Collaboration and Innovation Are the Heart of CUSOs, Take Full Advantage

Underground Community renegades Susan Mitchell, CEO of Mitchell, Stankovic & Associates, and Randy Karnes, CEO of the CUSO CU*Answers, recently talked the power of collaboration during an Underground Collision session at the 2018 NACUSO Network Conference in Disneyland. They covered everything from innovation to CUSO executive compensation and how that measures up with the rest of the for-profit world. For Randy, CUSOs must bring added value beyond their capital to help strengthen the member connection rather than serve as a value add. Here’s what they had to say after the event:

Sue:  Credit Union Service Organizations were started by credit union leaders as a for-profit, entrepreneurial endeavor to add value to members and generate income! Think of the early days of CO-OP, PSCU, CUSG, CU Direct, Shared Branching and CU*Answers. These collaborative efforts started some of the largest, most successful business ventures in the credit union industry and have returned significant dividends to the original investors, not to mention the impact on credit union owners and charitable causes. Is this true today or have they have become competitive ventures that may distract from the credit union mission?

Randy:  I always think of CUSOs as being started to expand the powers of credit unions. CUSOs created the ability to diversify the cooperative tactics and expand on the idea that if a community owned a cooperative venture then they should have the chance to leverage it for even more value. Why have a one-trick-pony venture? If we can do this, why not that. Cool idea. Now the natural extensions usually come in two flavors – financial service extensions or emulating vendor solutions from non-CU owned entities. But the spirit of the design to DO MORE with your cooperative owners is a cool idea.

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Sue:  Board commitment to a CUSO needs to be considered a R&D expense with clear business objectives and designs. Many boards are investing in business ideas with little collaboration or impact on members. The investment in starting a CUSO must be accompanied by marketing, member access and relationship development. There is also a significant redundancy within the CUSO marketplace and consolidation may be in the future. We have seen it among the largest CUSOs, and I expect it will happen on a more localized basis. Will credit unions close their CUSO doors or look to merge with other similar CUSOs across the county?

Randy:  Will industry consolidation lead to a big push for CUSO consolidation? Hard to say. In track one, where the CU simply wants to extend its entrepreneurial abilities to expand services for its members and there is no real pressure to sell to other CU members, I doubt it. In some instances CUSOs are just another silo of services dedicated to the common bond members. But in cases where CUSO health depends upon shared CU audiences to create the minimum revenue base for operations, we may see CUSO consolidation as we would in any other competitive marketplace.

Sue hits on another point here – are CUSOs the best opportunity for CUs to invest as venture capitalist or innovators? Maybe. It can be expensive to start a business just to investigate stuff – CUSOs are best designed to execute a business plan, not search for one in most cases. Credit unions should be wary of just chartering a CUSO to research things. CUSOs serve their member-owners best when they are put to work to generate value on a dedicated track and show a return on their efforts for members and credit union organizations alike.

Sue:  Venture capitalists expect a return on investment that increases wealth and shareholder value. Compensation expectations for CUSO leaders and employees often reflects this desire for owner equity. There is a mixed bag of leaders within the CUSO movement, some with BIG ideas to disrupt the industry and others that are born from the member need run by credit union professionals. As CUSOs grow, compensation for the executives will need to increase, reflecting the for-profit spirit of business practices. Is it realistic for the executive to expect a big pay out or other inconsistency with credit unions’ mission to add member value?


Just because a CUSO is engaged in a non-traditional credit union initiative, it does not mean the CUSO executives should be paid on par with an external venture’s pay scale.

—Randy Karnes

Randy:  CUSO compensation is a tricky question and often a trap for CUSO executives and credit union executives alike. Just because a CUSO is engaged in a non-traditional credit union initiative, it does not mean the CUSO executives should be paid on par with an external venture’s pay scale. Executives should be paid on par with the marketplace opportunity and the CUSO’s ability to pay and still show a return to its credit union owners. If a CUSO executive or credit union shareholders cannot balance their vision for designing harmonious pay scales between CUSO and credit union environments, success will be hard to find and sustain. Compensation should be modeled for two eventualities: First, pay the executive a fair return on the “run” side of the business – what does the daily or regular operation yield, and what can if afford based on the marketplace in which the CUSO is targeted and successful. Second, create windfall plans for the CUSO executives should the CUSO expand its market targets or sell intellectual properties outside of the “run” side of the business. CUSOs are often partnerships between members and the entrepreneurial start-up professional, and in those moments when windfalls are harvested by the CUSO, both the credit union and the identified professionals should benefit. The key is to have these moments preplanned and documented as program expectations. If CUSO leaders are strong enough to create opportunities, they should be smart enough to preplan for the same opportunities. The mission was to earn for both the member and the designer.  

