Tag: CUSO

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Unlocking AI’s True ROI: Beyond the Obvious Obstacles in Credit Unions

By Pat Lapomarda

Director of Data Science
Arkatechture

Unlocking AI’s True ROI: Beyond the Obvious Obstacles in Credit Unions

Introduction: The AI Promise and Its Elusive Return

Artificial Intelligence (AI) has captured the imagination of the credit union sector, heralded as a transformative force for efficiency, personalization, and competitive advantage. Yet despite the buzz and significant investment, many credit unions still struggle to achieve tangible returns on their AI initiatives.

American Banker recently highlighted four key obstacles to AI ROI in financial institutions: the cost of modernizing core technology, the high price of AI talent, data governance challenges, and rising vendor costs. While valid, these are often symptoms of a deeper issue. True AI ROI in credit unions requires rethinking how member data is collected, managed, and interpreted to preserve and enhance the relationships that define the industry.

Beyond the Surface: Why the “Obstacles” Miss the Mark

Cost of Core Modernization: Necessary but not sufficient. A modern engine won’t reach its destination without a clear map.

  • High Cost of AI Talent: A challenge, but often worsened by the absence of a coherent AI strategy.
  • Rising Vendor Prices: A market reality, yet value remains elusive if data strategy is weak or duplicative.
  • Data Governance (Closest to the Truth): The issue isn’t just the cost of governance—it’s understanding what data is being governed and how it’s prepared for AI use.

These obstacles are real but secondary. Modernization alone won’t guarantee AI success; a new “core” without strategic direction is just infrastructure. However, a new “modern core” doesn’t guarantee a desired destination without a clear map and a skilled navigator. Similarly, costly talent and tools fail to deliver if built on flawed data foundations. Data governance comes closest to the root issue—data truly is central—but the real challenge lies in the credit union’s overarching data strategy, not just the administrative overhead of compliance that’s becoming more of a focus in regulatory exams using the new FFIEC IT Handbook AIO Booklet.

III. The CRM-Embedded AI Approach: A Step, But Not the Destination

American Banker notes that EY’s Brian Gibbons sees value in partnering with core providers embedding AI or migrating to CRMs with built-in AI. While appealing, this approach often falls short, especially for credit unions.

The Core Issue: Data Fragmentation. Member data is scattered across loan origination, online banking, call centers, and wealth systems, each offering a “slice” of truth but remaining siloed.

Incomplete 360-Degree View. Even the best CRM cannot provide a full, evolving member profile. They store limited data and often miss external financial activity.

Preconceived Limitations. Integrating AI within these systems risks reinforcing current assumptions, locking in “today’s ground truth” and stifling adaptability. As a result, institutions optimize for what they already know instead of what they could learn.

IV. Reclaiming Relationship Banking with a Holistic Data Strategy

Despite the digital-first shift, members still value personal relationships, trust, and tailored service. AI should enhance this, not replace it.

Fragmented AI implementations, piecemeal or CRM-based, fracture the member experience and understanding. To preserve the essence of relationship banking, credit unions must empower AI with a holistic data strategy that fosters deep, contextual insight rather than narrow, system-defined views.

V. The Data Lakehouse: Foundation for Continuous Understanding and True ROI

A data lakehouse offers the modern foundation credit unions need. This architecture unifies all structured and unstructured data from transactional systems, digital channels, and external sources—creating a truly comprehensive member profile.

Key Advantages

  • Holistic Data Capture: Centralizes data from all transactional systems, digital interactions, and external sources, creating a truly comprehensive customer profile.
  • Continuous Data Shaping: Unlike rigid data warehouses or fragmented system integrations, a data lakehouse allows credit unions to continuously refine, transform, and shape data for use in new systems and AI models as understanding evolves. It’s a living, adaptable data fabric.
  • Simplified “Before and After” Tracking: Provides a clear, historical record of customer interactions and model outcomes, enabling precise measurement of AI’s impact and iterative improvement.
  • Scientific Signal Identification: By integrating all data, credit unions can move beyond preconceived notions and apply scientific rigor to identify the real signal in the noise of customer behavior and market trends. This fosters genuine insight, not just optimized assumptions.
  • Protection Against Impulsivity: Distinguishes fleeting actions from meaningful needs.
    • Example: Consider a member who impulsively buys a candy bar at checkout. Traditional systems record a transaction; a lakehouse-based AI that integrates rewards data from a receipt capture tool understands context—distinguishing a one-off purchase from a habit and enables proactive, relevant engagement such as financial coaching or wellness savings suggestions.

VI. Conclusion: Empowering the Future of Credit Union Banking

The real barrier to AI ROI isn’t cost, talent, or tooling, it’s a fragmented approach to data.

