Collaboration Keeps Small CUs Viable, Says 1 CUSO
HARRISBURG, Penn.—If small credit unions are going to be around in the next 100 years in any significant number, one CUSO says it’s going to take formal collaboration programs to make that happen.
And that begins with itself.
rkGoBig is a CUSO started by six credit unions in the eastern U.S., covering Pennsylvania, Maryland and Washington, D.C. Based on the work of Mid-Atlantic Corporate FCU’s Rekindle Initiative, the foundation of the business is to help save the small credit union.
Peter Barnard, rkGOBig CEO, said the CUSO is in large part an effort to “regain the hope that many of our small credit unions have struggled to keep. We want to save credit union charters, some of which were created in the depths of the Depression and have weathered decades of change.”
Barnard said the initial goal of the group that ranges in assets from $60 million to $151 million was to address the “very real limits of our size” in a market that increasingly values large scale. “We believe that only through collaboration can we achieve the scale, efficiency and reduced costs critical to survival.”
rkGOBig is coming up on two years of operation and has produced savings for its members across three main business areas.
Barnard said the objective is to reduce operating expenses of its owner CUs by 25% in the “big three” expenses of nearly all credit unions: systems, staff, and facilities, moving to shared systems and operations in these areas. All of the credit unions are now on CU*Answers’ CUBase core platform.
“We started in these three areas because they have the biggest impact on the business, every dollar saved here goes straight to profit,” said Barnard. “We determined early on that we would not achieve real savings if we futzed around in some smaller elements of the business that have less impact on cost structure.”
Barnard said the group, which collectively has $566 million in assets and 62,000 members, is hitting its 25% savings target—exceeding it in some areas.
“For instance, one of our credit unions in eastern Pennsylvania is seeing about 32% cost savings from moving away from its legacy core system,” said Barnard. “So we are seeing in excess of 25% in a number of key areas across our network of credit unions.”
While many small credit unions informally collaborate with their counterparts, Barnard does not buy into that arrangement.
“In one of our first meetings we asked that question—why not do this as a kind of cup of sugar over the fence, informally? Or we could say that true collaboration is forever a challenge for small credit unions and build a framework for how we do collaboration and establish priorities and processes,” explained Barnard. “We felt that if we didn’t make this a professionally managed business we might flounder around like fish in the water, as opposed to getting dead serious about collaboration. I think collaboration requires that kind of formality.”
rkGoBig is governed by a board of directors comprised of one CEO from each of the founding credit unions, a CEO Council and an Operations Council. The CUSO members meets via phone or videoconference once a week for an hour and gets together face-to-face once a month.
“We have driven hundreds and hundreds and hundreds of hours to turn ideas into real business principles,” said Barnard.
Small CUs 'Dying'
Barnard said that anyone who does not see the dying of small credit unions is “delusional.”
“There are a bunch of small credit unions today with respectable and even very strong capital levels,” said Barnard. “But when you look at their income statements you see a different picture. Pick your asset size—$250 million, $100 million, $50 million. Most of these credit unions are spending from 90 cents to $1.10 to make a buck. Compare that with Citibank that is spending about 64 cents to make a dollar. You have some large credit unions out there doing very well, too, with fantastic operating efficiencies.”
Barnard said rkGoBig is attracting interest from other credit unions across the country, and that while the majority of the CUs are based Pennsylvania and east, there are no geographic limitations to the group.
“We are having conversations now with about one-dozen credit unions,” said Barnard. “For the small CU to survive it requires a new playbook. We can’t make it on our own anymore. We need to gain the benefits of scale and do so quickly and get our operating expenses in line. It’s the only way we can competitively price our loans and make a living.
rkGoBig owners are: Century Heritage FCU, Pittsburgh; Department of Labor FCU, Washington; Destinations CU, Baltimore; Everence FCU, Lancaster, Penn.; SPE FCU, State College Penn.; and Viriva Community CU, Warminster, Penn.