Think nothing significant came out of Y2K? Think again. A group of North Bay and Central Valley credit union CEOs put their heads together in 1999 to work as a unified front on the perplexing possibilities that Y2K promised—power disruption, data crashes, panicked investors and bank runs. What came out of that opportunity is, today, called the Credit Union Service Resources (CUSR)
CUSR is a limited liability company (LLC) comprised of Sonoma County’s Community First Credit Union; Silverado Credit Union in Napa; Allied Credit Union of Stockton; Tracy Federal Credit Union; and Modesto’s Community Trust Credit Union and First Federal Credit Union. The credit unions have worked together to acquire servers, hardware, joint-licensed software and online banking applications “to share the incremental costs of buying new hardware,” says Community First’s CEO Todd Sheffield. The purchase has been one some single credit unions couldn’t have afforded on their own. What’s more, members can now enjoy a more stable and user-friendly online banking platform. The big picture is that the broader services let each credit union compete independently and on equal technological footing with much bigger, wealthier financial institutions
Technology: the good, the bad, the unexpected
Today, financial institutions have blossomed when it comes to information and technology. Like the Internet itself, online banking has reconfigured how people conduct their banking business, often in their pajamas.
What’s been a bonus for customers conducting business in the comfort and privacy of their own homes has come at a price: a matrix of complicated and costly measures demanded in security and regulation of financial managers. There’s no doubt: customers love it; big, for-profit banks cultivate it; and small credit unions have struggled with it.
This is a story of solutions by the Davids amid the Goliaths. How do the small credit unions, with all the regulatory restrictions and security firewall protection of the nation’s largest banks, compete to offer the same services without the mega IT infrastructure? Just ask the members of CUSR.
“Most financial institutions do all their data processing one of two ways,” explains Sheffield, who is a founding member of CUSR. “They use either a service bureau, like Electronic Data Systems, and will have an online subscription with a data processing provider; or they buy a system, bring it in-house and operate it themselves,” he says. The latter is the most common.
Northern California’s homegrown CUSR is a new kind of slingshot to battle the banking giants. CUSR also has the distinction of being one of the few credit union consortiums of its kind anywhere in the United States. “For that reason,” Sheffield adds, “CUSR, as a solution, is rare. Only about a half-dozen credit union consortiums in the United States are arranged like ours.”
The six credit unions in CUSR are of small scale—having deposits between $20 and $120 million, and averaging $50 million—and originally operated individually on the same primary processing platform, called Symitar. Now they share the same hardware, which they jointly purchased, and which would have individually cost each of them tens of thousands of dollars. The decision slashed the cost per player dramatically, no small savings for these not-for-profit institutions.
The bottom line? The single expenditure of $60,000 for a system, with more bells and whistles and future expansion capabilities than they could have ever justified purchasing on their own, cost each participating credit union $10,000.
“With CUSR, we have the choice [of advanced hardware security and features] without the individual costs and management of the hardware,” explains Frank Michael, CEO of Allied Credit Union in Stockton, where the primary server box is housed. Michael is the person all other CUSR members credit with moving the team forward to its current level of unified operation, management and the promise of continued growth.
“The issue for us was, ‘How do you offer those services and keep the costs down?’ An example we ran into was with online banking,” says Michael. “We think that’s wonderful and, that said, as soon as we decided to offer it to the customers, we were then concerned about someone breaking in and stealing data. It led to things like firewalls, testing and backups. We were exposed to the outside (and looking at) intrusion protection and prevention—all expensive propositions.
“One of the benefits to working together,” says Michael, “is we could get those services collectively and share the costs. We can also offer the new services and make decisions as part of a group of items, such as an online application process for a car loan or bill paying online. It lets us compete with the big boys.”
For institutions that have brought data processing in-house to convert to the CUSR model, they first have to give up what they perceive they have—control.
