The business of financial services is changing. Shifting consumer attitudes about financial relationships, an onslaught of new competitors and the exponential growth of technology are pushing all credit unions to reimagine the future. Fortunately, a rich history of collaboration and innovation make creative solutions easier to visualize.
Credit unions have demonstrated a proficiency at working together to push great ideas into action. From mortgage and business lending to credit card processing and marketing services, credit unions have created and invested in credit union service organizations (CUSOs) that provide essential products and services to their members. A CUSO is often formed to create economies of scale, but more importantly, CUSOs have created a network of business partners that share core values.
TMG Financial Services (TMGFS), for example, is a CUSO created as an option for credit unions considering the sale of their credit card portfolios. Within TMGFS, the Collateralized Advance Program (CAP) offers an opportunity for credit unions to invest in the future of the payments through a collateralized loan to TMGFS. Those funds are used to ensure critical credit card assets stay inside the credit union industry. Now 10 years old, the CAP allows credit unions to work together for the common good of their organizations and the consumers they serve.
Beginning in the early 2000s, an increasing number of credit unions began investigating the potential advantages of selling their credit card portfolios. For many that did sell their portfolios, the shortcomings of these partnerships quickly became evident. “Sold” meant the credit unions couldn’t make judgment calls on the creditworthiness of loyal members who may not look like good risks on paper. It meant partnering with banks that were marketing similar and competing products, often to the seller’s own members. These same partners would promise not to cross-sell, yet in some cases would encourage cardmembers to make their credit card payments at competing branches. In the end, revenue the seller earned from the sale did little to cover the cost of losing valuable relationships.
Even with these widespread stories, the economic realities of the business climate pushed credit unions to investigate the option of selling. As margins compressed, credit unions had to do more with less. As a result, portfolios became stagnant and ceased to provide long-term value for the credit union. TMGFS was founded to address this need. As it evolved, leaders saw an opportunity to expand the value for an ever greater segment of the movement, and the CAP was born.
With new payment technologies, anticipated margin compression, increased regulatory burden and the critical need to harness data analytics for a hyper-personalized cardmember experience, TMGFS is still today constantly evaluating credit card portfolios for sale. The CAP provides lenders with a competitive interest rate on a loan that is collateralized by the high quality credit receivables TMGFS currently owns and those it will be purchasing in the future. In turn, CAP funds contribute to the ongoing health and sustainability of more than 60 portfolios serving more than 120,000 cardmembers
Even in these competitive times, credit unions have great potential to become the primary financial partner for many segments of the shifting consumer marketplace, and CUSOs can play an important role in helping achieve long-term relationships with consumers. The CAP is just one example of the CUSO-based opportunities available for credit unions looking for values-centric, high-quality, sound investments. No strangers to collaboration, nor innovation, credit unions have a solid foundation made up of a loyal fan base. The key to growing that foundation lies in the strength and ingenuity of the leaders in charge of selecting strong investments for a strong future.