A data lakehouse strategy empowers credit unions to truly understand members, continuously adapt to their needs, and unlock AI’s full potential to deepen relationships and drive sustainable growth.
To build a future where AI strengthens the value of relationship banking, contact Arkatechture to explore how a unified data platform like Arkalytics can help you see the whole member and turn insight into action. Ask about ArkaIQ: your new AI data analyst, ready to answer your everyday business questions in seconds. What is the direct loan growth versus indirect loan growth for 2024 and 2025? How many members do I have currently? ArkaIQ can answer these questions and more. Learn more about this tool here.

To learn more or connect with Arkatechture, visit their website.

About the Author: 

Pat Lapomarda
Director of Data Science
Arkatechture

Pat Lapomarda is the Director of Data Science at Arkatechture. He has a passion for harnessing data to drive informed action. Over the past 25 years, he has advised, developed, and implemented data science solutions at scale, including risk and marketing scoring systems. These solutions have primarily been at financial services companies ranging in size from top-ten banks, like TD Bank and KeyBank, to community finance institutions and boutique finance companies. Pat is a graduate of the College of the Holy Cross and completed graduate studies in Mathematics at Wesleyan University.

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Reclaiming the Vehicle Service Contract: How Credit Unions Can Turn a Common Expense Into a Profit Center

Credit Unions First Hero Image NACUSO

By Dan Daggett

COO
Credit Unions First

For years, Vehicle Service Contracts (VSCs) have been a reliable product for protecting members—and a profitable one for the providers behind them. But there’s a problem: in most cases, the credit union doesn’t see the profit. Traditional VSC programs funnel underwriting gains and claims control to third parties, leaving credit unions with only a modest markup and little transparency into how member claims are handled.

At Credit Unions First, we saw that imbalance and asked a simple question:
Why should others profit from a product your members buy and your reputation supports?

That lack of control and transparency is precisely what Credit Unions First set out to change.

A Smarter Model: The Credit Union–Owned Vehicle Service Contract

We developed the Credit Union–Owned Vehicle Service Contract (CU-Owned VSC) program to give credit unions the same advantages that auto dealerships have long leveraged —ownership, control, and profit retention.

With a CU-Owned VSC, credit unions gain the ability to:

  • Control premium funds and claims decisions
  • Retain 100% of underwriting profit
  • Reinvest those earnings into member value and institutional strength

Our model’s superior coverages are built with members in mind – fewer exclusions, faster claims turnaround, and transparent processes that strengthen trust rather than erode it.

Results That Speak for Themselves

Credit unions implementing this model typically see:

  • Increase non-interest income by 10% or more
  • Faster, fairer claim resolutions for members
  • Stronger member relationships as loan officers can confidently offer coverage that truly protects
  • Reduced charge-offs due to denied or delayed claims
  • Greater institutional profitability that funds dividends, community programs, and long-term stability

Side-by-side comparisons show it clearly:
Traditional VSCs deliver profit to the provider.
Our CU-Owned VSC returns it to the credit union and its members.

On the left, this is a traditional VSC program. The right shows the Credit Unions First model.

Both show a cost to the member of $1700 ($1,100 premium to pay claims + $400 CU markup + $200 Admin Fee)
* this is an example as premium, markup and admin fee are all variable

These charts highlight the opportunity for underwriting profit for the credit union.

TRADITIONAL CHART

OUR CHART

Returning Value Where It Belongs

This concept isn’t new, it’s proven. Auto dealers have built entire revenue strategies around owning their VSC programs. If dealerships can do it to increase profit and customer retention, why shouldn’t credit unions, whose very mission is to return value to members, do the same?

With Credit Unions First, credit unions finally can.

See for yourself with our Vehicle Service Contract calculator.

Want more information? Contact us here.

About the Author:

Dan Daggett
COO
Credit Unions First

Dan Daggett has been a Change Agent for his entire 30-year Credit Union career. Having been a Credit Union CEO, CUSO CEO and owner of Daggett Enterprises USA he knows the issues Credit Union and CUSO’s face daily, and he has the knowledge to help address those issues. One of Dan’s strongest qualities is his ability to listen and ask questions to determine a path to find solutions to his client’s needs. At Credit Union’s First Dan will not stop creating Disruptive products and programs that give control back to the Credit Unions he and the CU 1st Team serve.



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Credit Union Investing – A Practical Guide for Leaders

EFTG Virtual Graph

By David Dean

Head of M&A
Evergreen Financial Technology Group

Federal law lets credit unions invest or lend up to 1% of their net worth in credit union service organizations, and the collaborative spirit of the industry has given rise to more than 1,100 CUSOs nationwide.

Historically, these CUSOs were started and controlled by one or more credit unions, providing operational services and alternative income streams. In the last decade, the model has evolved and fintech CUSOs are now founded by entrepreneurs who invite credit unions to join the cap table as minority investors. This shift transforms credit unions from CUSO founders to strategic capital partners and introduces new responsibilities and risks.

