July 23, 2025 • 39 mins
Could shared services be the cure that puts a halt to the epidemic of mergers among credit unions?
Could shared services help credit unions increase their efficiencies and dramatically lower their costs so that they can better compete against big banks and fintechs?
On the show today are Vin Anand, CEO of Member Support Services (MSS), and an evangelist for shared support services at credit unions.
To spread this word Anand has brought in Gene Foley, former CEO of Harvard University Employees Credit Union, Kirk Kordeleski, former CEO of Bethpage Federal Credit Union, and Erin Coleman, SVP of Industry Impact at Callahan & Associates. They are the new MSS Advisory Board with the mission of providing strategic guidance,
Today Foley joins Anand on the show and they are here to explain how shared services can in fact enable credit union independence. That may sound per se self contradictory but it isn’t and on the show you’ll hear how shared services just may be the lifeline a lot of credit unions are looking to grasp.
For more on shared services and credit union independence there’s another show in the library with Anand.
To hear the show with Jim Blaine that Foley discusses, click here.
Listen up.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
SPEAKER_04 (00:00):
Welcome to the CU2.0 podcast.
SPEAKER_01 (00:05):
Hi, and welcome to the CU2.0 podcast with big new
ideas about credit unions andconversations about innovative
technology with credit union andfintech leaders.
This podcast is brought to youby Quillo, the real-time loan
syndication network for creditunions, and by your host,
longtime credit union andfinancial technology journalist,
(00:27):
Robert McGarvey.
And now, the CU2.0 podcast withRobert McGarvey.
SPEAKER_04 (00:35):
Could shared services be the cure that puts a
halt to the epidemic of mergersamong credit unions?
Could shared services, backoffice shared services, help
credit unions increase theefficiencies and dramatically
lower their costs so that theycan better compete against big
banks and fintechs?
Two big questions, and on theshow today are Vin Anand, CEO of
(00:57):
Member Support Services, andhe's an evangelist for shared
support services on creditunions.
Also on the show is Gene Foley,former CEO of Harvard University
Employees Credit Union.
And along with Foley, KurtKorteleski, former CEO of
Bethpage Federal Credit Union,and Aaron Coleman, an SVP at
Callaghan.
(01:18):
are now the new MSS AdvisoryBoard with a mission of
providing strategic guidance.
On today's show, Foley and Anandoffer a detailed presentation
about why shared services canwork magic for credit unions.
It may sound per seself-contradictory that shared
services can create moreindependence, but it isn't, and
(01:41):
on the show you'll hear howshared services just may be the
lifeline for a lot of creditunions.
For more on shared services andcredit unions, There's another
show in the library with a linkis in the show notes.
And to hear the show with JimBlaine that Foley discusses in
the beginning of this podcast,there's a link in the show notes
to that show.
(02:01):
Listen up.
A very, very old friend of minewho has a doctorate from Harvard
spoke at great length the otherday with me about how much he
loved the Harvard Credit Union.
And it funded his crappy usedcars through graduate school.
SPEAKER_03 (02:20):
I'm glad to hear that.
And
SPEAKER_04 (02:22):
he actually was a big fan.
Now, this was before your timethere, but I assume the same
ethos prevailed.
I
SPEAKER_03 (02:31):
don't think so.
I spent 40 years at the creditunion.
SPEAKER_04 (02:34):
Well, he was in graduate school in the 70s.
SPEAKER_03 (02:38):
Okay.
It was before my time then.
SPEAKER_04 (02:42):
And you have 25 years as the CEO.
SPEAKER_03 (02:45):
Right, exactly.
But I was there for 15 beforethat.
SPEAKER_04 (02:51):
How are we going to see that kind of tenure in CEOs
going forward?
Or will that be anomalous?
SPEAKER_03 (02:58):
No.
There was a
SPEAKER_04 (02:59):
time when that was fairly normal.
I mean, Jim Blaine has that muchtime, et cetera, et cetera.
SPEAKER_03 (03:06):
Yeah.
So my theory is that theindustry has had Three
generations of CEOs.
The first generation were theBlaine generation, who kind of
took it from infancy up untilmaybe just about the preteen
years as an industry, if youwill.
Well, Blaine did the whole ride.
(03:27):
But the second generation was mygeneration, which took the
industry from maybe grade schoolup until adulthood.
And now the third generation isthis generation of CEOs that are
managing the industry inadulthood.
I know that Jim Blaine, Ilistened to his golden twilight
(03:48):
of credit unions.
I wouldn't use that sameanalogy.
I think of it more of a lifecycle.
I think the industry is now allgrown up.
And he was talking about theschool days.
SPEAKER_04 (04:02):
Well, the thing I like about Jim is...
People can disagree with him,and he thrives on that.
SPEAKER_03 (04:10):
I know.
SPEAKER_04 (04:10):
I mean, if you send him an email saying that to him,
he'd write an email backdisagreeing with you.
SPEAKER_03 (04:17):
That's true.
SPEAKER_04 (04:19):
Jim's a wonderful guy.
I don't always agree with him,but I always enjoy talking with
him.
Yeah.
He's a true believer in thecredit union model.
He is.
As am I.
Obviously, you are, yes.
Now, In the email that got meinterested in talking about this
topic, one of the bullet pointsthat said you can discuss is how
(04:40):
the advisory board will helpstrengthen credit unit
independence in today'senvironment.
And I think that's a good jumpoff from what Blaine was talking
about.
So because he sees independencedisappearing a lot of ways.
So how will the advisory boardstrengthen credit union
independence?
SPEAKER_03 (05:00):
It's really, really difficult.
to compete as a credit union inthis age.
It was easier back in the daysthat Jim Blaine was talking
about because there weren't thatmany competitors in the space.
There wasn't as much access toconsumer credit.
And now, no matter what size thecredit union is, it has to have
(05:24):
the same product set and thesame sophistication as Bank of
America does in order tocompete.
And the The advantage that theshared service model gives is
allowing the credit union toachieve scale and to achieve
standardization without givingup control.
And in the money that it'ssaving on the back office side,
(05:49):
which is just, I want to saycommodity, but it's not nearly
as important as the memberfacing side of what the credit
union is offering.
It allows those limitedresources to be redeployed.
into the member facingactivities that the credit union
has.
And this model really startedwith credit unions that were
(06:09):
trying to achieve scale and knewthat they had to achieve scale
in order to compete.
And this was one way that theycould try to do that.
And for me, I know that thatThere's some interest in why a
long-term credit union CEO wouldbe interested in this model.
(06:29):
It's reminiscent of theDesjardins model in Canada,
where you've got 200 creditunions, all with their own
identity, all with their ownfields of membership, but
they've consolidated and they'veused the power of cooperation on
the back office side of thingsso that they could be more
effective with the membership.
(06:50):
And I think that that's what thegoal is.
that the advisory board has.
I'm really looking forward toworking with Kirk Koroleski and
Aaron Coleman.
All of us are long in the toothin the credit union world of
really trying to leverage thatcooperation to the advantage and
to keep the independence of theindividual credit unions.
SPEAKER_04 (07:13):
How realistic do you think that is?
I mean, I think I totally agree.
To me, that is the way to keepcredit unions alive and healthy
going forward.
It's that essentially sharedservices.
SPEAKER_02 (07:24):
Yeah, let me weigh in a little bit on that one,
Robert.
Build up on the conversation youand I and John Bissell had when
you did that podcast last fallwith us when Greylock joined us.
I think that's the keymotivation for us to set up this
(07:44):
advisory board and have reallytrusted leaders from the
movement get associated with usto really provide that assurance
in many ways that this issomething that is real.
Well, it's been done.
(08:05):
We're the second model in thecountry which has done it.
And there is a fair amount ofempirical evidence that the
credit unions have retainedtheir independence.
They have achieved thosesavings, and they have been able
to deploy that into more deeperrelationships with their
(08:25):
members.
