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Shared Services Model Success in Credit Unions

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Credit unions have a unique opportunity to leverage their collaborative, not-for-profit business model. While collaborations have grown through CUSOs, we have not fully extended the potential through to more strategic endeavors.

Big banks are innovating – and gaining our members by the day. Credit unions’ market share hovers around 6% after more than 100 years in business. We must get out of our own way.

Global companies have been using shared services models for decades. According to Deloitte, 80% of Fortune 500 companies have implemented shared service models.

The Scale Gap

Credit unions’ cost of doing business – from technology to compliance to security – has grown exponentially in the last decade or so. The mounting expenses make it difficult for small- to mid-size credit unions to compete.

The answer is scale.

And you don’t need to merge for scale. A survey by the CEO Advisory Group in late 2019 unveiled that 60% of respondents cited digital transformation as a driving factor for cost cutting. The second most frequent response was economies of scale. A report by the International Journal of Trade, Finance and Economics clearly highlights the role economies of scale play in profitability. The solution is two-fold. With economies of scale, credit unions would have access to the tools and talent needed for a successful digital transformation. For smaller credit unions to compete and differentiate themselves in the ever-evolving digital landscape, they must leverage collaboration.

3 Credit Union Case Studies in Shared Services

American consumers are familiar with Netflix’s massive library of movies and shows at their fingertips or pulling out their cell phone to Venmo a friend the $10 owed for pizza last night. Consumers thrive on control and immediacy in their daily lives and their finances are no different. In fact, during times of uncertainty, like now, it’s critical to provide the technology needed to feel in control. Member expectations have evolved, and credit unions – no matter their size – must rise to the occasion.

Working collaboratively provides several benefits that an individual credit union will find difficult, if not impossible, to build on their own:

  • Expertise
  • Economies of scale
  • Equity returns to members

The following is a series of case studies demonstrating how three of your credit union peers have leveraged collaboration to negotiate and innovate above their weight class.

$390M Credit Union of New Jersey

Experts will tell you your credit union requires digital transformation, front- and back-end. Consumers are demanding more from their financial institutions that many credit unions just cannot afford – or can you? If you’re a small- to mid-size credit union leader thinking, ‘how am I going to do all of this,’ you’re not alone. That was the situation Andy Jaeger (pictured below, left), CEO of Credit Union of New Jersey, found himself in. His $390 million credit union knew it needed to evolve. He saw the writing on the wall for credit unions like his, and it wasn’t going to happen to CU of NJ. Capitalizing on the global trend in shared services and credit unions’ collaborative nature, CU of NJ boosted his credit union’s negotiating power – as much as 66% with one vendor, created mid- and back-office efficiencies and achieved all of this while upholding the highest quality standards for service to its members. Creating all these long-term benefits to compete and develop sustainability have been a must, but it was equally important for CU of NJ to maintain member-facing products and services with the credit union.

“One of our key tenets is that it places our credit union members’ interests first, because without them, we are nothing,” Jaeger said. “Our members may never notice some of the operations changes

we’ve made, but we see them in the bottom line. The savings have been significant and really given us the flexibility to evolve and thrive.”

For example, without the efficiencies shared services have afforded CU of NJ, the credit union could not have met the robust mortgage demand it’s faced throughout 2020. The Fed, in response to the coronavirus pandemic and subsequent economic crisis, lowered rates and amped up demand in the mortgage market. In addition, the Small Business Administration launched the Payroll Protection Program, which provided low- and no-interest loans to small businesses for keeping employees on the payroll. CU of NJ was able to get $4.5 million in PPP loans out the door, providing much-needed income from the origination fees. In turn, those origination fees went out in direct member assistance with late fees, overdrafts and early withdrawals on CDs.

Overall, CU of NJ has saved about 20 basis points, boosting its ROA from a small negative in economically challenged New Jersey to a small positive. Jaeger is anticipating getting the new shared card portfolio manager up and running. “We definitely couldn’t afford that expertise on our own,” he concluded.

$310M United Teletech Financial FCU

For Leo Ardine (pictured below, right), CEO of $310 million United Teletech Financial FCU in Tinton Falls, NJ, the savings realized by outsourcing the credit union’s mid- and back-office services have been a real boost, but the power of discourse among colleagues for true collaboration has been immense.

“Small- to mid-size credit unions need the type of collaboration we’ve found through shared services,” Ardine advocated.

“We have to recognize the significant investments that need to be made in digital technology to remain relevant to member needs in the future,” Ardine said. “Unless shared, these can be cost prohibitive for small- and mid-size credit unions.”

Through scale, the power of best-of-breed partnerships and the negotiating power of shared services, among other efforts at United Teletech, Ardine said “We made it through the woods on business lending. Shared services really changed to outcome of our story: from a negative ROI in 2018 to 1.19% ROA in 2019.”

Ardine added that his credit union has saved more than $3 million in expenses since implementing the shared services model. “It’s costing me less than $11 million in members’ money to run a $300 million credit union. That’s substantial, and it allows us the options to reinvest in services, member loans, the bottom line, whatever we’d like.”