This article breaks down those responsibilities for both credit unions and entrepreneurs in a clear, jargon‑free way. It explains how to value early‑stage companies, negotiate terms that protect your capital and reputation, and explore exit strategies that can have profound impacts on the future of your credit union.

Valuing Early‑Stage Fintech Deals

A Simple Approach to Valuation

Startups rarely have profits, so price‑to‑earnings ratios are useless. A practical alternative is to use revenue multiples, given that most startups will book revenue within the first year and revenue multiples are more stable until profitability has been stabilized. A revenue multiple is simply an industry specific ‘ratio’ or a ‘factor’ that provides a blanket metric to gauge the startup’s overall profitability and future growth potential. A revenue multiple, as the term suggests, considers only the gross revenue of a startup.

A reliable revenue multiple can be derived by dividing the enterprise value by the trailing twelve-month revenues of comparable public companies in the industry. The wider the batch of reference companies, the better the credibility.

EFTG Revenue Graph

The average revenue multiple from these five companies is 5.74x. Suppose you’re evaluating a startup with $1 million in revenue. The estimated valuation of this company using revenue multiple valuation will be $1,000,000 x 5.74 = $5,740,000. 

This method isn’t precise and relies on significant assumptions, but it provides a consistent framework and a starting point for negotiation.

Putting a Price on Your Contributions

Credit unions are strategic investors because they deliver more than cash alone. By becoming an early adopter of a young company’s product, you validate the solution, supply high‑value data and feedback, and de‑risk future funding rounds. To reflect that intangible contribution, you might negotiate warrants, which are option contracts that give you the right to buy the company’s stock in the future at today’s price. Warrants align strategic incentives and are typically granted on top of a capital investment, so they let you secure well‑deserved upside with downside protection in exchange for your contributions to the business’s success. If the startup achieves ambitious milestones partly thanks to your partnership, your warrants convert into shares at the valuation that existed before your contribution added value.

Focus on Key Terms, Not Buzzwords

Term sheets often contain hundreds of pages and dozens of clauses, but a handful of terms have outsized impact:

  • Preferred versus common stock: preferred shares come with special rights (priority in liquidation, sometimes dividends) and are worth negotiating if you put in significant capital.
  • Liquidation preference: a clause that specifies who gets paid first and how much when the company is sold. A 3× preference means a $100k investment must return $300k to the investor before anyone else sees a dollar.
  • Drag‑along and tag‑along rights: a drag‑along clause lets a specified majority of shareholders compel everyone else to sell their shares when a qualifying offer arrives, ensuring buyers can acquire 100% of the company. A tag‑along clause allows minority shareholders to join any sale on the same price and terms, so they aren’t stranded under a new owner they didn’t choose. Together these provisions prevent a dissenting minority from blocking a lucrative deal and ensure early investors are not left behind or squeezed out when later investment rounds dilute their stake.
  • Anti‑dilution protection: adjusts your conversion price if new shares are issued at a lower price, commonly referred to as a down round. Even a basic weighted‑average formula prevents your stake from being wiped out.
  • Pre‑emptive rights: give you the right to match an outside offer to purchase shares in a follow‑on round and a set period to make your decision

Everything else is secondary; consult a lawyer but don’t let esoteric provisions distract you.

Evaluate Opportunities Systematically

Early‑stage deals are hard to compare because financials are thin, and markets are undefined. Focus on the creativity and conviction of the founders and their teams at least as much as on the idea or the technology itself. Most young companies will pivot; rarely are they on target from day one. Success often depends as much on timing as on innovation, but smart, resilient leaders supported by capable teams will keep iterating until they find a path to success.

Create an investment scorecard tailored to your credit union’s priorities. Consider factors such as market potential, competitive advantage, management quality, key financial metrics (revenue, recurring revenue, net revenue retention, gross margin) and alignment with your mission and member needs. Scoring each deal against the same criteria disciplines your decision‑making and makes it easier to explain to your board why you passed on a flashy pitch or chose to back a higher‑risk opportunity. If part of the rationale is research and development, spell out what you expect to learn and quantify its value, so that “R&D” doesn’t become a catch‑all justification for a weak investment.

Manage Reputational Risk and Diversify Wisely

Venture capital is risky; assume most of your investments won’t succeed and manage stakeholder expectations accordingly. Diversify across several deals or funds to spread risk wherever possible and explore partnerships with groups like Curql Collective or other specialized investment CUSOs that are gaining momentum across the industry. When presenting a deal to your board, highlight both the financial scenario (potential return and capital at risk) and the non‑financial benefits (learning, strategic fit and mission alignment). Specify the key performance indicators you expect portfolio companies to report, such as monthly financials, recurring revenue, burn rate, customer growth and runway.