And, you know, with Gene andAaron and Kirk, there comes that
trust factor as well, which Ithink will resonate with a lot
of credit unions who have beenlooking at this for years now,
to my knowledge, but arehesitant to make that next step.
(08:47):
because they have concerns aboutloss of control, et cetera.
So I think that that really isgoing to help us really boost
that level of confidence in thismodel.
SPEAKER_04 (08:58):
Now, CUSOs obviously are a shared service model.
Where do CUSOs fit into whatyou're talking about?
SPEAKER_02 (09:06):
Well, we are a CUSO.
SPEAKER_04 (09:07):
Yeah, I know that, but more broadly.
SPEAKER_02 (09:09):
I think if you look at the vast majority of CUSOs in
this country, there are wellover a thousand of them now.
The vast majority of them arelargely what I would call single
point solutions or a discreteset of services and solutions
pointed towards making money.
(09:32):
We are very, very unique.
A, if you look at our footprint,it's very, very wide and quite
deep.
And there are very, very fewmodels of those around.
And secondly, we're not set upto make profits.
We are a straight cost passthrough.
So whatever, it's a partnership,whatever we are able to
(09:52):
collectively save, that flowsentirely directly back into the
earnings of each one of therespective owner members.
That's what makes us different.
SPEAKER_03 (10:03):
Robert, I was a 13 years tenure on the PSCU Valera
Board, which is the largestcredit union in CUSO.
in the country and I can tellyou that having that CUSO
structure is a major competitiveadvantage in the credit union
space.
I believe in the CUSO model andas Vim is saying it's really
(10:26):
going to I think have tractionwithin the credit union space
that this is a CUSO and not anot a for-profit vendor.
that we've set up.
The question was, is it doable?
I think, yes, is it doable?
Is it gonna be easy?
No, it's probably not gonna beeasy.
But even in the time that I wasthe CEO at Harvard, I had
(10:47):
multiple conversations withother credit unions about trying
to consolidate back officelending and to try to do some
cooperative processing withother credit unions.
So I think that the desire hasbeen there for a long time.
It's the solution that waslacking.
SPEAKER_04 (11:03):
Now, Maine, the Maine Credit Union League has
some shared back office.
SPEAKER_03 (11:08):
Right, core processing.
SPEAKER_04 (11:10):
Can that model be extended?
Not necessarily using the exactMaine technology, but that idea.
I mean, why can't all theinstitutions in Massachusetts be
on the same core processor?
SPEAKER_03 (11:28):
You know, I believe that part of it is really comes
down to governance and control,which is one of the competitive
advantages that we have withthis model is that I think that
the.
Unlike the Canadiancounterparts, the American CEOs
are probably much more concernedabout control.
(11:50):
But with this model, they'regoing to maintain that control.
They're going to maintain theirown separate field of
memberships, their ownpositioning strategically, their
own identity.
It's really just consolidatingthe back office, which I do
think that there is desire outthere.
to do that.
I do think it takes the rightcombination of credit unions and
(12:13):
the right credit union CEOs toagree to this, though.
SPEAKER_02 (12:17):
Yeah.
The other aspect to the contrastwith something like what the
main has is if you're on a cardplatform today and you're
probably in a long-termcontract, it's going to take a
while for you to get out of thatcontract and or pay a heavy...
withdrawal penalty, et cetera.
(12:39):
So that may kind of curtailthings.
But the other bigger aspectabout it, that is sharing in
some technology processing.
Our model is totally applicationagnostic.
Our model is really what we'redoing is providing shared
employees.
And that's where the laborsavings are the key piece that's
(13:03):
really generating the success ofour model.
We're operating on a multitudeof different applications and
systems today, and we're prettyagnostic as long as what we're
doing is exactly the same thingfor every credit union.
That's the real big difference.
You have a lot of models outthere where everybody's
(13:24):
subscribing to one set oftechnologies.
They may not be totally happywith it because it's not doing
exactly what it wants with them.
And our model is, as long asit's the same kind of
functionality of the softwareyou're using, we'll work in all
of those software.
SPEAKER_04 (13:44):
Now, let's say Harvard Credit Union says we
want to be part of this.
It's a billion-dollar creditunion.
What would change for them?
SPEAKER_03 (13:58):
Well, the only thing that would really change is that
with the savings that I havegoing into the shared solution,
I would be able to redeploy thatinto other member-focused
activities that I couldconcentrate on rather than the
back office.
In this particular Boston jobmarket, in particular to VIMS
(14:20):
Point, hiring is really a verydifficult, very, very
competitive marketplace.
You've got a lot of universitieshere.
It would take a big headacheaway from me in terms of my
staffing resources, I wouldstill have a direct contact to
(14:41):
the shared service company andregular insight into the
processing so that the Largest,I think, change that would be
for Harvard or would be forother credit unions would be
there is this ability to save interms of overhead, in terms of
(15:02):
jobs that you actually have.
I think that most credit unionswould probably initially be
somewhat reluctant to actuallycut staff.
although it's going to allowthem to do that long-term.
But in the short term, I thinkthat staff would be redeployed
into other areas of the creditunion that are more
service-oriented.
SPEAKER_04 (15:22):
Yeah.
And that's actually a stickingpoint for many credit unions is
they deploy AI.
I say, well, how are you goingto cut staff?
And they say, oh, no, we're notgoing to cut staff.
And then one very smart guy saidto me, look, what's going to
happen is that there will bestaff attrition.
It'll occur at this rate.
He gave me a number.
(15:43):
And he said, you know, otherpeople will decide to move on,
go to different jobs in otherinstitutions.
In five years, it'll all behandled.
And he was a patient man anddidn't want to fire staff.
And he was willing to put fiveyears into it.
SPEAKER_03 (15:58):
I'll tell you another direct example from the
credit union at my time there isthat my deposit operations
people used to come in in themorning and they had 11 systems
that they were signing on to.
They had 11 disparate systemsthat they needed to be expert
in.
And even though that was abillion dollar credit union, you
(16:21):
don't have the really depth ofbench where you've got six or
seven people who know everythingeach of those 11 systems.
You've really got a lot of riskbecause when Sally's on
vacation, Joni's the only otherone who knows how to use that
system.
And if her child is sick andshe's not in that day, you're
scrambling to try to get yourdeposit operations to be done.
(16:44):
It takes a huge headache out ofthe picture in terms of most
credit unions are runningmultiple, multiple standalone
systems that they're no longerhaving to support.
SPEAKER_02 (16:55):
I think the other point, Robert, to your point
about staff shortages is at somestage, given all the headwinds
and all the challenges retailfinancial services generally is
having today, but credit unionsin particular, particularly the
smaller ones, is to really askyourself the question, what is
(17:18):
your mission?
Is your mission to really driveas much value and intimacy and
be the financial institution ofchoice for your members, or is
it to provide jobs in your localcommunity?
And somewhere along the lines,credit unions today, we know
(17:39):
today, the ones we're talkingto, they're facing that very,
very tough choice today in thisfair face.
So this is where we think oursolution can really, really help
them to, continue to make theirindependence and their relevance
to their membership that speciala special source which separates
(18:03):
the credit union and itsrelationship with its members
than does say a regular bank
SPEAKER_04 (18:12):
what kind of time frame are you thinking about
them
SPEAKER_02 (18:16):
in terms of
SPEAKER_04 (18:17):
when this really takes root, starts to change the
way the credit union industryoperates?
SPEAKER_02 (18:25):
Yeah, great question.
So we have targeted, and it'snot a secret because we'd be
pretty open about it, is that wewant to grow this CUSO to$10
billion of assets under service.
And we think with that kind ofscale, That is really going to
(18:47):
move the needle significantlyfor our owner members in terms
of their operating expenses andtheir efficiency ratios.
And I think that will get a lotof attention when credit unions
start seeing their results.
We put ourselves to the horizonof three to five years to get
there.
And I think by the time we getthere, we'll probably be
(19:08):
knocking on the door of gettingto$20 billion.
SPEAKER_04 (19:14):
Gene, did you do any mergers when you were at
Harvard?
