By Ray Birch
SANTA ANA, Calif.—Collaboration is critical to the future of small credit unions, according to the leader of one small credit union who believes two things will play key roles in future partnerships.
Erick Orellana, CEO of $5-million Comunidad Latina FCU, believes the big drivers of collaboration for smaller credit unions in the years ahead will be smaller CUs using the same core systems and leaders “checking their egos at the door.”
“For collaboration to be successful it needs to be spread among more credit unions, and the biggest obstacle to collaboration, believe it or not, is the core system,” said Orellana. “This is a huge step small credit unions need to take.”
What that means, Orellana said, is more small credit unions must work together to agree to run on the same tech platforms. He emphasized his belief that not doing so simply makes it too difficult for small credit unions to partner and share resources.
“This is a huge deal and concern,” said Orellana, who acknowledged many small credit unions are struggling as their larger brethren account for most of the industry’s growth. “In order to survive and thrive, small credit unions are going to have to collaborate even more. That’s the only way I see things. Collaboration is key to our future.”
Orellena said some collaboration is taking place among small credit unions, but the extent to which those CUs are able to work together is being hindered by different technology solutions that don’t work well together.
A Fundamental Problem
The CEO explained his credit union, which relies a great deal on working with other small shops to share costs and people, saw the opportunity for collaboration years ago.
“I realized it was a fundamental problem, that our core system would not work together effectively enough with the small credit unions we hoped to collaborate with,” said Orellana.
That led to CLFCU, a community chartered co-operative that serves the local Latino community, joining forces with 14 other small credit unions to meet with prospective core system providers as a group that then agreed to choose one system common to all.
The CEO acknowledged that was a costly move for some small credit unions that were not ready to change their cores, but added in the long run savings were achieved by all by not only sharing costs for daily activities, but also getting preferred pricing from core system vendors as a result of the group purchase. After the group of CUs settled some differences, they selected Michigan-based CU*Answers as their provider.
The road bumps in arriving at the decision weren’t all technology and budget related, with Orellana saying that while all of the leaders involved recognized the power of collaboration, sometimes their personalities and pride got in the way.
“To collaborate well, from the start you have to check your egos at the door,” Orellana advised.
Erick Orellana
Outsourcing Accounting
CLFCU, by working with other small credit unions, has been able to reduce its staff from the CEO and four full-time employees to Orellana, one FTE and two part-timers.
Orellana said his credit union partners with another CU in Washington to handle CLFCU’s daily accounting, ATM balancing, and corporate account balancing, debit processing and more.
“I have to pay the credit union for these services, but it’s not a lot of money,” he said. “The credit union has excess capacity, and what I pay them covers their expenses and they make a little bit of money.”
Orellana said most of the CU’s collaborating in his group use the same credit union to also handle their accounting, noting that one CU has been able to reduce its staff by 20% due to the partnership.
“And since we are all on the same core system, collaborating can be about as easy as clicking a button to get a new venture started,” he explained.
Optimistic About Future
While some analysts are concerned many small credit unions won’t survive in an economy hit hard by the pandemic—similar to what occurred following the Great Recession—Orellana said he believes small shops will be OK.
“I would say we are in a better position than some of our larger counterparts, because small credit unions are more nimble and can make changes faster than a billion-dollar-plus credit union,” he said. “Whenever we have to make a change to a process or policy, it’s not a tedious process like it is at a big credit union. And we, like all other credit unions, have had to make a lot of changes this since the health crisis arrived.
“I totally believe collaboration will be the driver of small credit union growth,” continued Orellana. “And you don't have to start that big. Do it in small doses. For example, why not get three or four small credit unions together to partner on training? Start local, with credit unions you have good relationships with. You already have built that trust factor, which is important.”