CUSOs Ignite Collaborative Innovation

Diana Dykstra recalls a scene from 25 years ago as if it were yesterday: As the AVP/lending for Golden 1 Credit Union, Dykstra had been working with colleagues to figure out how to automate the labor-intensive process of faxing loan applications and approvals back and forth to car dealers. At an executive team meeting, then-CEO Stan Hollen voiced his concerns about reducing overtime and other operating costs in the midst of a recession.

Outside the meeting, another manager told Dykstra (now president/CEO of the California and Nevada Credit Union Leagues) a local Buick dealership was going to be open on Sundays, so the lending department would need to find a way to pay overtime for staffing to field loan applications. A desperate Dykstra wondered, “Didn’t he just come from the same meeting where we were told to cut overtime?”

The lending team came up with a solution that involved wheeling a big desktop computer with a 24-baud modem into dealerships totransmit applications and receive loan decisions via phone connection with the CU. “It took two and a half minutes to transmit the application and get a decision,” Dykstra recalls with a laugh. “Now people walk away if they have to wait two and a half seconds, but back then, that was fast.”

“Identifying a problem and solving it—that’s the definition of innovation,” says Denise Wymore, member and advocacy development officer with the National Association of Credit Union Service Organizations, Newport Beach, Calif. When CUs were first starting to feel the sting of point-of-purchase lending at the dealership, Dykstra’s team figured out how to get multiple credit unions on a dumb terminal at a car lot to compete alongside big banks.

Over time, Golden 1 CU patented the remote loan-decisioning system and began signing on other credit unions. It eventually partnered with the California Credit Union League in a venture that went on to become CU Direct.

In a speech last fall, Tony Boutelle, CIE, remembers how Hollen and Dave Chatfield, retired CEO of the California and Nevada Credit Union Leagues, asked himself and Dykstra to develop a business plan for the emerging CUSO.

“We were in a small, windowless office in Pomona, California,” says Boutelle, president/CEO of CU Direct. (Boutelle earned his Chief Innovation Executive designation by attending CUES’ Strategic Innovation Institute). “Diana and I worked on a plan to build CU Direct into a big company someday. Our goal was to get to 6,000 funded loans a month. That was the top that we could see for this… ”

Through September 2016, Boutelle says in the speech, CU Direct, via the company’s CUDL Auto Lending Platform, has helped credit unions fund more than a million loans. The 22-year-old company has grown to be one of the largest CUSOs and indirect auto lenders in the nation. The Ontario, Calif., CUSO reports that for 2016, its client credit unions funded a record 1.4 million loans totaling $30 billion.

CU Direct recently announced the opening of its new Innovation Lab, which will provide an environment dedicated to designing, prototyping and developing transformative lending technology for credit unions.  “Ideas brought to the table at the lab will involve all types of lending, not just auto,” notes Boutelle.

CUSOs like CUES Supplier members CU Direct and CO-OP Financial Services, with its nation-leading network of 29,000 surcharge-free ATMs, “have changed the ability of credit unions to become known in the marketplace,” Dykstra says.

Dykstra sees the potential for new CUSOs to take on such new challenges as operationalizing blockchain and analyzing big data. “Individually, credit unions can’t hire the talent needed to take on these challenges, but collectively we can,” she notes.

CUSOs can help credit unions confront those and a wide range of other issues, suggests Randy Karnes, CEO of CU*Answers. Especially for smaller credit unions, CUSOs owned by multiple credit unions function as operational partners and “even as investors in their agenda for the future,” he notes.

For mid-range credit unions, CUSOs offer tools to build business aligned with the scale and business model of the movement, either on their own or in partnership with peer organizations. With this, CUs can realize economies of scale, own the intellectual property they develop and govern “compatible returns based on the goals of customer-owners and members,” Karnes says.

Finally, CUSOs can help large CUs expand their member offerings, tap into new income streams and attract more diverse talent through the range of business models, including for-profit and equity partnership arrangements, either on their own or in concert with other credit unions.

In sum, opportunities to partner through CUSOs allow credit unions to pursue whatever innovations they can dream to do, from technology to operational improvements to financial services specialties. 

“CUSOs and their owners have proven over and over that the charter is a solid way to rally capital, redefine the rules for vendors and inspire new entities,” Karnes says. “I believe CUSOs with cooperative charters can reignite the faith, energy and natural designs of customer-owner cooperatives. I believe CUSOs will be a big part of finding the consumer’s voice not only as a customer but as an owner—and that voice will renew it all.”

Karen Bankston is a long-time contributor to Credit Union Management and writes about credit unions, membership growth, marketing, operations and technology. She is the proprietor of Precision Prose, Portland, Ore.