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Sue:  Credit union boards are focused on the due diligence of the retail financial institution and governance is not typically reflective of a for-profit, CUSO business practice. CEOs often have direct line responsibility and manage the CUSO as a department. In this current environment, there are credit unions that have an equal amount of assets under management as the entire retail member base. CUSO boards often comprise current credit union board members and staff aligning with the particular discipline (lending, insurance, investments) and member-owner philosophy. Modernizing board governance to include assets under management will be critical to the future of the CUSO and understanding the risk associated with these income expectations. For example, wealth management services produce revenue, but relationships are with the broker, not the credit union. Is there vulnerability associated with growth and dependence on income?

Randy:  Boards are a quandary when every CUSO becomes part of the ecosystem of a credit union. First, the credit union board has to adopt new practices and focuses. Are they managing and understanding their equity investment in their CUSO? When do they focus on it and how? Credit union boards need to evolve to be more than a one-trick-pony or single-focus, cooperative organization. Owning a CUSO via equity or even just through participation should be a signal that the board has new responsibilities and companies to build. Once embraced, I believe credit union boards become more effective, valuable and poised to take their cooperative opportunities to new heights.

Should their governance change? YES. It should be freed to see more opportunities, and opportunities outside the simple vision of getting along with a credit union regulator. As to the CUSO board of directors, it must ensure that it leaves the member relationship to the credit union board. It should view CUSO customers through a different lens. If not, then the two boards are simply echo chambers and the consumers (members) of both get less. This is not to say that the CUSO board should not respect the requirements of the credit union’s board, but they should respect the CU board as OWNERS and shareholders and be ready to separate the prioritization of owners and customers effectively. More than governance rules and terms, credit union boards and CUSO boards need to discuss focus, who they work for, and why to set the stage for success independently so that one plus one is greater than simple math.


Board commitment to a CUSO needs to be considered a R&D expense with clear business objectives and designs.

–Sue Mitchell


Sue:   Credit unions’ business model evolution started primarily as credit unions collaborating to create new capability or control expense. Now I see personalities driving CUSOs. These stars are branding their solution as super cool and relevant. Credit unions need to invest, and then other investors will join a money maker. It seems more about the leader than members. It was startling to see that there were minimal breakout sessions at NACUSO focused on the member value. CU*Answers is starting a conversation about member-owners and how to engage consumers back in the philosophy of people-helping-people through ownership. I wonder who will listen to the member-owner point with the importance of its impact to sustain the credit union model.

Randy:  CUSOs like credit unions have developed along multiple, diverse tracks, and the latest might be that CUSOs are the best way to attract capital for business leaders who have few opportunities with capital sources outside the credit union industry. Credit unions can be valuable partners and their captive-relationship communities attractive customer bases for any business person. Add to that the fact that CUs want to own or guarantee access for their businesses on par with their competition and you have a perfect opportunity to retread ideas with credit union investors.

Attracting capital is a marketing endeavor and personalities emerge to get the job done. This is neither all good or all bad – it is simply a business function. I think that NACUSO focuses too much on member value, and not enough on CUSO customer or owner value. I worry that CUSOs cannot separate their role and need to heighten their customer experience if it is watered down by taking credit union members for granted, thinking CUSOs are just a value add instead of the VALUE received. CU*Answers speaks more and more to the business models of cooperatives – where the consumer and owner are merged into a single persona and intuitively are married to the win-win design for business. It works in the credit union marketplace, and it can work in the CUSO marketplace. We believe that win-win designs are a must for both, and while not every CUSO is a cooperative, we see that every CUSO designer can respect the win-win mantra and build it into their own designs. 

In the end, most of these questions have tried to focus the audience on the requirement that CUSOs respect the spirit of credit unions and their connection to their members. But remember that the connection is not the same as the financial mission with members. CUSOs by design have a different direct mission with their customers and must if they are to bring additional value to mix. Adding quality value for members is the win-win for any credit union who decides to engage a CUSO.