Tech CUSO Provides Economies
Open Technology Solutions brings together the purchasing power and the brain power of its four CU owners, turning collaboration into cost-savings and competitive edge.
By Lisa Hochgraf
It was early 2003. CUES member
Kirk Kordeleski, CCE, CEO of Bethpage Federal Credit
As CEOs readying to lead an
organization through a core conversion will often do, Kordeleski talked with the CEO of another shop that had already
converted to the same system. And, apparently, Kordeleski
and Doug Ferraro, president/CEO of $1.5 billion Bellco
But when Kordeleski mentioned his interest in handling the core system collaboratively, saying, "We've had this idea for a while...," the conversation really got off and running. Ferraro's reply was something along the lines of, "You know, we've been thinking the same thing."
That summer, the two credit unions formed Open Technology Solutions, Centennial, Colo. Bethpage FCU was up and running on OSI that December.
OTS is now owned in equal shares by Bethpage FCU, Bellco CU, $1.5 billion First Tech Credit Union, Beaverton, Ore., and $1.6 billion SECU Credit Union, Linthicum, Md. (SECU will go live in April). OTS' mission is to use collaboration on technology to build scale, and then to create cost-savings from that scale, so that the owner credit unions can invest in their local markets. This could translate to anything from offering better loan and savings rates for members to funding marketing campaigns that boost brand awareness.
"We run separate software licenses on separate servers," Ferraro says of the OSI core processing collaboration. "The data is never commingled. All processing is independent and no one credit union process should affect another. The leverage comes from running 'similar' systems and processes."
OTS also runs 90 percent of the owner credit unions' other key technology systems, including loan origination, mortgage origination, collections, telecommunications, home banking and general ledger. A call center solution to offer 24/7 service is among projects in the works. The CUSO also has 3.5 security engineers that oversee all aspects of information systems security.
The efficiencies that stem from the owner credit unions' collaboration support "whatever they need to do to compete against the big banks in their market," says Mike Atkins, chief operating officer of the CUSO.
"The cost of transactions matters," adds Kordeleski, "because that's value you can return to your members."
Going for the Benefits
Starting up a company takes a lot of work, Atkins can attest.
"We had to find our location and take in such considerations as redundancy and power coming from different sides of the building," Atkins says, noting that staffing the new company was another key undertaking. "We were brand new, starting not long after the dot com burst. The CUSO is capitalized at 10 percent. We demonstrated to candidates that we are a growing firm and we're a key component of our owners' strategies."
That must have been a convincing case, as OTS has grown from 22 employees to more than 50. "It was an exciting ride," Atkins says.
The big perks of owning a share of OTS include being able to split the cost of customization and "expensive" IT skills; share ideas on how to create efficiencies with processes and people internally at each CU; have collective clout when negotiating with vendors; and provide more service to members for the same dollar spent.
"To get the full advantage of any open platform (such as OSI), you needed greater skills than we had," Kordeleski says. "Some of those skill sets can be expensive, so sharing helps." At this point, just eight people work in IT on site at Bethpage FCU. They focus on managing employee desktops, dealing with broken printers and managing the in-house servers. The rest of Bethpage FCU's IT "staff" work at the CUSO.
OTS "is allowing us to invest in people we never would on our own," Ferraro says, noting that the CUSO staff has a high level of skill in e-banking technology that supported the development of a custom home banking solution. In addition, the CUSO employs three people dedicated to security, and has engaged OSI to create custom modules. Because of its proximity to OTS, Bellco CU has no IT staff on location at the credit union; everything IT is outsourced to the CUSO.
Ferraro views as a real perk of the arrangement the constant dialogue among the CUSO owners.
"We're getting access to other people's ideas, innovation and leadership," he says. "We're really getting OK with sharing."
For example, the owner CUs are currently doing a shared staffing analysis, noting where some of them have more people than the others do, comparing processes and asking where improvements might be made, he explains.
Atkins says the CU owners' combined $7.5 billion in assets makes a difference when he's negotiating contracts with vendors.
"It gives us the opportunity to go to credit card vendors with aggregated volumes and get significantly better pricing," he explains. "It's the same thing with bill-pay vendors or statement processing vendors."
Kordeleski says the total expenditure isn't always less when the CUSO buys for the group, but the CUSO can usually get more bang for the same buck, and that means members get more for the same outlay.
He estimates that Bethpage FCU saved 30 percent of the cost to run OSI for the first couple of years. Going forward, other collaborative projects such as the call center solution will be decided based on offering better service to members, reducing or stabilizing costs and bringing innovation to market more quickly.
While OTS is "a great story of collaboration," Atkins says, making it all work "does have its challenges. There are always competing priorities."
The five-member CUSO board is composed of the CEOs of the four owner CUs plus Atkins. Kordeleski currently serves as chair. Agreeing on governance and the way priorities will be set becomes very important when you have four CEOsused to having their waysharing the reins, Atkins notes.†
The board sets priority at a high level via monthly phone conferences and an annual planning retreat; day-to-day guidance comes from a governance group of C-level people from the owner credit unions who meet biweekly to discuss what's going on, Atkins notes. In all, he thinks it works pretty well.
"While a lot of people in this industry talk about collaboration, these four CEOs are actually doing it in a very meaningful way," he says.
What do the CEOs do to make things run smoothly? Having partners that believe not only in the open systems technology, but also in the value of cooperation has really made a difference.
"You have to have a belief in growth," Kordeleski says. "You're willing to take some hits to do that. You need to believe strongly in the credit union business and that collaboration is part of that business."
Not surprisingly, Ferraro shares a similar view.
"Sometimes you set aside your own first choice for the good of the group," Ferraro says. "It takes committed leaders, people who are willing to tell their organizations, 'We're going to do this the right way.' It takes genuine effort to make collaboration work."
In this case it would seem that collaboration breeds more collaboration. "We have focused on the technology front," Atkins says. "Now we can take the same model and generate other collaborations, too."
Kordeleski says OTS' owner credit unions have seven collaborative teams working on ideas for what the CUSO will do next. One idea is to share collections efforts.
Ferraro says he could see the owners of OTS collaborating on additional CUSOs that might serve needs other than technology. For example, having the four CUs together when negotiating with providers of employee benefits could create significant cost savings.
"We were certainly told by bright people in the industry that this idea didn't make any sense," Atkins says. "I think we have proven that it does make some sense. And we're just starting to scratch the surface. I think what we've done so far will be dwarfed by what can be done."
Lisa Hochgraf is a CUES editor.