larger owner/customer base to contain costs. The risk for these CUSOs is reduced by the fact that credit unions are already incurring operational costs in providing the specific services. Current operational funds are re-directed to a collaborative model to reduce or contain the costs. The collaborative model can save significant staff, vendor and technology costs while increasing the service expertise level. The hurdle to this type of CUSO is the time and effort to find the right partners and develop the collaborative model.

For those services that are not member-facing, there is a very compelling case for collaboration. Members do not care what happens behind the “curtain” if the services provided are effective. These non-member facing services include compliance, internal auditing, debit card processing, payroll processing, bill payment, disaster recovery, business continuity, service bureau for technology management, cyber security, and asset liability management.  While the following services are member facing, there are CUSOs that provide them more effectively and cheaper than the credit unions can do them individually:  collections, call center, and shared branching.

Technology Development

There are CUSOs that are developing technology for credit unions, such as a block chain system, app development,  connecting apps to the core, mobile loan decisioning and delivery platforms and sophisticated financial coaching. There are CUSOs that own their own core.   These technology CUSOs are less of a net income play than a means of control and influence.  There are great benefits to being able to influence the development of critical technology tools.  However, the CUSO investment limits and the conservative nature of credit unions tend to make credit unions make poor technology company owners. Technology companies require a constant infusion of capital. Prior to investing in a technology development CUSO, a credit union should realistically assess the capital needs of the CUSO and how they will be met.

Several long time vendors to the credit union industry are now forming CUSOs to take in credit union investment. The pitch is that credit unions will be given an opportunity to influence development decisions and when the vendor is sold, the credit unions can participate in the proceeds. This can be an attractive proposition but it is a long term income play.


Credit unions that look to CUSOs as quick fixes for their net income needs will be disappointed.  The benefits of CUSOs take some time to ripen and mature. The investment of time and funds to leverage the benefits of collaboration has proven time and time again to be worth the effort.

Every day the effort is postponed, is a day the realization of the benefits is postponed.

Guy Messick, CUSO Guru – Messick Lauer & Smith PC – General Counsel to NACUSO –

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NACUSO Recognizes Excellence in Collaboration at 2018 Network Conference

The National Association of Credit Union Services Organizations (NACUSO), the only trade association focused on growing and protecting the CUSO movement recognized four outstanding CUSOs and one innovative and collaborative credit union at the 2018 NACUSO Network Conference at the Disneyland Hotel.

The Servion Group (L to R) S. Brad Crandall, Kari Lauber, Greg Schatzke, Steve Albers, Melanie Meier, LeAnn Case and Jack Antonini

NACUSO understands the importance that collaboration and innovation play in building a strong and vibrant credit union industry. The CUSO of the Year award has been in place since 1998 and has recognized such legendary CUSOs as the CO-OP Shared Branch network, CU Direct, CU*Answers, CUSO Financial Services and PSCU. Last year’s recipient was CU*NorthWest. This year’s winner is The Servion Group. The Servion Group was founded in 1987 as CU Mortgage Services, Inc., by three Minnesota credit unions – Twin City Co-ops Federal Credit Union (SPIRE Credit Union), City-County Federal Credit Union (purchased by WINGS Financial Credit Union), and NWA FCU (WINGS Financial Credit Union) – looking to offer competitive mortgage solutions to their members. Their solutions now span mortgage, title, realty, financial advisory and commercial lending resources.

“We had so many great nominees for awards this year that we added a runner-up to the CUSO of the Year category,” said Jack Antonini, President/CEO of NACUSO. The runner up for CUSO of the Year is CUProdigy. Anthony Montgomery, CEO, summed up CUProdigy this way, “As a proud member of NACUSO, we take our commitment to delivering value to credit unions very seriously. Whether it’s our modern, cloud based core or our core agnostic cloud infrastructure services, we’re focused on not only delivering technologically superior solutions, but highly cost effective solutions. Many vendors claim it, but we really are a true technology partner to our credit unions.”