You probably did some shotgunweddings at the behest of NCOA,
but did you do any meaningfulmergers?
SPEAKER_03 (19:23):
No, we actually didn't.
I very much stayed true to thecommon bond, which was the
university.
So we were not doing mergers.
Certainly now, I've started thisconsulting practice.
That's all that anybody is doingis mergers, but no direct
experience as a credit unionCEO.
SPEAKER_04 (19:41):
Well, Kornileski is in the same boat.
I mean, he is very proud thatthe growth at Bethpage was
entirely organic.
Now, he did do a few shotgunmarriages with failing
SPEAKER_02 (19:51):
credit unions.
Yeah, very few.
One they did was with Montauk.
That was because of themedallion loan.
So, yeah.
So this model is actually theone I worked with Kirk on what
he set up for Bethpage and hisother two partners.
This is exactly the same replicamodel.
SPEAKER_04 (20:10):
Interesting.
It certainly worked at Bethpage.
He drew that thing fantastic,great.
He painted within the lines.
He wasn't doing screwy stuff.
SPEAKER_02 (20:25):
Their efficiency ratio is around the 66-67%.
Their operating expenses arebelow 2%.
That was exactly the goal ofthat model.
That's, in my humble opinion,one of the key enablers to
enable them to fuel that growth.
SPEAKER_04 (20:45):
Now, Vim, when you talk to a big credit union, do
they say, we don't need this?
This is, you talk about littlecredit unions.
What do they say?
SPEAKER_02 (20:54):
No, actually, it's interesting.
You know, when you and I andJohn Bissell talked last, John
Bissell, 1.6 billion was fourtimes the size of our current
credit unions.
And this whole conversationabout big and small, really did
not materially surface becauselook at the mergers that are
(21:16):
going on right now, Robert.
I mean, we got one, which Ithink is going to get to 19
billion of assets undermanagement.
And there's another one, Ithink, which is going to get to
about 13 billion out of the...
SPEAKER_04 (21:30):
Well, there's First Tech DCU, which...
There's First Tech DCU.
So all the calculators that we
SPEAKER_02 (21:36):
have.
Yeah, yeah, yeah, yeah.
So...
I think there is universalrecognition that the name of the
game is scale.
And how do you get to scale?
I mean, you have two options toget to scale.
You merge or you do somethinglike what we've got.
SPEAKER_03 (21:55):
You don't reach it organically.
I can say that.
Even having grown a credit unionfrom some 70 million to a
billion, I can tell you that thepressure really does not
decrease at that level.
SPEAKER_04 (22:12):
Oh, I would agree.
And it's funny, when I firststarted writing about credit
unions, a billion dollar creditunion was big.
Now the benchmark of big is 10billion.
It's really, it's weird.
And there are only a handful ofthose.
So what about the other 4,000plus?
(22:34):
I don't know.
Still credit unions.
SPEAKER_02 (22:37):
That's why we feel, obviously we're biased, right?
We feel our model is such asalvation because if you can get
into this sort of setting whereyou are building scale in back
office and utilitarianactivities, et cetera, bringing
up some very, very valuabledollars, which enables you to do
(22:58):
deeper things around products,enables you to invest in
technologies, although we'realso now expanding our model to
have shared investments in newtechnologies, All of that
enables you to just keep thatintimacy with your members and
keep relevant to them.
SPEAKER_04 (23:19):
So are you starting something that will be similar
to the Circle Fund?
SPEAKER_02 (23:24):
No, no, we're not an investment vehicle.
We are a straight, pass-throughservicing organization.
Simple and straightforward.
Takes a lot of effort to make ithappen.
It doesn't happen overnight.
You know, you're bringing in asingle organization's processes
(23:48):
and functions and culture, whichhas grown over a period of 40,
50 years into something new.
That doesn't happen overnight.
Well, we've got a good playbookon that, a well-established,
proven methodology to do that.
That's all we are.
Pure, straight, simple servicingorganization.
SPEAKER_04 (24:05):
And yeah, as we've discussed, to me, it's obvious
that To a member, a creditunion's back office is neither
here nor there.
As I've said to credit unionCEOs, no prospective member has
ever come in, knocked on yourdoor and said, tell me what your
core system is.
I need to know before I become amember.
(24:26):
No one has ever done that.
And if it was, it was thepresident of Scimitar who wanted
to make a sale.
And really, the truth is, Ihappen to know the core system
of the credit union I use, but Idon't care.
It's perfectly adequate.
(24:46):
It's fine.
I don't care what it is.
SPEAKER_03 (24:49):
Even in core conversions now, the core system
is no longer what drives thecore conversion.
It's the mobile application andthe online banking application
and the member-facingapplications or the applications
that more than the core are thecompetitive advantage that
credit unions are convertingfor.
SPEAKER_04 (25:07):
I've seen data, I think, from Cornerstone where
about the time you became CEO atHarvard, probably 90% of your
tech budget went to core.
And now institutions that size,it's more like 40% of the tech
budget goes to core.
Yeah,
SPEAKER_03 (25:26):
that's the case for sure.
I
SPEAKER_04 (25:28):
do think an issue that you touched on here is
difficulty in staffing and thatthis solution will make that
easier or solve that staffingproblem.
And Gene, you're suggesting youhad staffing difficulties in
Boston, Massachusetts andCambridge, Massachusetts, which
(25:51):
is astounding given the numberof college graduates who get
spat out by the system everyyear.
I'm not saying what you'resaying isn't true, but I find it
fascinating that you did havethat problem.
SPEAKER_03 (26:03):
Yeah, it was a problem.
Luckily, I had the universitymarket to tap into as well.
But as you know, Boston is afinancial hub and you're
competing against a lot of otherplayers out there for talent.
SPEAKER_04 (26:17):
Oh, you can go work at Fidelity and make a whole
boatload of money if you're anygood.
There's a lot of options.
SPEAKER_03 (26:25):
And I think even...
I think especially for thecredit unions that are under a
billion dollars, I think thatwar for talent is for the small
credit union.
That's probably the largestcompetitive disadvantage that
they have is being able toattract and keep good talent and
folks that they can provide somesort of a career path for.
(26:47):
I think that that's probably thebiggest challenge for small
credit unions now.
SPEAKER_04 (26:54):
I think you're right.
Now, Vim, does your solutionhelp solve the, and Gina
mentioned this, the benchstrength issue where many credit
unions have limited benchstrength.
And I remember talking with atop 10 credit union, a big
credit union.
I asked, why are you doing acore conversion?
Well, apparently the guy whokept that thing running for 45
(27:16):
years was retiring.
And it was too hard.
It just didn't seem profitableto train other people.
to fix the big problems that itjust seems smarter to do a core
conversion.
And this was a huge,
SPEAKER_02 (27:31):
this is a huge credit unit.
So that's the other beauty ofour model because we're creating
sufficient scale in each area.
whether it's in underwriting andlending, whether it's in
processing, whether it's inservicing, on the payment side
and deposit operations, etcetera, we're keeping enough
(27:52):
because we're consolidating andscaling.
That allows us to create enoughbench strength in each one of
those areas so we're not justone key person dependent.
The other thing, which I thinkyou're aware of, Robert, is that
half our work is done offshorein India.
where we have a labor force,where it's a country of 1.4
(28:17):
billion people, 60% of whom areunder the age of 40.
So it's a very young country,highly educated.
They've been in this business ofproviding offshore business
processing services and ITservices for a very, very long
time.
And that enables us byleveraging that to ensure that,
(28:41):
A, we've got some laborarbitrage advantages, but we are
also not in this funk all thetime that somebody leaves us and
then we're stuck for replacingthem, whatever, because we have
access to such a vast labormarket here in the United
States.
And it enables us to also have avariable model where if volumes
(29:05):
go down, we're not facing thisissue of, oh my God, I got to
lay off staff, and then all of asudden we do an exciting home
equity product, and all of asudden all the home equity
applications are through theroof, and how do we staff for
it, et cetera.
So we've got a variable model aswell built into our service
delivery here.
