By Ray Birch
LAKEWOOD, Colo.—As smaller credit unions plan for the future, it’s getting harder for them to draft a course that does not include new partnerships, says one expert, who is cautioning that waiting until “pain points” arise is not the right way to begin a collaboration.
Consolidating and sharing backoffice functions has become increasingly important to smaller credit unions as they seek to drive greater efficiencies and lower costs while competing against not just larger credit unions but even larger banks that have used their deeper pockets to rapidly ramp up digital delivery offerings, says Doug Burke.
The benefit in being able to effectively respond isn’t just the efficiencies and improved performance, it’s also one hedge in helping those smaller CUs to more effectively find talented staff in a very tight market.
“I think with inflation and rising rates it is becoming harder for credit unions to be successful. And I'm targeting the discussion more toward smaller credit unions,” said Burke, president and CEO of Aux, a CUSO that provides compliance and accounting backoffice support solutions for CUs.
Burke recently announced he is retiring at the end of March.
“If you're a billion-dollar credit union you have the resources and tools that you need. But, when you get down to credit unions below $200 million in assets, especially below $100 million…,” said Burke, making the challenge apparent as his remarks trailed off.
Burke’s comments are appearing here as part of a CUToday.info series looks at how credit unions are approaching their planning for 2023 and beyond.
Burke explained how pressures are mounting on smaller credit unions to not only find the right people to manage what can be difficult accounting and compliance roles, but to retain them once they are aboard.
‘Doing the Hard Work For You’
Aux CUSO, which uses the tagline “Doing the Hard Work for You,” was formed in 1992, originally to assist credit unions with shared branching and service centers, before evolving to provide the expanded backoffice support.
“We just finished an annual survey with our credit unions and a comment that we received tells the story,” said Burke. “The comment was from a small credit union that uses our accounting services that said if it were not for the CU being able to outsource its accounting functions, they would not be in business today.”
Another challenge for CUs seeking to remain in business: Workers who demand not just higher wages but also greater flexibility to work from home.
Doug Burke
“It's the new working environment. A lot of staff don't want to come into the office. Also, a number of our clients are coming from the West Coast and those are the most expensive wages,” said Burke, who added those high pay rates don’t apply if the backoffice partner a credit union chooses is located in an area in which the cost of living is lower.
‘There’s Usually a Trigger’
But the biggest concern Burke has for small credit unions and the need for collaboration is they often wait until a problem arises before deciding to outsource a backoffice function.
“I think in some cases they have to feel that pain point first,” said Burke. “Things are good until somebody leaves, something happens and examiners come in and write them up. Then they say, ‘OK. We’ve got to look at something else because we don’t have the right people or can’t find the right people.’ There’s usually a trigger. But waiting until you face a problem is not the best approach. That thinking can catch up to a credit union.”
That challenge is being exacerbated, he said, but the rapid advancements in digital delivery that have only hastened the pace of change.
The Real Benefit
While savings on collaborations can sometimes be difficult to assess, Burke said the real benefit Aux CU clients have reported over the years is greater overall performance.
“I don't know if (outsourcing backoffice functions) is a true dollar savings,” explained Burke. “At the end of the day you're a small credit union and you’re already paying a lower salary to somebody. By the time you come to us you’re probably on an equal (cost) basis or paying a little more, but you’re getting an employee whose probably at a higher level of service and skill, and you’re getting continuity. You’re eliminating the risk that comes from turnover and then having to go out and find someone, and the costs associated with that. I believe the true benefit of outsourcing is measured by performance and productivity.”