Jack Antonini with CUProdigy CEO Anthony Montgomery

“The criteria for both awards were selected to recognize those organizations that are making a significant difference and contribution to our industry,” explains Antonini. “In 2016 we added a third category for CUSOs that are fairly new in operations, The New CUSO of the Year Award, recognizing CUSOs that have started in the past 5 years. We know that it takes time to grow the business so our goal is to showcase those efforts that we believe have real staying power and are already making an impact.” Last year’s winner was CU Revest.

This year’s winner is OnApproach. The predecessor was actually founded in 2003 as a consultancy specializing in data warehousing, data integration, analytics and reporting. They completed big projects with clients such as Toro and Land o’ Lakes. But in 2009 they completed a major reporting and analytics project within the credit union industry The insights gained from this project and subsequent projects in the CU space led them to envision a data integration, analytics, and reporting product tailored to the US credit union market. So in 2014, Denali Alaskan FCU and Ideal Credit Union became the initial investors in, and helped form the OnApproach CUSO.

OnApproach, Austin Wentzlaff, Jack Antonini, Mark Portz and CEO, Paul Ablack

“We also selected a runner-up for New CUSO of the year because CU Certified Auto is the first program to offer a best in class vehicle service contract for credit union members while giving back 100% of the underwriting profit to the participating credit union,” Antonini explained. “We just had to acknowledge these unique CUSO models that are really committed to helping our members by helping our credit unions.”

CU Certified Dan Daggett, Jack Antonini, Melanie Mun sey and President and Founder, Mark Giguere

The Credit Union Collaboration and Innovation Award was added in 2012 to expand the program to recognize a credit union demonstrating the successful use of a CUSO model to serve their membership’s financial needs. Criteria include showing how the business strategy for the credit union leverages a CUSO to create value for the credit union and its members. Past winners include Bethpage, America First, Workers’ and Bellco Credit Unions and Allegacy FCU. Last year’s winners were ORNL FCU and Y-12 FCU. This year’s winner is Maps Credit Union.

Maps Credit Union (L to R) Amy Beattie, Jack Antonini, CEO Mark Zook, Christopher Federici, David Deckelmann, Tom Marks

Maps Credit Union’s interest in CUSOs started in the late 90’s when NCUA didn’t like some of the Credit Union’s investments and they forced them to divest $30 million of them.  This was a huge blow and depleted Maps to about a 5% capital ratio.  The action of shrinking hampered their ability to grow net income organically – hence the need for CUSOs.  Mark Zook met Guy Messick at a CUES conference and was introduced to NACUSO and the rest is history!

Maps CU has since built some very innovative CUSOs. Their current wholly or majority owned CUSOs that collectively serve 200 CUs across the US:

  • CU Wireless – provides credit unions with remote deposit capture and member survey programs
  • Advanced Reporting – national provider of pre-employment screening, tenant screening and student screening
  • Maps Insurance Services – regional property casualty agency
  • CU Benefits – national medical benefits agency exclusively serving credit unions

Congratulations to all the winners.

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A Dozen Lessons Learned in Credit Union Collaborations By Guy Messick


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. Continue reading A Dozen Lessons Learned in Credit Union Collaborations By Guy Messick

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Never Burn a Bridge With Former Girlfriends

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.

Continue reading Never Burn a Bridge With Former Girlfriends

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Voluntary Mergers: The Stuff No One Says Out Loud by Guy Messick

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.

  1. 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?
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. 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?
  7. 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?
  8. If the merger puts your credit union within the jurisdiction of the CFPB, are you ready for the enormous costs of that oversight?
  9. Do you have the attitude to analyze the profitability of services and cut services that cannot be self-sustaining?
  10. 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?
  11. 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”?
  12. 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?
  13. Can you close branches? Do you have keep unprofitable branches open?
  14. Is there a strategy to tear down the “us vs. them” walls and tribe-like behavior that sometimes occurs post-merger?
  15. Do you have the metrics to measure the success of the merger?

Continue reading Voluntary Mergers: The Stuff No One Says Out Loud by Guy Messick