SPEAKER_04 (29:25):
Do the large technology companies in the
U.S., the service credit unions,things like Jack Henry and
Pfizer, do they offshore work toIndia too?
SPEAKER_02 (29:38):
All of them.
SPEAKER_04 (29:39):
Yeah, that's what I would assume.
SPEAKER_02 (29:41):
All of them, Robert.
All of them are, every one ofthem have got their software
being written and developed, notjust in India.
India takes the lion's share,but there is a burgeoning market
now in certain parts of EasternEurope At one stage before all
this war started, Ukraine had avery deep IT bench.
(30:03):
That, of course, is now gone.
SPEAKER_04 (30:04):
That's been dispersed, and some of that's
come to the
SPEAKER_02 (30:09):
U.S.
In U.S.
and in neighboring countries aswell.
A lot of that's in neighboringcountries.
SPEAKER_04 (30:15):
I imagine Germany's gotten a ton of it.
SPEAKER_02 (30:18):
Actually, Germany hasn't popped on my radar.
I see more coming out of Poland,interestingly.
I've seen a lot more come out ofHungary.
Romania has been the otherplace.
SPEAKER_04 (30:30):
Interesting.
SPEAKER_02 (30:32):
I think the key thing for us really is to get
like-minded CEOs who are really,really interested in the
long-term independent survivaland growth of their credit
unions and embrace the notion ofcollaboration and partnership as
a part to do that.
That's what's key for us.
SPEAKER_04 (30:53):
And that's where Gene and Kirk come in since they
can talk CEO to CEO.
SPEAKER_00 (31:00):
Right.
SPEAKER_04 (31:02):
And have credibility since they both have
distinguished histories in thatjob.
Exactly right.
That's your
SPEAKER_03 (31:12):
job, Gene?
It is, you know, and I strugglewith just in terms of the
industry.
We're offering the lowest costproducts out there and yet our
customers processing costs arethe highest out there.
We're competing with the largeplayers out there.
You always cite Chase Robert asone of our competitors and the
(31:35):
fintechs that are out there.
They're processing transactionsfor a fraction of what credit
unions are processingtransactions for, and yet their
products are more expensive.
I think that this model reallyaddresses what one of the
fundamental issues that we haveas credit unions is keeping our
(31:55):
products as cheaply and greatestvalue that we can possibly
provide for our members when themodel of having so many
disparate systems that we'reoperating is driving those
transaction costs so high.
Explain that.
Our dependent upon third-partyproviders to do our processing.
(32:17):
And typically, there's not justone third-party provider that we
can negotiate with any kind ofscale pricing.
So credit unions as an industry,I think, are probably paying top
dollar to the vendors that we'reusing.
To my knowledge, there are nosignificant credit unions that
have got proprietary systemsthat are much less expensive to
(32:39):
operate than having athird-party provider out there.
And this particular model withmembership member support
services, you're gaining thatefficiency in the back office so
that you can be more competitivewith your product pricing
because it's not costing you asmuch to process that
transaction.
SPEAKER_04 (32:57):
Right.
I totally agree that no creditunion can compete in terms of
expense against Chase, but Chasejust has massive scale.
SPEAKER_02 (33:08):
Yeah.
It's a double-edged swordbecause you're a smaller
institution.
You are already disabled fromnegotiating the best deal you
can from these vendors.
And then you've got to competeat a price point which makes you
competitive.
So, I mean, that's what really–you've got so many headwinds as
(33:30):
a smaller institution company.
I forget comparing to theChase's.
I mean, just in terms of theregional banks here, all the
fintechs, as Gene was saying, Imean, you look at SoFi and for
our credit unions in New Jersey,I mean, SoFi is eating our lunch
right now in the consumer andnow in the home equity market.
SPEAKER_04 (33:53):
SoFi would probably be feasting too in greater
Boston.
SPEAKER_02 (33:57):
Yeah.
SPEAKER_04 (33:58):
Because kids and young people are a wonderful
market for SoFi.
SPEAKER_03 (34:03):
Yeah, they are.
I'm doing a lot of work in thestudent loan area.
And needless to say, SoFi is thenumber one competitor for
student loans for credit unionsthat are offering student loan
programs to their members.
SPEAKER_04 (34:18):
And do many Massachusetts credit unions
offer student loans?
SPEAKER_03 (34:22):
Yeah, I would say probably almost half are
offering student loans.
They're small portfolios, butthey're offering them.
It's folded into financialliteracy and life cycle of the
financial life cycle of themember, trying to attract
younger members into the creditunion membership.
SPEAKER_02 (34:38):
I know they have a much higher risk tolerance than
any credit union would be ableto do.
So that's the other disadvantagethat credit unions face.
SPEAKER_04 (34:55):
I've often thought that credit unions have too much
risk phobia.
A Chase, if it chooses to, cantake a risk on a home loan.
Because if it all goes bad, itmakes no difference.
No one cares.
Whereas a credit union willobsess about this approving or
declining a loan.
SPEAKER_02 (35:15):
Well, the regulator, I would submit a gene.
I'll let you weigh in, but Ithink the regulator has a
SPEAKER_04 (35:23):
fair amount of...
I think you're right.
I think you're absolutely
SPEAKER_03 (35:27):
right.
Well, there's nothing worse thangoing to your board at a board
meeting and disclosing a largecharge-off.
I would have to say, as a CEO,that's an experience that you
really don't enjoy at all.
So it's also, I think, thathaving volunteer boards who are
not lenders by trade, they don'tunderstand the risk-reward
trade-off sometimes.
SPEAKER_04 (35:49):
So,
SPEAKER_03 (35:50):
Viv, are you out
SPEAKER_04 (35:51):
pounding on doors of credit unions?
to interest in this.
SPEAKER_02 (35:55):
I have, and that's why I'm going to be leaning on
Gene and Kirk and Aaron tofacilitate and introduce me to
people they know who would beinterested, like-minded.
This is very much a relationshipplay.
It's not as if, you know, we'reout there providing
(36:18):
transactional services.
I mean...
what we're all about is a prettysignificant change for a credit
union, which will havelong-lasting positive results.
But it is a significant change.
So having that sort of warmtouch, that warm introduction,
(36:39):
that reassurance would be so, socritical for our go-to-market
strategy.
SPEAKER_03 (36:44):
Something that just has cropped up in my consulting
practice over the past month orso is really a new focus on
efficiency.
When the specter of taxationraised its head, I think a lot
of credit unions that weren'tpaying attention to their
efficiency suddenly startedmodeling what if they were
(37:05):
having to pay taxes, and theyrealized that 80% efficiency
ratio is not going to get themwhere they need to go.
So I think that Just that, andhopefully we've dodged the
bullet here, but just thatspecter of taxation has raised a
new awareness of how critical itis for the credit union to run
(37:26):
as efficiently as it possiblycan.
SPEAKER_04 (37:28):
If taxation had been, tax exemption had been
taken away, would that haveimpacted you severely, Gene, at
Harvard?
SPEAKER_03 (37:37):
No, we would be able to...
handle the tax burden itself, Idon't think it would have
impacted us a lot.
We would not have been happyabout it.
I don't think that it would, itcertainly wouldn't have changed
our mission or our structure,member owned and democratically
(38:00):
controlled.
So we wouldn't have been happyabout it, but we would have been
able to pay taxes if we neededto.
Would have hoped that there wassomething else that would have
been on the plus side iftaxation was the takeaway.
What else could we get thatwould have been given to us to
(38:21):
help us?
SPEAKER_04 (38:23):
Yeah, I think what you're saying would have been
true for most credit unions.
I think the biggest impact onyour credit union would have
been you would have had amonstrous accounting bill.
SPEAKER_03 (38:34):
Exactly.
SPEAKER_04 (38:37):
Before we go, think hard.
about how you can help supportthis podcast so we can do more
interviews with more thoughtfulleaders in the credit union
world.
What we're trying to figure outhere in these podcasts is what's
next for credit unions.
