In my last post regarding Denis Dollar’s forecast for credit unions in 2020 the comments I got were an eye opener as to what CUSO’s are and what they do (thanks to everybody who commented and helped me further my understanding of the industry).
As I’ve thought about how CUSO’s can benefit credit unions, and more importantly, their members, I’ve had a few thoughts as to the way I feel they should be handled.
Jeffery Pilcher wrote, “My guess is that Dennis Dollar thinks CUs will pursue these ‘additional revenue streams’ wherever they can be found.” I don’t disagree with him, but my support of this is dependant on how credit unions deal with this additional revenue. Jeffery also posed the question of whether credit unions will use CUSO’s “in lieu of traditional, organic growth.”
I certainly hope not. In fact, I see a great benefit in using CUSO’s as a way to increase a credit unions ability to grow organically. By bringing in additional revenue through CUSO business, a credit union should be able to put that extra cash into serving the members. If the CUSO isn’t directly benefiting the membership, that extra revenue could (and should in my opinion) be used to offer lower rates on loans, higher returns on deposits, and research to provide them with innovative products tailored to their needs; which could turn more eyes to your credit union than a generic ad or extra branch.
There is, in my opinion, a place for CUSO’s in the credit union movement. They might even be instrumental in moving forward. More CUSO’s means more extra revenue, which means more (and less expensive) services for members. If we can keep that in mind as CUSO’s are created it could blow the doors open for a lot of credit unions. However, if that extra revenue is misused (which is completely subjective here mind you) CUSO’s could become merely a way to chase a higher profit margin.
I still think it is a stretch to believe that CUSO’s will outnumber credit unions in the coming decade. As Anthony Demangone stated in the comments, “…there are already credit unions out there with more than 10 CUSOs.” However, for every credit union that has 10 CUSOs, how many have zero, or have a stake in a single collaborative CUSO?
I feel like it still comes down to a saturation of the business landscape for credit unions. If credit union mergers continue, it is inevitable that a credit union with existing CUSO’s will merge with a credit union that has redundant existing CUSO’s. In such a situation, I assume that one of the redundant CUSO’s would be eliminated, or they would be merged. Either way you are left with one CUSO from two. Add that to the fact that, as Robbie Wright points out, “Credit unions are limited in what type of activities CUSO's can operate. In fact Jeff Russell at The Members Group can speak specifically to the pains of getting the NCUA to allow certain types of activities.”
So, in conclusion, I see a very valid reason for CUSO’s in the credit union movement. I do, however, still disagree with the suggestion that CUSO’s will outnumber credit unions themselves. Unless NCUA starts allowing some off-the-wall CUSO’s and credit unions are brave enough to go there, there are only so many ventures credit unions can get into. With mergers combining some of the existing CUSO’s, this would lead to a higher ratio of CUSO’s to CU’s, but I don’t think that ratio would ever flip. It would take many mergers and the disappearance of the niche credit union for this to happen. In my opinion, if those niche credit unions disappear, we’ve lost sight of what credit unions are all about in the first place.