The Growing Role of CUSOs? Guy Messick & Brian Lauer Messick Lauer & Smith PC

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1 The Growing Role of CUSOs? Guy Messick & Brian Lauer Messick Lauer & Smith PC

2 Risk to the Industry Traditional Model is Limited Yield is slim Interest Rates are low Operating Expenses keep going up

3 Why CUSOs Income Innovation Expertise Savings

4 Driving Change Increase Interest and Fee Income Making New Loan Types Insurance Services (B/D & RIA) Investment Returns on Revenue Growth or Sale Innovation FinTech Solutions Expertise Cut Operating Expenses Back Office Cost Sharing

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6 CUSO Participation by Credit Unions Tops All-Time High Source: Callahan s Peer to Peer Software

7 CUSO participation increases with asset size

8 Build a Business Model That Will Succeed in Today s World

9 The Evolution of CUSOs

10 The Tale of Two Disrupters Credit Unions Reasonably priced financial services were not readily available to common folk. Only financial institutions and pawn shops provided loans. The low cost of operations kept fees and interest low. Internet Everyone has access to the full range of competitively priced financial products. Loans are provided by hundreds of non-bank providers as well. The Internet providers have a much lower cost per transaction structure then credit unions.

11 The Tale of Two Disrupters Credit Unions Access to consumers was limited by geographical proximity to branches. The service oriented, collaborative model was a disruptive business model and forever changed service level expectations. Internet Credit unions and its competitors can access consumers worldwide. The use of data and technology to streamline and customize the delivery of financial services is a disruptive business model and has forever changed service level expectations.

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15 Three Questions Does your credit union need more resources and scale to meet your members data and technology driven expectations? If yes, can we afford to do it on our own? If not, do we merge or collaborate?

16 Identify Problems to Solve Too little gross income Too high operating costs Insufficient staff expertise Insufficient member data to timely anticipate member needs Insufficient technology tools Insufficient resources to offer additional member services

17 A Web of Relationships Mortgage Lending Business Lending Credit Union Vendor Management Investment Services Management

18 Fully Leveraging Operational Services CUSOs Common forms, policies, practices and procedures Common core for some services Reduction of CU staff Increase in overall staff expertise Ability of the CU s to rely upon the advice and expertise of the CUSO

19 Preparing the Credit Union Educate the board, staff and examiners on the value of collaborative solutions avoid saboteurs Provide a vision of the opportunity available to staff in the collaborative model. Structure accountability in the model. Reward behavior to support the model. Avoid adverse consequences for risk taking. Alter procedures to adapt to the larger scale.

20 Managing Risks of Using CUSOs Risks for CUSOs Providing Operational Services Lending Services Other Operation Services Compliance Risk Risks for CUSOs Providing Financial Services Reputation Risk Compliance Risk

21 Best Practices Third Party / CUSO Relationship Management Staff Policy re: Managing the Third Party / CUSO Relationship as a Client Policy re: Criteria of Investing in CUSOs

22 Roles Re: CUSOs Credit Union Management Credit Union Board of Directors Credit Union Supervisory Committee Credit Union Examiners

23 Healthy Looks Different in CUSOs

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25 WHAT ARE THE LESSONS LEARNED?

26 What Creates Strong Roots Trust Attention Vision

27 Trust Know your partners don t just like them Attention (Leadership/Commitment) Someone must run the CUSO Owners must focus on integration of CUSO into CU Vision Business Plan Growth versus Utility Management and Control

28 The Prism of Collaboration Collaboration is a relationship not a transaction. CUSOs are the collaborative extensions of the credit union owners. Big impacts require big changes. Passion and urgency to change in time. Long term interests and relationships trump short term gains. Do not over plan a CUSO. Focus on the member benefit.

29 There is safety in numbers. Collaborate

30 NACUSO Annual Convention April Disney Yacht & Beach Club Resort