What can they do to really,really, really make a difference
in the financial scene?
Can't all be mega banks, can it?
(38:59):
It's my hope it won't all bemedical banks.
It'll always be a place forcredit unions.
That's what we're discussinghere.
So figure out how you can help.
Get in touch with me.
This is rjmcgarvey at gmail.com.
Robert McGarvey again.
That's rjmcgarvey at gmail.com.
Get in touch.
We'll figure out a way that youcan help.
We need your support.
(39:20):
We want your support.
We thank you for your support.
The CU2.0 Podcast.
Welcome to the CU2.0 podcast.
SPEAKER_01 (00:05):
Hi, and welcome to the CU2.0 podcast with big new
ideas about credit unions andconversations about innovative
technology with credit union andfintech leaders.
This podcast is brought to youby Quillo, the real-time loan
syndication network for creditunions, and by your host,
longtime credit union andfinancial technology journalist,
(00:27):
Robert McGarvey.
And now, the CU2.0 podcast withRobert McGarvey.
SPEAKER_04 (00:35):
Could shared services be the cure that puts a
halt to the epidemic of mergersamong credit unions?
Could shared services, backoffice shared services, help
credit unions increase theefficiencies and dramatically
lower their costs so that theycan better compete against big
banks and fintechs?
Two big questions, and on theshow today are Vin Anand, CEO of
(00:57):
Member Support Services, andhe's an evangelist for shared
support services on creditunions.
Also on the show is Gene Foley,former CEO of Harvard University
Employees Credit Union.
And along with Foley, KurtKorteleski, former CEO of
Bethpage Federal Credit Union,and Aaron Coleman, an SVP at
Callaghan.
(01:18):
are now the new MSS AdvisoryBoard with a mission of
providing strategic guidance.
On today's show, Foley and Anandoffer a detailed presentation
about why shared services canwork magic for credit unions.
It may sound per seself-contradictory that shared
services can create moreindependence, but it isn't, and
(01:41):
on the show you'll hear howshared services just may be the
lifeline for a lot of creditunions.
For more on shared services andcredit unions, There's another
show in the library with a linkis in the show notes.
And to hear the show with JimBlaine that Foley discusses in
the beginning of this podcast,there's a link in the show notes
to that show.
(02:01):
Listen up.
A very, very old friend of minewho has a doctorate from Harvard
spoke at great length the otherday with me about how much he
loved the Harvard Credit Union.
And it funded his crappy usedcars through graduate school.
SPEAKER_03 (02:20):
I'm glad to hear that.
And
SPEAKER_04 (02:22):
he actually was a big fan.
Now, this was before your timethere, but I assume the same
ethos prevailed.
I
SPEAKER_03 (02:31):
don't think so.
I spent 40 years at the creditunion.
SPEAKER_04 (02:34):
Well, he was in graduate school in the 70s.
SPEAKER_03 (02:38):
Okay.
It was before my time then.
SPEAKER_04 (02:42):
And you have 25 years as the CEO.
SPEAKER_03 (02:45):
Right, exactly.
But I was there for 15 beforethat.
SPEAKER_04 (02:51):
How are we going to see that kind of tenure in CEOs
going forward?
Or will that be anomalous?
SPEAKER_03 (02:58):
No.
There was a
SPEAKER_04 (02:59):
time when that was fairly normal.
I mean, Jim Blaine has that muchtime, et cetera, et cetera.
SPEAKER_03 (03:06):
Yeah.
So my theory is that theindustry has had Three
generations of CEOs.
The first generation were theBlaine generation, who kind of
took it from infancy up untilmaybe just about the preteen
years as an industry, if youwill.
Well, Blaine did the whole ride.
(03:27):
But the second generation was mygeneration, which took the
industry from maybe grade schoolup until adulthood.
And now the third generation isthis generation of CEOs that are
managing the industry inadulthood.
I know that Jim Blaine, Ilistened to his golden twilight
(03:48):
of credit unions.
I wouldn't use that sameanalogy.
I think of it more of a lifecycle.
I think the industry is now allgrown up.
And he was talking about theschool days.
SPEAKER_04 (04:02):
Well, the thing I like about Jim is...
People can disagree with him,and he thrives on that.
SPEAKER_03 (04:10):
I know.
SPEAKER_04 (04:10):
I mean, if you send him an email saying that to him,
he'd write an email backdisagreeing with you.
SPEAKER_03 (04:17):
That's true.
SPEAKER_04 (04:19):
Jim's a wonderful guy.
I don't always agree with him,but I always enjoy talking with
him.
Yeah.
He's a true believer in thecredit union model.
He is.
As am I.
Obviously, you are, yes.
Now, In the email that got meinterested in talking about this
topic, one of the bullet pointsthat said you can discuss is how
(04:40):
the advisory board will helpstrengthen credit unit
independence in today'senvironment.
And I think that's a good jumpoff from what Blaine was talking
about.
So because he sees independencedisappearing a lot of ways.
So how will the advisory boardstrengthen credit union
independence?
SPEAKER_03 (05:00):
It's really, really difficult.
to compete as a credit union inthis age.
It was easier back in the daysthat Jim Blaine was talking
about because there weren't thatmany competitors in the space.
There wasn't as much access toconsumer credit.
And now, no matter what size thecredit union is, it has to have
(05:24):
the same product set and thesame sophistication as Bank of
America does in order tocompete.
And the The advantage that theshared service model gives is
allowing the credit union toachieve scale and to achieve
standardization without givingup control.
And in the money that it'ssaving on the back office side,
(05:49):
which is just, I want to saycommodity, but it's not nearly
as important as the memberfacing side of what the credit
union is offering.
It allows those limitedresources to be redeployed.
into the member facingactivities that the credit union
has.
And this model really startedwith credit unions that were
(06:09):
trying to achieve scale and knewthat they had to achieve scale
in order to compete.
And this was one way that theycould try to do that.
And for me, I know that thatThere's some interest in why a
long-term credit union CEO wouldbe interested in this model.
(06:29):
It's reminiscent of theDesjardins model in Canada,
where you've got 200 creditunions, all with their own
identity, all with their ownfields of membership, but
they've consolidated and they'veused the power of cooperation on
the back office side of thingsso that they could be more
effective with the membership.
(06:50):
And I think that that's what thegoal is.
that the advisory board has.
I'm really looking forward toworking with Kirk Koroleski and
Aaron Coleman.
All of us are long in the toothin the credit union world of
really trying to leverage thatcooperation to the advantage and
to keep the independence of theindividual credit unions.
SPEAKER_04 (07:13):
How realistic do you think that is?
I mean, I think I totally agree.
To me, that is the way to keepcredit unions alive and healthy
going forward.
It's that essentially sharedservices.
SPEAKER_02 (07:24):
Yeah, let me weigh in a little bit on that one,
Robert.
Build up on the conversation youand I and John Bissell had when
you did that podcast last fallwith us when Greylock joined us.
I think that's the keymotivation for us to set up this
(07:44):
advisory board and have reallytrusted leaders from the
movement get associated with usto really provide that assurance
in many ways that this issomething that is real.
Well, it's been done.
(08:05):
We're the second model in thecountry which has done it.
And there is a fair amount ofempirical evidence that the
credit unions have retainedtheir independence.
They have achieved thosesavings, and they have been able
to deploy that into more deeperrelationships with their
(08:25):
members.
And, you know, with Gene andAaron and Kirk, there comes that
trust factor as well, which Ithink will resonate with a lot
of credit unions who have beenlooking at this for years now,
to my knowledge, but arehesitant to make that next step.
(08:47):
because they have concerns aboutloss of control, et cetera.
So I think that that really isgoing to help us really boost
that level of confidence in thismodel.
SPEAKER_04 (08:58):
Now, CUSOs obviously are a shared service model.
Where do CUSOs fit into whatyou're talking about?
SPEAKER_02 (09:06):
Well, we are a CUSO.
SPEAKER_04 (09:07):
Yeah, I know that, but more broadly.