“I understand we’re all in decision fatigue right now,” Ardine emphasized, “but some things can’t wait. Smaller credit unions must decide to survive and thrive.

“I’m so grateful we made the decision to move to shared services when we did. It’s definitely helping us weather coronavirus for our members, and it will help us through whatever comes next.”

$134M Aspire FCU

The copious demands of the modern financial services environment, particularly technology, has made it difficult for smaller credit unions to keep up and compete. “We were able to upgrade some of our security with the savings we got from working with Member Support Services. Some of our savings went into SecureWorks network security perimeter services, which we wouldn’t have been able to afford on our own,” Tom O’Shea (below, left), CEO of Aspire FCU, said.

Aspire achieved more than $500,000 per year in savings overall, a 23% cost savings, through its partnerships with Member Support Services.

Member Support Services functions like a department of your credit union, just located elsewhere, O’Shea explained.

“Member Support Services has been a valuable asset to Aspire and its members,” O’Shea said. “I highly recommend them to any credit union with less than $750 million in assets. The economy in New Jersey has been really beaten up, and the coronavirus economic fallout has only compounded that. The large banks are eating our lunch, and we need to do something about it.”

The CEO added, “We, the CEOs, really have to be honest with each other and ourselves, which helps build a great peer network of sounding boards and advisers. That’s one qualitative benefit that we probably don’t value enough.”

O’Shea explained that the founding partners of MSS have followed a strategic vision that after reaching the initial goals of operational efficiency, we would seek additional partners who could also benefit from moving to next level of scale.

Key Selling Points for Aspire FCU

  • Retaining ownership of his credit union’s member touchpoints and brand
  • Lowering mid- and back-office costs while improving accuracy – which is less sexy because it’s not member facing, but allows you the savings to potentially upgrade services for your member
  • Allowing smaller credit unions to buy talent and expertise we can’t afford, for example our new card portfolio manager
  • Freeing up resources for your credit union to determine how to use, whether savings or investment in upgrades and aim for best of breed
  • Leveraging investment and experience, collections a great area where became more proactive and receiving better returns, “Whoever owns the risk, writes the rules.”
  • Managing contracts, but credit unions own the individual relationships
  • Hiring a quality assurance professional person to oversee MSS operations

Thriving Through CollaborationAs technology continues to pervade the financial industry, how can smaller institutions, such as credit unions, remain relevant?

The answer is simple: Collaboration.

Shared services are a prime example of strategic collaboration – the hallmark of credit unions. Yet the big banks are somehow having better success.

Credit Union Service Organizations are the secret weapon for collaborative innovation and efficiency, speed-to-market and increased relevance. CUSOs are an underappreciated superpower that can help your credit union bridge the scale gap!

A study from NACUSO.org found that its member credit unions leveraging CUSOs earned a 32% greater ROA. Member Support Services is a shared services CUSO that can help your small- to mid-size credit union leverage the credit union community’s cooperative spirit to great success. Shared services can help your credit union focus on what really matters: better serving your members.

Some of the many benefits of outsourcing for expertise at scale:

  • Use the credit unions’ collaborative model to invest in the high-price experts and resources for a fraction of the cost to offer better services to your members or create back-office efficiencies. Furthermore, the expertise you’re looking for may not be available on the job market. For example, the national average base pay for a card portfolio manager is more than $81K per year according to Glassdoor but not if you’re spreading that expense across multiple credit unions.
  • Lower your credit union’s overhead by leveraging the negotiating power of multiple credit unions or sharing resources across multiple credit unions. Member Support Services client credit unions collaboratively negotiate with business partners at multiple times their individual sizes, and these credit unions have succeeded in cutting their annual expenses by 24%!
  • Gain scale, no matter your size. Many solutions, especially in tech, are sold per user or per transaction. As these volumes increase, the cost per unit significantly drops. By partnering with multiple credit unions, those volumes that once seemed unreachable can be attained. For example, a FTC report shows that group purchasing saved the healthcare industry more than 18% of revenue.
  • Diversify risk. Lowered cost and additional expertise drive down the total cost of ownership, resulting in a substantially lowered risk, allowing credit unions to provide a greater return to its members and focus on its purpose rather than attempting to build complex solutions.
  • Lower costs and risk alleviate capital challenges and returns more to your bottom line. MSS achieves this for its partner credit unions with better accuracy and higher quality of work.
  • Retain ownership of the credit union’s member touchpoints and brand.

About the Author:  Sarah Snell Cooke is principal at Cooke Consulting Solutions, a communications strategy and business development firm serving business partners in the community financial institutions market. She has more than 20 years of experience in communications and credit unions. Most recently, Cooke served as publisher and editor-in-chief of Credit Union Times, leading the publication to two consecutive years of record readership, revenue and profitability. She is also the secretary of the board at $500M APL FCU and co-chair of the DC Sister Society of WOCCU’s Global Women’s Leadership Network. She was named to the 2015 Folio Top Women in Media and ALM Media’s 2015 Manager of the Year. Cooke holds an MBA and a Bachelor of Arts in political science with a minor in journalism.

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