June 25, 2018

More credit unions adopting 'CUSOs' to boost technology, other service offerings and bottom lines

Photos | contributed
Photos | contributed
Rocky Hill's Nutmeg State Financial Credit Union is deploying digital self-service kiosks in its branches to improve member services and interconnectivity.
(From left) Gov. Dannel P. Malloy, Nutmeg State Financial Credit Union CEO John Holt, and Milford Mayor Benjamin Blake at the June 6 opening of Nutmeg’s DMV Express branch.
Guy Messick, General Counsel, National Association of Credit Union Service Organizations

What's a CUSO?

Credit union service organizations, or CUSOs, are state-regulated entities that allow credit unions to partner with other member-owned credit cooperatives and vendors to provide certain services.

The top four services provided by CUSOs are lending, account services, investment advisory, and electronic-funds and payments processing, according to the National Credit Union Administration.

There were 946 registered CUSOs at the end of 2016, according to NCUA.

Grins were all around on a recent Friday in June, as Gov. Dannel P. Malloy and officials with the state Department of Motor Vehicles (DMV) joined Nutmeg State Financial Credit Union executives for the unveiling of the cooperative's Milford branch.

The office, at 977 Boston Post Road, is the second of a planned series of "DMV Express" sites in New Haven County for which Nutmeg provides the facilities and staff to handle drivers' license renewals under contract with DMV.

But Nutmeg CEO John Holt and his former operations chief, Jeff Levesque, had more reason to smile. Aside from offering a speedier service option to DMV's own license-registration branch-office network, Nutmeg's Milford and future DMV Express sites will serve as gateways to a more interactive and cost-efficient customer-engagement model for credit unions, experts say.

Holt, who has appeared in TV ads touting Nutmeg's friendly mien and long list of member services, said members at the Milford office can help themselves — with the aid of its newly devised software and IT systems — perform digital account transfers, loan payments, check and cash deposits and withdrawals, get a new or replacement debit or credit card, apply for a loan, among other things. They also can renew their driver's licenses for free; nonmembers pay a $5 "processing fee."

With more ATMs and smart digital devices siphoning banking customers away from traditional bank and credit-union branches, lenders of all stripes are scrambling for new ways to engage with their customers — both in and away from their offices.

To achieve that, Nutmeg is the latest to join the growing ranks of Connecticut and U.S member-owned, nonprofit credit unions in establishing legal entities, known as "credit union service organizations,'' or CUSOs.

Akin to operating subsidiaries at banks and thrifts, CUSOs are state-regulated entities that allow credit unions to partner with other member-owned lenders and vendors in providing certain services, like automated lending, securities and investments, insurance or back-office operations, said Guy Messick, a Pennsylvania attorney who is general counsel to the National Association of Credit Union Service Organizations, a California trade group.

CUSOs, Messick said, allow credit unions to add new revenue streams and compete more effectively in this nation's constantly changing financial marketplace, one in which their net-margin profit model has been besieged by years of extremely low interest rates. CUSOs first appeared about 30 years ago and number about 1,000 today, with most formed in the last three years, he said.

"Nutmeg is plowing ground that others have plowed as well and been successful,'' said Messick, a partner in Messick Lauer & Smith, and also an advisor to Nutmeg on its CUSO.

CUSOs, he said, "are becoming more prominent as credit unions need to find ways to become more efficient and find new sources of income.''

Credit unions, in particular, are encountering many of the same challenges as banks — the need for more focused customer recruitment/retention efforts and the pressures of keeping up with new services, technologies, products and financial regulations.

The bottom-line aim for CUSOs, Nutmeg executives said, is to build a roster of financial and other services that will attract more current and potential credit union members to its doors.

Nutmeg executives say their CUSO is specifically designed to help create relevance through the use of technology.

CUSO services

The state Banking Department recently approved Nutmeg's application to operate its CUSO in order to provide not just expanded self-service options to members, but also to co-brand with DMV and other potential retail partners from its or their offices.

Other CUSOs in Connecticut provide financial support and wholesale and correspondent banking services to other credit unions. American Eagle Financial Credit Union, with $1.6 billion in assets and more than 30,000 members, has a CUSO that offers investment services.

Nutmeg's CUSO is already active. Earlier this month, it announced the acquisition of DaLand Solutions, a Colorado data-services vendor to U.S. credit unions. (Nutmeg's former operations chief Levesque has been named DaLand's CEO.)

Nutmeg is absorbing DaLand's three core services, which it will be able to offer to other credit unions: project management, which manages many different types of technology implementations; brokerage, which handles core, electronic funds transfer, and other technology searches; and enterprise services, which develops software and custom technology solutions.

Meantime, Source Technologies, a Charlotte-based provider of software-hardware solutions to credit unions, customized a "digital platform'' to power Nutmeg's electronic self-serve financial kiosks and enable its DMV Express license services.

"Innovation leaders like Nutmeg State are re-thinking their 'go-to' market and engagement strategies and responding with leading-edge technologies to meet market demand,'' said Grant Armistead, Source Technologies' director of self-service sales. "Institutions striving to remain competitive and relevant will mirror Nutmeg's approach and technologies."

Co-branding

Nutmeg, too, eyes opportunities to be where its customers are. For instance, Levesque says the credit union has spoken to popular coffee franchisors Dunkin' Donuts and Starbucks, as well as independent cellular-service vendors and others, about locating its self-serve financial kiosks within their stores.

It's a similar strategy that banks have deployed to locate branches within certain high-foot-traffic retail outlets. People's United Bank's presence in Stop & Shop grocery stores is a prominent example in Connecticut.

Dunkin' Donuts says while it has not spoken to Nutmeg about a partnership, it's possible the credit union broached the idea with one of its Connecticut franchisees.

American Eagle Financial Credit Union CEO Dean Marchessault said he and other credit union executives are trying to figure out new or different ways to get in front of customers.

"There's a big efficiency play happening in our industry," Marchessault said "We go where the people are."

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