SPEAKER_02 (09:09):
I think if you look at the vast majority of CUSOs in
this country, there are wellover a thousand of them now.
The vast majority of them arelargely what I would call single
point solutions or a discreteset of services and solutions
pointed towards making money.
(09:32):
We are very, very unique.
A, if you look at our footprint,it's very, very wide and quite
deep.
And there are very, very fewmodels of those around.
And secondly, we're not set upto make profits.
We are a straight cost passthrough.
So whatever, it's a partnership,whatever we are able to
(09:52):
collectively save, that flowsentirely directly back into the
earnings of each one of therespective owner members.
That's what makes us different.
SPEAKER_03 (10:03):
Robert, I was a 13 years tenure on the PSCU Valera
Board, which is the largestcredit union in CUSO.
in the country and I can tellyou that having that CUSO
structure is a major competitiveadvantage in the credit union
space.
I believe in the CUSO model andas Vim is saying it's really
(10:26):
going to I think have tractionwithin the credit union space
that this is a CUSO and not anot a for-profit vendor.
that we've set up.
The question was, is it doable?
I think, yes, is it doable?
Is it gonna be easy?
No, it's probably not gonna beeasy.
But even in the time that I wasthe CEO at Harvard, I had
(10:47):
multiple conversations withother credit unions about trying
to consolidate back officelending and to try to do some
cooperative processing withother credit unions.
So I think that the desire hasbeen there for a long time.
It's the solution that waslacking.
SPEAKER_04 (11:03):
Now, Maine, the Maine Credit Union League has
some shared back office.
SPEAKER_03 (11:08):
Right, core processing.
SPEAKER_04 (11:10):
Can that model be extended?
Not necessarily using the exactMaine technology, but that idea.
I mean, why can't all theinstitutions in Massachusetts be
on the same core processor?
SPEAKER_03 (11:28):
You know, I believe that part of it is really comes
down to governance and control,which is one of the competitive
advantages that we have withthis model is that I think that
the.
Unlike the Canadiancounterparts, the American CEOs
are probably much more concernedabout control.
(11:50):
But with this model, they'regoing to maintain that control.
They're going to maintain theirown separate field of
memberships, their ownpositioning strategically, their
own identity.
It's really just consolidatingthe back office, which I do
think that there is desire outthere.
to do that.
I do think it takes the rightcombination of credit unions and
(12:13):
the right credit union CEOs toagree to this, though.
SPEAKER_02 (12:17):
Yeah.
The other aspect to the contrastwith something like what the
main has is if you're on a cardplatform today and you're
probably in a long-termcontract, it's going to take a
while for you to get out of thatcontract and or pay a heavy...
withdrawal penalty, et cetera.
(12:39):
So that may kind of curtailthings.
But the other bigger aspectabout it, that is sharing in
some technology processing.
Our model is totally applicationagnostic.
Our model is really what we'redoing is providing shared
employees.
And that's where the laborsavings are the key piece that's
(13:03):
really generating the success ofour model.
We're operating on a multitudeof different applications and
systems today, and we're prettyagnostic as long as what we're
doing is exactly the same thingfor every credit union.
That's the real big difference.
You have a lot of models outthere where everybody's
(13:24):
subscribing to one set oftechnologies.
They may not be totally happywith it because it's not doing
exactly what it wants with them.
And our model is, as long asit's the same kind of
functionality of the softwareyou're using, we'll work in all
of those software.
SPEAKER_04 (13:44):
Now, let's say Harvard Credit Union says we
want to be part of this.
It's a billion-dollar creditunion.
What would change for them?
SPEAKER_03 (13:58):
Well, the only thing that would really change is that
with the savings that I havegoing into the shared solution,
I would be able to redeploy thatinto other member-focused
activities that I couldconcentrate on rather than the
back office.
In this particular Boston jobmarket, in particular to VIMS
(14:20):
Point, hiring is really a verydifficult, very, very
competitive marketplace.
You've got a lot of universitieshere.
It would take a big headacheaway from me in terms of my
staffing resources, I wouldstill have a direct contact to
(14:41):
the shared service company andregular insight into the
processing so that the Largest,I think, change that would be
for Harvard or would be forother credit unions would be
there is this ability to save interms of overhead, in terms of
(15:02):
jobs that you actually have.
I think that most credit unionswould probably initially be
somewhat reluctant to actuallycut staff.
although it's going to allowthem to do that long-term.
But in the short term, I thinkthat staff would be redeployed
into other areas of the creditunion that are more
service-oriented.
SPEAKER_04 (15:22):
Yeah.
And that's actually a stickingpoint for many credit unions is
they deploy AI.
I say, well, how are you goingto cut staff?
And they say, oh, no, we're notgoing to cut staff.
And then one very smart guy saidto me, look, what's going to
happen is that there will bestaff attrition.
It'll occur at this rate.
He gave me a number.
(15:43):
And he said, you know, otherpeople will decide to move on,
go to different jobs in otherinstitutions.
In five years, it'll all behandled.
And he was a patient man anddidn't want to fire staff.
And he was willing to put fiveyears into it.
SPEAKER_03 (15:58):
I'll tell you another direct example from the
credit union at my time there isthat my deposit operations
people used to come in in themorning and they had 11 systems
that they were signing on to.
They had 11 disparate systemsthat they needed to be expert
in.
And even though that was abillion dollar credit union, you
(16:21):
don't have the really depth ofbench where you've got six or
seven people who know everythingeach of those 11 systems.
You've really got a lot of riskbecause when Sally's on
vacation, Joni's the only otherone who knows how to use that
system.
And if her child is sick andshe's not in that day, you're
scrambling to try to get yourdeposit operations to be done.
(16:44):
It takes a huge headache out ofthe picture in terms of most
credit unions are runningmultiple, multiple standalone
systems that they're no longerhaving to support.
SPEAKER_02 (16:55):
I think the other point, Robert, to your point
about staff shortages is at somestage, given all the headwinds
and all the challenges retailfinancial services generally is
having today, but credit unionsin particular, particularly the
smaller ones, is to really askyourself the question, what is
(17:18):
your mission?
Is your mission to really driveas much value and intimacy and
be the financial institution ofchoice for your members, or is
it to provide jobs in your localcommunity?
And somewhere along the lines,credit unions today, we know
(17:39):
today, the ones we're talkingto, they're facing that very,
very tough choice today in thisfair face.
So this is where we think oursolution can really, really help
them to, continue to make theirindependence and their relevance
to their membership that speciala special source which separates
(18:03):
the credit union and itsrelationship with its members
than does say a regular bank
SPEAKER_04 (18:12):
what kind of time frame are you thinking about
them
SPEAKER_02 (18:16):
in terms of
SPEAKER_04 (18:17):
when this really takes root, starts to change the
way the credit union industryoperates?
SPEAKER_02 (18:25):
Yeah, great question.
So we have targeted, and it'snot a secret because we'd be
pretty open about it, is that wewant to grow this CUSO to$10
billion of assets under service.
And we think with that kind ofscale, That is really going to
(18:47):
move the needle significantlyfor our owner members in terms
of their operating expenses andtheir efficiency ratios.
And I think that will get a lotof attention when credit unions
start seeing their results.
We put ourselves to the horizonof three to five years to get
there.
And I think by the time we getthere, we'll probably be
(19:08):
knocking on the door of gettingto$20 billion.
SPEAKER_04 (19:14):
Gene, did you do any mergers when you were at
Harvard?
You probably did some shotgunweddings at the behest of NCOA,
but did you do any meaningfulmergers?
SPEAKER_03 (19:23):
No, we actually didn't.
I very much stayed true to thecommon bond, which was the
university.
So we were not doing mergers.
Certainly now, I've started thisconsulting practice.
That's all that anybody is doingis mergers, but no direct
experience as a credit unionCEO.
SPEAKER_04 (19:41):
Well, Kornileski is in the same boat.
I mean, he is very proud thatthe growth at Bethpage was
entirely organic.
