Partners In Progress

Two shared-core partnerships explain how to secure a better seat at the technology table.

 
 

Consumer demand for cutting-edge services and the need to store and analyze large amounts of member data is helping to drive new interest in core processing credit union service organizations.

Although CUSOs have been around a long time, core processing CUSOs got a shot in the arm a decade ago when open platforms that could accommodate nonproprietary add-ons entered the scene and an evolution in telecommunications infrastructure allowed geographically scattered organizations to form effective partnerships.

These organizations typically fall into two categories: those that develop and market their own solutions and those that join together around a third-party platform. The former include such veteran organizations as CU*Answers and Share One. Here is a look at two that use a third-party core. One is among the oldest such CUSOs — Open Technology Solutions — and one is among the newest — Member Support Services.

Standardized Processes And Back-Office Collaboration

OPEN TECHNOLOGY SOLUTIONS PARTNER QUICK FACTS

BELLCO CREDIT UNION
data as of 09.30.14
  • HQ: Greenwood Village, CO
  • ASSETS: $2.9B
  • MEMBERS: 240,304
  • BRANCHES: 22
  • 12-MO SHARE GROWTH: 7.16%
  • 12-MO LOAN GROWTH: 11.58%
  • ROA: 1.2%
BETHPAGE FEDERAL CREDIT UNION
data as of 09.30.14
  • HQ: Bethpage, NY
  • ASSETS: $5.7B
  • MEMBERS: 248,079
  • BRANCHES: 29
  • 12-MO SHARE GROWTH: 7.16%
  • 12-MO LOAN GROWTH: 11.58%
  • ROA: 0.58%
SECU OF MARYLAND
data as of 09.30.14
  • HQ: Linthicum, MD
  • ASSETS: $2.8B
  • MEMBERS: 231,290
  • BRANCHES: 20
  • 12-MO SHARE GROWTH: 2.95%
  • 12-MO LOAN GROWTH: -0.70%
  • ROA: 0.4%

Launched in 2003, Open Technology Solutions (OTS) serves Bellco ($2.5B, Greenwood Village, CO), Bethpage ($5.7B, Bethpage NY), and State Employees credit unions ($2.8B, Linthicum, MD) via a Fiserv DNA platform operating from a Colorado data center.

Newcomers to core collaboration, Aspire Federal Credit Union ($177.9M, Clark, NJ), Credit Union of New Jersey ($324.8M, Ewing, NJ), and United Teletech Financial Federal Credit Union ($318.7M, Tinton Falls, NJ) plan to go live with their Member Support Services (MSS) CUSO in early 2015. The new CUSO uses KeyStone software from 2009 startup Corelation that will operate through a single IBM box hosted at Wescom Resources Group, a CUSO located in Pasadena, CA. 

Both OTS and MSS cite scale and its related advantages as the primary benefits of collaboration. According to Andrew Jaeger, CEO at CUNJ, MSS will provide savings and efficiencies in three main ways. It will 1) align technology; 2) standardize processes; and 3) centralize back-office activities such as telecommunications and call center services.

OTS’s broader business model, however, includes a host of applications that range from online and mobile banking to data analytics and ATMs, network management, IT security, and telephony. An operations center in Maryland was spun off in 2012 as a new CUSO called Shared Service Solutions, or S3, that includes a call center and centralized deposits and mortgage functions.

“We also have a few smaller-scale operations unique to our own operation here, including collections and loan originations,” says Michael Gordy, SECU’s executive vice president and chief operations officer.

New Products And Stronger Competitors

The credit union owners of OTS and MSS created the service organizations in response to the frequent challenges they faced when they tried to extend the functionality of their existing core systems.

Thirty-year-old technology at Aspire limited its ability to connect to third-party software, according to its president and CEO, Tom O’Shea.

“Even if they were best in class, we were still only granted limited access by the core vendor,” he says.

MEMBER SUPPORT SOLUTIONS PARTNER QUICK FACTS

ASPIRE FEDERAL CREDIT UNION
data as of 09.30.14
  • HQ: Clark, NJ
  • ASSETS: $179M
  • MEMBERS: 24,328
  • BRANCHES: 2
  • 12-MO SHARE GROWTH: -0.13%
  • 12-MO LOAN GROWTH: 14.19%
  • ROA: 0.25%
CREDIT UNION OF NEW JERSEY
data as of 09.30.14
  • HQ: Ewing, NJ
  • ASSETS: $328M
  • MEMBERS: 41,068
  • BRANCHES: 6
  • 12-MO SHARE GROWTH: -2.37%
  • 12-MO LOAN GROWTH: 9.10%
  • ROA: 0.47%
UNITED TELETECH FINANCIAL FEDERAL CREDIT UNION
data as of 09.30.14
  • HQ: Tinton Falls, NJ
  • ASSETS: $317M
  • MEMBERS: 22,136
  • BRANCHES: 6
  • 12-MO SHARE GROWTH: -0.98%
  • 12-MO LOAN GROWTH: 2.99%
  • ROA: 0.21%

Access issues and the core’s loss of clientele eventually signaled to Aspire that it was time to pursue a more responsive and sustainable alternative.

United Teletech, meanwhile, was satisfied with the stability of its nearly 40-year-old core processing platform but wanted to better compete with local banks in its footprint.

“Our member offerings were thin compared to them,” says Leo Ardine, the credit union’s CEO.

Instead of simply addressing these issues through additional third-party relationships, the owners of OTS and MSS wanted a solution much different from sending the work outside their own shop.

“We knew from the beginning that OTS was not outsourcing,” says Jim Breen, senior vice president of information systems at Bethpage. “We were not shifting responsibility.”