If you plan to adopt products from your portfolio companies and use your influence to support their success (highly recommended), create an innovation cohort composed of employees and members who enjoy testing new technology and see it as a privilege to help shape the credit union’s future. These cohorts not only provide critical user feedback that adds direct value to your investments but, given their specialized role, they tend to be more accepting of experimentation and product sunsetting than the broader membership. You may even see a brand-lift on social media if cohort members celebrate that they were chosen for a hand‑picked innovation team at your credit union.

Planning for the Exit

Align Financial Returns with Mission

As CUSOs grow and founders (who often retain a controlling interest) start exploring exit options, credit union investors may face a tension between capturing returns and preserving the integrity of mission‑aligned products and services. Some founders care deeply about what happens to their business, team and customers after the sale, while others focus primarily on valuation. Mission‑driven founders generally prioritize preserving legacy and feel a justifiable sense of gratitude and obligation toward the credit unions that supported their success. When evaluating an exit, encourage the leaders of your portfolio companies to seek buyers that share the same priorities and have proven track records of successfully integrating businesses that serve credit unions.

EFTG Lifecycle image Investment

Choose Buyers That Measure the Right Outcomes

A buyer that does not understand and value credit union culture can undermine the critical and often nuanced service delivery that credit union clients and their members depend on. Institutional investors may measure success by maximizing growth within a 6‑ to 8‑year fund cycle, aligning incentives with limited partners over teams and customers. Traditional strategic buyers typically seek synergies by rolling up multiple businesses, which can improve efficiency but sometimes erode the culture, mission and operational nuance that made your CUSO successful. Naturally, you want to maximize the return on your investment, but return is not exclusively financial, so weigh price against the buyer’s commitment to member service, product quality and employee engagement.

Apply the Buy‑and‑Hold Model to CUSO Exits

Warren Buffett’s Berkshire Hathaway is famous for its buy‑and‑hold strategy and decentralized operating model. The conglomerate delegates operating authority to its portfolio companies while centralizing capital allocation, allowing each business to flourish independently. This structure eliminates bureaucratic layers, speeds decision‑making and fosters a sense of ownership.

Evergreen Financial Technology Group, known as EFTG, applies a similar philosophy to private fintech businesses. It acquires mission‑critical software companies serving credit unions and community banks and holds them indefinitely. Founders may stay on or move on; either way, leaders retain control over day‑to‑day operations. Because EFTG doesn’t aim for a quick flip, its long‑term, decentralized model incentivizes lasting value creation and helps preserve the integrity, culture and market presence of each portfolio company. The firm has also built a track record of competitive valuations for the businesses it acquires, flexible deal structures and highly satisfied credit union customers.

To support that autonomy, EFTG provides a lightweight umbrella management team that acts as the connective tissue between portfolio companies. This team facilitates best‑practice sharing through a collaborative peer network, cross‑selling and vendor negotiations, and offers resources to solve pain points in areas like recruiting, sales, marketing, finance and accounting. Each business works with the team to build a value creation playbook tailored to its one‑, two‑ and five‑year goals. Tactical initiatives might include implementing pricing discipline, tracking customer profitability or controlling cost of goods sold, while long‑term initiatives focus on scalability, talent acquisition and culture building. Importantly, day‑to‑day decisions including hiring, firing and product development remain with each business leader. By protecting what works while investing in growth, this model avoids the pitfalls of quick‑flip and roll‑up strategies, making EFTG a unique and attractive option for CUSO founders considering an exit.

Putting Strategy into Motion

Credit union leaders can invest in fintech without becoming venture capital experts. Apply straightforward valuation methods, focus on a handful of protective terms, diversify sensibly and collaborate with peers. Treat every investment as both a potential financial return and an opportunity to learn. Plan for the exit from day one, and use your influence to prioritize buyers who value culture as much as cash. Done thoughtfully, credit union investing can accelerate innovation, diversify revenue and empower your ability to support members and deliver on the mission.

To learn more or to engage with Evergreen Financial Technology Group, visit their website.

About the Author:

David Dean
Head of M&A, Evergreen Financial Technology Group

David Dean is a seasoned fintech executive and strategic leader in mergers & acquisitions, specializing in founder-led software businesses serving credit unions and community banks. As Head of M&A at Evergreen Financial Technology Group (EFTG), he leads sourcing, development, and execution of acquisitions that align with EFTG’s long-term, buy-and-hold investment philosophy.

Before joining EFTG, David served as Chief Operating Officer and Chief Investment Officer at CUSG, where he oversaw corporate development, strategic partnerships, and portfolio company growth. His career reflects more than a decade of experience driving sustainable value creation across fintech, SaaS, and media, guided by a disciplined and collaborative investment approach.

A California native and graduate of the University of Missouri-Columbia, David now lives near Detroit, Michigan, with his family.