Now, he did do a few shotgunmarriages with failing
SPEAKER_02 (19:51):
credit unions.
Yeah, very few.
One they did was with Montauk.
That was because of themedallion loan.
So, yeah.
So this model is actually theone I worked with Kirk on what
he set up for Bethpage and hisother two partners.
This is exactly the same replicamodel.
SPEAKER_04 (20:10):
Interesting.
It certainly worked at Bethpage.
He drew that thing fantastic,great.
He painted within the lines.
He wasn't doing screwy stuff.
SPEAKER_02 (20:25):
Their efficiency ratio is around the 66-67%.
Their operating expenses arebelow 2%.
That was exactly the goal ofthat model.
That's, in my humble opinion,one of the key enablers to
enable them to fuel that growth.
SPEAKER_04 (20:45):
Now, Vim, when you talk to a big credit union, do
they say, we don't need this?
This is, you talk about littlecredit unions.
What do they say?
SPEAKER_02 (20:54):
No, actually, it's interesting.
You know, when you and I andJohn Bissell talked last, John
Bissell, 1.6 billion was fourtimes the size of our current
credit unions.
And this whole conversationabout big and small, really did
not materially surface becauselook at the mergers that are
(21:16):
going on right now, Robert.
I mean, we got one, which Ithink is going to get to 19
billion of assets undermanagement.
And there's another one, Ithink, which is going to get to
about 13 billion out of the...
SPEAKER_04 (21:30):
Well, there's First Tech DCU, which...
There's First Tech DCU.
So all the calculators that we
SPEAKER_02 (21:36):
have.
Yeah, yeah, yeah, yeah.
So...
I think there is universalrecognition that the name of the
game is scale.
And how do you get to scale?
I mean, you have two options toget to scale.
You merge or you do somethinglike what we've got.
SPEAKER_03 (21:55):
You don't reach it organically.
I can say that.
Even having grown a credit unionfrom some 70 million to a
billion, I can tell you that thepressure really does not
decrease at that level.
SPEAKER_04 (22:12):
Oh, I would agree.
And it's funny, when I firststarted writing about credit
unions, a billion dollar creditunion was big.
Now the benchmark of big is 10billion.
It's really, it's weird.
And there are only a handful ofthose.
So what about the other 4,000plus?
(22:34):
I don't know.
Still credit unions.
SPEAKER_02 (22:37):
That's why we feel, obviously we're biased, right?
We feel our model is such asalvation because if you can get
into this sort of setting whereyou are building scale in back
office and utilitarianactivities, et cetera, bringing
up some very, very valuabledollars, which enables you to do
(22:58):
deeper things around products,enables you to invest in
technologies, although we'realso now expanding our model to
have shared investments in newtechnologies, All of that
enables you to just keep thatintimacy with your members and
keep relevant to them.
SPEAKER_04 (23:19):
So are you starting something that will be similar
to the Circle Fund?
SPEAKER_02 (23:24):
No, no, we're not an investment vehicle.
We are a straight, pass-throughservicing organization.
Simple and straightforward.
Takes a lot of effort to make ithappen.
It doesn't happen overnight.
You know, you're bringing in asingle organization's processes
(23:48):
and functions and culture, whichhas grown over a period of 40,
50 years into something new.
That doesn't happen overnight.
Well, we've got a good playbookon that, a well-established,
proven methodology to do that.
That's all we are.
Pure, straight, simple servicingorganization.
SPEAKER_04 (24:05):
And yeah, as we've discussed, to me, it's obvious
that To a member, a creditunion's back office is neither
here nor there.
As I've said to credit unionCEOs, no prospective member has
ever come in, knocked on yourdoor and said, tell me what your
core system is.
I need to know before I become amember.
(24:26):
No one has ever done that.
And if it was, it was thepresident of Scimitar who wanted
to make a sale.
And really, the truth is, Ihappen to know the core system
of the credit union I use, but Idon't care.
It's perfectly adequate.
(24:46):
It's fine.
I don't care what it is.
SPEAKER_03 (24:49):
Even in core conversions now, the core system
is no longer what drives thecore conversion.
It's the mobile application andthe online banking application
and the member-facingapplications or the applications
that more than the core are thecompetitive advantage that
credit unions are convertingfor.
SPEAKER_04 (25:07):
I've seen data, I think, from Cornerstone where
about the time you became CEO atHarvard, probably 90% of your
tech budget went to core.
And now institutions that size,it's more like 40% of the tech
budget goes to core.
Yeah,
SPEAKER_03 (25:26):
that's the case for sure.
I
SPEAKER_04 (25:28):
do think an issue that you touched on here is
difficulty in staffing and thatthis solution will make that
easier or solve that staffingproblem.
And Gene, you're suggesting youhad staffing difficulties in
Boston, Massachusetts andCambridge, Massachusetts, which
(25:51):
is astounding given the numberof college graduates who get
spat out by the system everyyear.
I'm not saying what you'resaying isn't true, but I find it
fascinating that you did havethat problem.
SPEAKER_03 (26:03):
Yeah, it was a problem.
Luckily, I had the universitymarket to tap into as well.
But as you know, Boston is afinancial hub and you're
competing against a lot of otherplayers out there for talent.
SPEAKER_04 (26:17):
Oh, you can go work at Fidelity and make a whole
boatload of money if you're anygood.
There's a lot of options.
SPEAKER_03 (26:25):
And I think even...
I think especially for thecredit unions that are under a
billion dollars, I think thatwar for talent is for the small
credit union.
That's probably the largestcompetitive disadvantage that
they have is being able toattract and keep good talent and
folks that they can provide somesort of a career path for.
(26:47):
I think that that's probably thebiggest challenge for small
credit unions now.
SPEAKER_04 (26:54):
I think you're right.
Now, Vim, does your solutionhelp solve the, and Gina
mentioned this, the benchstrength issue where many credit
unions have limited benchstrength.
And I remember talking with atop 10 credit union, a big
credit union.
I asked, why are you doing acore conversion?
Well, apparently the guy whokept that thing running for 45
(27:16):
years was retiring.
And it was too hard.
It just didn't seem profitableto train other people.
to fix the big problems that itjust seems smarter to do a core
conversion.
And this was a huge,
SPEAKER_02 (27:31):
this is a huge credit unit.
So that's the other beauty ofour model because we're creating
sufficient scale in each area.
whether it's in underwriting andlending, whether it's in
processing, whether it's inservicing, on the payment side
and deposit operations, etcetera, we're keeping enough
(27:52):
because we're consolidating andscaling.
That allows us to create enoughbench strength in each one of
those areas so we're not justone key person dependent.
The other thing, which I thinkyou're aware of, Robert, is that
half our work is done offshorein India.
where we have a labor force,where it's a country of 1.4
(28:17):
billion people, 60% of whom areunder the age of 40.
So it's a very young country,highly educated.
They've been in this business ofproviding offshore business
processing services and ITservices for a very, very long
time.
And that enables us byleveraging that to ensure that,
(28:41):
A, we've got some laborarbitrage advantages, but we are
also not in this funk all thetime that somebody leaves us and
then we're stuck for replacingthem, whatever, because we have
access to such a vast labormarket here in the United
States.
And it enables us to also have avariable model where if volumes
(29:05):
go down, we're not facing thisissue of, oh my God, I got to
lay off staff, and then all of asudden we do an exciting home
equity product, and all of asudden all the home equity
applications are through theroof, and how do we staff for
it, et cetera.
So we've got a variable model aswell built into our service
delivery here.
SPEAKER_04 (29:25):
Do the large technology companies in the
U.S., the service credit unions,things like Jack Henry and
Pfizer, do they offshore work toIndia too?
SPEAKER_02 (29:38):
All of them.
SPEAKER_04 (29:39):
Yeah, that's what I would assume.
SPEAKER_02 (29:41):
All of them, Robert.
All of them are, every one ofthem have got their software
being written and developed, notjust in India.
India takes the lion's share,but there is a burgeoning market
now in certain parts of EasternEurope At one stage before all
this war started, Ukraine had avery deep IT bench.