“Think about it like a bicycle you only use 5 percent of the time,” explains Michael. “Would it make more sense to share it with your neighbor? Maybe he only uses it 5 percent of the time, too. But what if you want to keep it in your garage so you can see it?
“What’s going on here,” he continues, “is a lot of credit unions still say, ‘I want that bicycle in my garage.’ It’s an issue not of trust, but of control.
“If we demonstrate we do a good job, demonstrate the cost, crunch the numbers so potential credit union boards can make a decision, it makes complete sense on a financial basis. Their services and assurances of security would be as complete as if they’d been on their own. Actually, this way is better.”
Each credit union continues to employ in-house IT personnel for the everyday glitches that come with computers and individual users. However, the Stockton-based server is maintained by a consortium-shared IT specialist team.
When multiple human resources requests come in to CUSR at the same time, the CEOs, who meet monthly via teleconferencing and no less than quarterly face-to-face, “prioritize it out and work on a solution as a group.”
First day on the job
For President/General Manager Marilyn Van Dolson of Silverado Credit Union, day one of the late-August conversion to the Stockton server moved like clockwork. It meant she could get back to her main concern, customer service.
“This relieves us,” Van Dolson says, “because where I’m frustrated by the credit union industry is, we’ve begun spending so much time on IT issues and compliance. We rarely have time for members. I’m sick to death of having to be an IT expert. It’s nothing I ever wanted to do.
“Regulations kept coming down, and I could foresee there was a real liability. If anything went wrong, I wasn’t convinced we could handle it appropriately,” she adds. “Regulation is getting so complicated and complex.”
It isn’t that Van Dolson didn’t see the bigger picture. On the contrary, she says, “home banking is one of my favorite services, because members can keep a much closer eye on their accounts. If something is amiss, they can catch it much sooner.”
With the consortium created by CUSR, her credit union will be adding a new, completely automated, online loan package that “none of us could have afforded alone, one that can be 100 percent interfaced with a data processor.”
Add to that the benefit that comes with an imaging system that, over the next five years, eliminates the need for storage of receipts. “We have huge amounts of (hard copy) storage to manage. Eventually, everything will be on the system.”
Hard-copy signature cards will be extinct as well, and the workload for the IT portion of regulated financial audits are significantly reduced, as portions can be completed once for the whole group.
Safety in numbers
“This conversion means we had to update all the hardware used since 1993, the mixed PCs, the older technology,” Van Dolson adds. “It gives us more opportunities and products. We’re doing this because the Symitar system is safer and more reliable, and gives us the resources we need.”
It’s not just the convenience and cost reduction of a shared system, it’s the expertise and remote ability of CUSR members to aid in an emergency.
“Now with CUSR, all the systems are set up,” says Van Dolson. “The network we’re working with means those of us in more remote regions no longer have to wait for someone to come help us in the event of a disaster.”
Van Dolson isn’t overstating this case: Stockton and the Modesto backup location aren’t vulnerable to the earthquake fault lines that run through Santa Rosa and Napa.
“That’s a really important feature of this network,” Van Dolson adds. “One of our worst fears is you can’t get yourself back up after a disaster. When our members need banking services the most, we need to be ready to help them. We’ve banded together because it’s in our best interest.”
“To the extent that the group can work together,” adds Sheffield, “it began with a state- and federally mandated emergency plan in anticipation of Y2K. Today, the regulations demand we be prepared in the event of a pandemic flu. The question is, ‘How do we serve members if 40 percent of the staff is unable to come to work?’ People still need access to their accounts.”
Looking ahead
Is there an end-game for this savvy team of dedicated credit union professionals?
“We’re starting to get our legs under us for build out,” says Michael. “We can comfortably expand to 20 credit union members before we have to add (IT) infrastructure. That will probably take us five years.”
Sounding a bit like fighting words or, more likely, bragging rights, Sheffield says, “We could take somebody on in Texas.”
For Van Dolson, what the team at CUSR offers is “an exciting group full of possibilities.”
