Credit Union Magazine: CUs and CUSOs Say 'I Do'

But making the marriage work takes communication and commitment.

Married, separated, or just friends? Credit unions and credit union service organizations (CUSOs) are linked through organization but separated by law. And they absolutely must be friends to make the arrangement successful.

A CUSO is a company one or more credit unions form to provide services-such as investments and insurance services, real estate lending, and business services-that a credit union either can't provide or can provide better through a subsidiary ("Hot CUSOs tap new synergies," p. 36). But credit unions and CUSOs must be integrated to successfully cross-sell each other's products and services.

"The more communication and integration that occurs between the two, the better both entities will serve members," says Nader Moghaddam, executive vice president of Kinecta Federal Credit Union, Manhattan Beach, Calif., and president of its CUSO, Kinecta Financial & Insurance Services. He's also a member of the CUNA Operations, Sales & Service Council's executive committee (cunaopsscouncil.org). "Credit unions and CUSOs complement each other."

Moghaddam; Larry Leong. chairman/CEO of TDFCU Financial Services Inc., a CUSO owned by Treasury Department Federal Credit Union, Washington, D.C.; and Alan Pughes, CEO of Community One Federal J Credit Union, Las Vegas, discuss how they leverage credit union and CUSO strengths to better serve members.

Q What's your CUSO's primary function?

Leong: The CUSO began operation in 2002. We wanted to offer investment and insurance products that the credit union was unable to provide on its own.

Pughes: We're setting up a CUSO that will allow anyone in the community to cash government and payroll checks. We're also an equity owner of CU Business Partners, a [Chatsworth, Calif.] business services CUSO. That has worked well for us. We have worked hard to educate our employees about the small-business side. And we have had some success obtaining small-business owners' and employees' personal accounts.

Q How do you crosssell CU and CUSO services?

Moghaddam: We try to make sure we have uniformity from a sales culture standpoint on both the credit union and CUSO sides. We implemented a universal sales management system in both organizations.

Second, we developed an integrated scorecard with cross-referral requirements for credit union and CUSO employees. And we developed an electronic referral system so the credit union's branch and call center personnel can issue electronic referrals to their counterparts in the CUSO.

We also put in place an integrated reward and recognition program for the credit union and CUSO. Employees can get $10 for qualified investment and insurance referrals.

Pughes: We're located between two large areas of casinos and apartments. We plan to target both areas to let casino employees and apartment residents within a three-mile radius know they can cash checks at our CUSO.

We want to reach people who don't use traditional financial institutions. We're trying to get them started using our check-cashing CUSO. Once we develop trusted relationships with them, they might join the credit union and start using traditional financial services. If this works well in our first location, we'll probably open additional check-cashing stations.

Leong: We used incentive programs and tracked referrals that led to sales. In 2004, we moved the financial services program to the credit union. It was more logical and convenient to have it run out of the credit union. Our tellers and member service representatives make referrals to the financial services representative.

Our CUSO currently is in transition. We're looking for other opportunities, such as offering new products and services to members and nonmembers, and offering services to other credit unions. The laws have changed, and the playing field has changed.

Q How do you mesh both organizations' workplace cultures?

Leong: The key is team building and communication. We implemented a training program through which the financial service representative educates other employees about our investment services. So long as people know they're working for the common good and the overall mission is the same, the credit union and CUSO will support each other and employees will buy into the program.

Pughes: We'll be sharing employees. The first CUSO will be located in the same building as one of our branches. One reason those check-cashing places do well is because they focus on serving people with respect. That's what we're going to do, and our pricing will be lower.

Moghaddam: It starts with the leadership. In our case, the credit union CEO also is CEO of the CUSO. Likewise, I'm the executive vice president of the credit union and president of the CUSO. When we're addressing member services or discussing members' needs, we're talking from an integrated standpoint, from procedures to support systems to infrastructure to the CUSO management team. We're solving these issues together in real time at the same time.

Q What challenges does your CUSO face?

Leong: Sales haven't been as good as we hoped. But we're patient. We're looking at this as a long-term proposition. The stock market isn't a hot commodity right now. But we also can look at history and see that when the stock market was hot, the mortgage market wasn't. But mortgages and refinancings have been hot for the past four years. Everything is cyclical. The big thing is that our board members are sophisticated enough to know that this is a longterm proposition, and there are ups and downs in any kind of business.

Compliance was a huge issue. We spent a long time on compliance issues before we moved forward.

Moghaddam: About a year and a half ago we were in an electronic delivery frenzy. We thought that by putting an instant quote engine on our Web site we could get more activity on the property casualty side. The technology allows members to go online and request instant quotes for auto and homeowners insurance. Frankly, it hasn't produced the volume we were hoping for.

Part of the problem may be that the insurance business hasn't evolved to that point. Our online quotes may be too conservative, or members may be able to get better quotes by talking to a person.

Q Why can CU/CUSO integration be such a challenge?

Moghaddam: I've had experience with other organizations where there wasn't direct involvement and accountability from the executive management team. That's when silos develop in organizations. And that's when, for example, financial service representatives think that investment products are the only products in the universe, and branch personnel think investment products compete with deposit products. We know that's not the case. When you have substantial activity on the investment side, you have greater activity on the share side.

Pughes: It's important to distinguish between the credit union and CUSO. Trying to integrate the credit union and CUSO too much can create problems. For example, if our credit union and CUSO are too closely related, people may go into the check-cashing office thinking they're going to the credit union. If that happens, we might not attract the people who would go to the check-cashing place to begin with.