(30:03):
That, of course, is now gone.
SPEAKER_04 (30:04):
That's been dispersed, and some of that's
come to the
SPEAKER_02 (30:09):
U.S.
In U.S.
and in neighboring countries aswell.
A lot of that's in neighboringcountries.
SPEAKER_04 (30:15):
I imagine Germany's gotten a ton of it.
SPEAKER_02 (30:18):
Actually, Germany hasn't popped on my radar.
I see more coming out of Poland,interestingly.
I've seen a lot more come out ofHungary.
Romania has been the otherplace.
SPEAKER_04 (30:30):
Interesting.
SPEAKER_02 (30:32):
I think the key thing for us really is to get
like-minded CEOs who are really,really interested in the
long-term independent survivaland growth of their credit
unions and embrace the notion ofcollaboration and partnership as
a part to do that.
That's what's key for us.
SPEAKER_04 (30:53):
And that's where Gene and Kirk come in since they
can talk CEO to CEO.
SPEAKER_00 (31:00):
Right.
SPEAKER_04 (31:02):
And have credibility since they both have
distinguished histories in thatjob.
Exactly right.
That's your
SPEAKER_03 (31:12):
job, Gene?
It is, you know, and I strugglewith just in terms of the
industry.
We're offering the lowest costproducts out there and yet our
customers processing costs arethe highest out there.
We're competing with the largeplayers out there.
You always cite Chase Robert asone of our competitors and the
(31:35):
fintechs that are out there.
They're processing transactionsfor a fraction of what credit
unions are processingtransactions for, and yet their
products are more expensive.
I think that this model reallyaddresses what one of the
fundamental issues that we haveas credit unions is keeping our
(31:55):
products as cheaply and greatestvalue that we can possibly
provide for our members when themodel of having so many
disparate systems that we'reoperating is driving those
transaction costs so high.
Explain that.
Our dependent upon third-partyproviders to do our processing.
(32:17):
And typically, there's not justone third-party provider that we
can negotiate with any kind ofscale pricing.
So credit unions as an industry,I think, are probably paying top
dollar to the vendors that we'reusing.
To my knowledge, there are nosignificant credit unions that
have got proprietary systemsthat are much less expensive to
(32:39):
operate than having athird-party provider out there.
And this particular model withmembership member support
services, you're gaining thatefficiency in the back office so
that you can be more competitivewith your product pricing
because it's not costing you asmuch to process that
transaction.
SPEAKER_04 (32:57):
Right.
I totally agree that no creditunion can compete in terms of
expense against Chase, but Chasejust has massive scale.
SPEAKER_02 (33:08):
Yeah.
It's a double-edged swordbecause you're a smaller
institution.
You are already disabled fromnegotiating the best deal you
can from these vendors.
And then you've got to competeat a price point which makes you
competitive.
So, I mean, that's what really–you've got so many headwinds as
(33:30):
a smaller institution company.
I forget comparing to theChase's.
I mean, just in terms of theregional banks here, all the
fintechs, as Gene was saying, Imean, you look at SoFi and for
our credit unions in New Jersey,I mean, SoFi is eating our lunch
right now in the consumer andnow in the home equity market.
SPEAKER_04 (33:53):
SoFi would probably be feasting too in greater
Boston.
SPEAKER_02 (33:57):
Yeah.
SPEAKER_04 (33:58):
Because kids and young people are a wonderful
market for SoFi.
SPEAKER_03 (34:03):
Yeah, they are.
I'm doing a lot of work in thestudent loan area.
And needless to say, SoFi is thenumber one competitor for
student loans for credit unionsthat are offering student loan
programs to their members.
SPEAKER_04 (34:18):
And do many Massachusetts credit unions
offer student loans?
SPEAKER_03 (34:22):
Yeah, I would say probably almost half are
offering student loans.
They're small portfolios, butthey're offering them.
It's folded into financialliteracy and life cycle of the
financial life cycle of themember, trying to attract
younger members into the creditunion membership.
SPEAKER_02 (34:38):
I know they have a much higher risk tolerance than
any credit union would be ableto do.
So that's the other disadvantagethat credit unions face.
SPEAKER_04 (34:55):
I've often thought that credit unions have too much
risk phobia.
A Chase, if it chooses to, cantake a risk on a home loan.
Because if it all goes bad, itmakes no difference.
No one cares.
Whereas a credit union willobsess about this approving or
declining a loan.
SPEAKER_02 (35:15):
Well, the regulator, I would submit a gene.
I'll let you weigh in, but Ithink the regulator has a
SPEAKER_04 (35:23):
fair amount of...
I think you're right.
I think you're absolutely
SPEAKER_03 (35:27):
right.
Well, there's nothing worse thangoing to your board at a board
meeting and disclosing a largecharge-off.
I would have to say, as a CEO,that's an experience that you
really don't enjoy at all.
So it's also, I think, thathaving volunteer boards who are
not lenders by trade, they don'tunderstand the risk-reward
trade-off sometimes.
SPEAKER_04 (35:49):
So,
SPEAKER_03 (35:50):
Viv, are you out
SPEAKER_04 (35:51):
pounding on doors of credit unions?
to interest in this.
SPEAKER_02 (35:55):
I have, and that's why I'm going to be leaning on
Gene and Kirk and Aaron tofacilitate and introduce me to
people they know who would beinterested, like-minded.
This is very much a relationshipplay.
It's not as if, you know, we'reout there providing
(36:18):
transactional services.
I mean...
what we're all about is a prettysignificant change for a credit
union, which will havelong-lasting positive results.
But it is a significant change.
So having that sort of warmtouch, that warm introduction,
(36:39):
that reassurance would be so, socritical for our go-to-market
strategy.
SPEAKER_03 (36:44):
Something that just has cropped up in my consulting
practice over the past month orso is really a new focus on
efficiency.
When the specter of taxationraised its head, I think a lot
of credit unions that weren'tpaying attention to their
efficiency suddenly startedmodeling what if they were
(37:05):
having to pay taxes, and theyrealized that 80% efficiency
ratio is not going to get themwhere they need to go.
So I think that Just that, andhopefully we've dodged the
bullet here, but just thatspecter of taxation has raised a
new awareness of how critical itis for the credit union to run
(37:26):
as efficiently as it possiblycan.
SPEAKER_04 (37:28):
If taxation had been, tax exemption had been
taken away, would that haveimpacted you severely, Gene, at
Harvard?
SPEAKER_03 (37:37):
No, we would be able to...
handle the tax burden itself, Idon't think it would have
impacted us a lot.
We would not have been happyabout it.
I don't think that it would, itcertainly wouldn't have changed
our mission or our structure,member owned and democratically
(38:00):
controlled.
So we wouldn't have been happyabout it, but we would have been
able to pay taxes if we neededto.
Would have hoped that there wassomething else that would have
been on the plus side iftaxation was the takeaway.
What else could we get thatwould have been given to us to
(38:21):
help us?
SPEAKER_04 (38:23):
Yeah, I think what you're saying would have been
true for most credit unions.
I think the biggest impact onyour credit union would have
been you would have had amonstrous accounting bill.
SPEAKER_03 (38:34):
Exactly.
SPEAKER_04 (38:37):
Before we go, think hard.
about how you can help supportthis podcast so we can do more
interviews with more thoughtfulleaders in the credit union
world.
What we're trying to figure outhere in these podcasts is what's
next for credit unions.
What can they do to really,really, really make a difference
in the financial scene?
Can't all be mega banks, can it?
(38:59):
It's my hope it won't all bemedical banks.
It'll always be a place forcredit unions.
That's what we're discussinghere.
So figure out how you can help.
Get in touch with me.
This is rjmcgarvey at gmail.com.
Robert McGarvey again.
That's rjmcgarvey at gmail.com.
Get in touch.
We'll figure out a way that youcan help.
We need your support.
(39:20):
We want your support.
We thank you for your support.
The CU2.0 Podcast.
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