In addition to flexibility and sustainability, the CUSOs have also offered monetary savings, although credit union leaders from both OTS and MSS say money shouldn’t be the first concern when pursuing shared core partnerships.

“Don’t do this strictly as a cost-cutting exercise,” Breen warns. “We achieved respectable savings up front, but we also reinvested to improve service, systems reliability, and product offerings.”

Technology businesses, like any other industry, typically increase their bottom lines by adding customers. In the case of CUSOs, that means adding credit union owners or clients. However, the executives overseeing OTS and MSS have indicated no such immediate plans.

“We didn’t start the CUSO to make money but rather to save expenses by leveraging the power of three in negotiations and co-sourcing other needs,” says Ardine at United Teletech. “However, down the road there may be opportunities to share any excess capacity we have with other credit unions.”

Next: Leadership From The Top »


Leadership From The Top

Core processing CUSOs conduct most of their work in the back office; but to succeed, leadership needs to come from the corner office.

“This all starts with alignment at the CEO level,” says Gordy at SECU. “It requires a change in culture.”

According to Gordy, part of that alignment includes convincing all parties of the benefits that none would have seen otherwise, such as reduced costs and greater core processing functionality and flexibility. That task is made easier when all parties have common ground.

“We pick partners that view one another as equals and have similar philosophies,” says O’Shea at Aspire. “Having a similar asset size serves as a good starting point as that helps equalize any ego issues.”

7 RULES FOR SHARED CORE SUCCESS

1. Keep It Simple. OTS upgraded systems at all three credit unions on the same day because it didn’t implement unnecessary customizations, says Jim Breen, senior vice president of information systems at Bethpage. That also “pays off measurably when it comes to patches and upgrades.”

2. Keep It Small. Getting a core CUSO up and running takes a lot of time, especially in the first few years. “A small, tight circle will lend itself to better governance and execution,” says Andrew Jaeger, CEO at Credit Union of New Jersey.

3. Ask The Experts. “Find good business partners that can advise you on approach,” says Leo Ardine, CEO at United Teletech, adding that MSS has received help from NACUSO and attorney Guy Messick along with support from OTS and S3.

4. Be In Charge. The chief executive at each CUSO partner needs to be in charge. “If the CEO has to go back to the board for authorization to consolidate a department, you’ve picked the wrong credit union to work with,” says Tom O’Shea, CEO at Aspire.

5. Respect The Rules Of Engagement. “We’ve built a strong governance model and defined our rules of engagement,” says Michael Gordy, EVP/COO at SECU. “As a result, when pain points do occur, we can have open, honest discussions, get things out on the table, and not let them become a barrier.”

6. Trust But Verify. “We’ve built a strong governance model and defined our rules of engagement,” says Michael Gordy, EVP/COO at SECU. “As a result, when pain points do occur, we can have open, honest discussions, get things out on the table, and not let them become a barrier.”

7. Communicate The Culture. “We update our board continuously,” O’Shea says. “Peter Drucker famously observed that ‘culture eats strategy for breakfast,’ so if your credit union doesn’t internalize and support the CUSO, that culture will seriously impede all you’re trying to build.”

Although complementary leadership and a shared vision can reduce barriers, credit unions should be cautious about ceding too much autonomy.

For example, although MSS partners in New Jersey plan to standardize their product and services offerings as much as possible, each individual credit union will still make its own pricing decisions. And because they don’t share markets or fields of members, they are unlikely to step on one another’s toes from an operational or financial standpoint.

“We purposely selected each other because we weren’t in the same backyard,” O’Shea says. “We’re far enough apart physically to stay out of each other’s business yet close enough to easily have a face-to-face meeting.”

That face time is crucial because aligning contract expirations or finding the shared time to standardize forms and processes across multiple organizations can be a major obstacle.

“At a CUSO level, it can be challenging to move projects from initial idea through a collaborative research phase to execution, but we’re getting better,” says Ardine at United Teletech.

Where Service And Savings Meet

Obstacles aside, one of the biggest benefits these two CUSOs offer is expanded products and services that the partnering institutions can now affordably offer.

“We’re getting a great new core with the capability to enrich member experiences across all delivery channels,” says Ardine at United Teletech, adding that the ability to use 360-degree member views within the system will be a game changer for his sales team.

Business continuity is another important benefit. For example, when Hurricane Sandy slammed Long Island in October 2012, access to the OTS data center in Denver shielded Bethpage from long-lasting effects of the storm.

“As soon as power was restored, our branches were open to serve members,” Breen says.

But it’s not just members who benefit from the credit unions’ CUSO investments. In many instances, the shared resources have unlocked operational efficiencies that have significant implications for the balance sheet.

For example, Bethpage has used cost savings and increased staff free time to more aggressively expand its branch network. It opened four new facilities in 2014 alone. The credit union is also cutting back on its internal IT costs and offered people whose jobs were eliminated on Long Island new positions at the Baltimore-based S3 CUSO.

Over at SECU, the credit union has reduced its IT staff from 37 employees to 18. O’Shea at Aspire says he’ll have to reduce IT staff as well but plans to turn to his MSS partners to see if it makes sense to move positions that operationally overlap into the CUSO.

In terms of additional income, Aspire is projecting several new revenue streams through its partnership in MSS.

CUNJ’s Jaeger says he anticipates an additional 15 to 20 basis points for each credit union’s bottom line in the next three to five years, earnings that would be consistent with what the industry has seen from similar CUSOs in the past.

As for the more senior group over at OTS, “We are pleased with the return on our investment,” says Gordy at SECU. “The path we’re now on with S3 is very positive."