WEST PALM BEACH, Fla. – Winds of change are blowing in the corporate credit union network and they should help to bring more options and better pricing to credit unions everywhere. The corporate network goes through cycles. For years corporates maintained tight geographical boundaries and truly played the role of "home state" corporates. In the `90s the boundaries started to blend as more corporates looked to pick up new business in other corporates' primary states. There was also the merger craze in the mid to late `90s where "economies of scale" was the mantra of the day. Some corporate leaders predicted the network of the future would be regional with six or seven large regional corporates, which hasn't materialized yet. In just the last few years there's been another palpable change that any close corporate CU observer can see. More and more corporates are realizing two things – first, they can grow business by starting CUSOs to get into new business areas traditionally not served by corporates, and second, partnering and aligning with fellow corporates – not necessarily via a merger – may be the future of the corporate network. "I think partnering is a good way to go. Mergers are very difficult, very emotional where partnering and working together seems to be a more viable solution," said WesCorp CEO Bob Siravo. WesCorp of course has done it both ways. It has gone the merger route, most recently with PacCorp and it has gone the CUSO route, most recently helping form Procura with some other industry players. The CUSO's sole product right now is a purchase card. WesCorp however also partners with smaller corporates in many areas and don't be surprised if WesCorp doesn't lead a collaborative effort with other corporates on item processing. "We are working and collaborating towards solutions. We're doing a lot of looking at numbers, trying to figure out a way to make it work. It's a challenge because so many people have invested already in their hardware and applied a lot of resources, but I think over time we'll overcome that," said Siravo. For smaller corporates like Treasure State in Montana, partnering with larger corporates is imperative. "The strategy I employ is we can bring a lot of new products and services to our members without the cost infrastructure. We partnered with WesCorp for online ALM training for our members. We use Mid-Atlantic's MyCU CUSO for bill pay, and we're part of the group of corporates marketing business services with CU Business Group," said Brad Miller, CEO of Treasure State. Miller said although Treasure State is a smaller corporate, his board has no intention of looking into any merger deals, and with the new wave of partnering it's getting easier to bring more to members. Credit Union Business Group, a business services CUSO started by Northwest Corporate, is a prime example of how corporates can combine capital to help each other. "That is a perfect opportunity to use economies of scale. You need volumes, it's a volume driven business. For all of us to replicate the same things, doesn't make sense," said Joe Herbst, CEO of Empire Corporate and one of eight corporate owners of the CUSO. Herbst believes back office efficiency is the new rallying call for corporates. "There are a lot of trends now in the financial industry for outsourcing the back office. We're trying to get as efficient as we can to be able to provide the quality service credit unions are accustomed to. You have to balance the need for additional infrastructure and how much you're going to bring to members," said Herbst. So for example instead of investing hundreds of thousands of dollars in home growing business services, it leveraged the existing corporate owned CUSO. One of the Early Pioneers For an example of a corporate CUSO that didn't need additional corporate investors to succeed, look no further than Mid-Atlantic Corporate's MyCU Services, LLC. The CUSO, started in the late '90s, provides bill pay services. It has 10 corporate credit union partners that market the EBP services to their member CUs. Today over 400 CUs are clients. "We opened it up for corporates to partner. We did not offer ownership because we felt we had enough capital to capitalize it ourselves," said Ed Fox, CEO of Mid-Atlantic Corporate. But to grow its business it forged marketing partnerships with its fellow corporates. Fox said Mid-Atlantic is very flexible with its corporate partners. For one it does not require exclusivity, meaning its partners can market another EBP product should they choose. Also, Mid-Atlantic will not use the product as an entry to market other products to member CUs of its corporate partners. Fox believes corporates have turned a corner, and will now first look to partner, rather than merge. "To our surprise, partnering has turned out to be a more viable option than merging. It requires a trust level, but I think there is a lot of trust among corporates, we've worked with each other so long," said Fox. David Savoie, CEO of Louisiana Corporate, one of the network's smaller corporates, said investing in CUSOs and partnering with other corporates is one of the most important things it can do for its members. "One of our main goals is to provide quality, cost-effective products and services that contribute to the competitiveness of our members. Our CUSO investments and corporate partnerships are an invaluable tool. They allow us to leverage some of the highest quality service providers in their respective businesses, and deliver their services to our members with the personal service and knowledge of the membership that we can provide," said Savoie. The "Primary" Example Probably the quintessential case of corporates getting together and sharing in each other's success is Primary Financial, a CUSO owned by all corporate credit unions. Primary Financial offers SimpliCD, an extremely popular brokered CD product that is used by approximately 3,000 CUs and has over $3 billion in outstandings. Primary Financial wasn't always owned by all the corporates. It was originally a CUSO of Corporate One. However another corporate owned CUSO, Corporate Exchange, got together and said it wanted to either become part owners of Primary Financial or start its own competing brokered CD product. Eventually, the collaboration effort won out and Corporate One decided to merge with Corporate Exchange. It also helped Corporate One grow the program, because though many corporates were offering SimpliCD, there was another contingent that wouldn't do so without ownership. In some ways Primary Financial, could be looked at as the turning point of the network's willingness to collaborate in more areas. Mark Solomon leads Primary Financial and has the distinction of having every corporate in the nation as his boss. "It's not as bad as it sounds," he joked. "It's an advantage. I know who my owners are, and also partnering with them in the day-to-day operations, provides a very different situation than you're going to see. They're investors, and partners," said Solomon. "I think if we didn't have 100% ownership, that would be a downside. Having an ownership interest has caused people to be more focused and interested in the product. All the corporates are going above and beyond," said Solomon. Could Primary Financial bring more products to the table as the network CUSO? Possibly, but for now Solomon said there is still a lot of growth potential with SimpliCD. Also, CEOs interviewed for this story said that SimpliCD is a unique product, and one that was easy to build network-wide agreement on, where other products might not be able to build such consensus. One of the most intriguing partnerships is between Mid-States and Iowa Corporate Centeral. Mid-States is now providing all loan and investment products for Iowa's members. Southeast Corporate CEO Bill Birdwell said this partnership model isn't really new. "This model was introduced 20 years ago with Rhode Island Corporate trying to do it with U.S. Central. At the time there was a lot of opposition, because they were viewed as a competitor and most corporates had an equity interest in U.S. Central. They felt like if they owned it they didn't want to be competing with an owner," said Birdwell. But today with more open FOMs and the need to keep costs down, Birdwell said partnering is necessary. His corporate has formed a tight bond with Georgia Central CU without merging. The two are co-owners of a business services CUSO as well as a data processing CUSO where they share system expenses. They have decided to use their close proximity as a reason to partner, rather than a reason to compete. "We only had to set up our infrastructure one time (for the business CUSO). We share those expenses and share those markets. For some things we feel you need a fairly local and regional presence, while some things you can do more electronically," said Birdwell. Even the Association of Corporate CUs is benefiting from corporates' desire to work together. One problem facing all corporates is the growing cost of complying with an increasingly complex regulatory maze. Corporates recently authorized the ACCU to hire a corporate compliance specialist to help sort out where corporates fall with such regs as the Bank Secrecy Act. The new person (this is the first time ever ACCU has had three employees on staff) meant corporates had to be willing to open their wallets, which they were. It's also worth noting that many interviewed for this story pointed to U.S. Central as a constant presence in the network that has been able to forge cooperation. Many corporates rely on U.S. Central's broker-dealer expertise to start offering members broker-dealer services through U.S. Central's ISI subsidiary. [email protected]