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Corporate Shuffle: Questions To Ask When Searching For Alternative Providers

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Many credit unions rely on the corporate credit union system for mission-critical functions; however, changes in the corporate system are imminent.

Alternative providers could possibly include other corporates, newly formed CUSOs, the Federal Reserve, large banks and publicly held companies.  It is important to objectively evaluate each on their real merits.

Following are just a few questions you may want to consider:

  • What are the three top decision drivers for evaluating various service providers?
  • What are potential threats to your credit union’s business model?  (e.g., if your credit union has high loan demand and your corporate provided a line of credit, what are alternatives?
  • What strategic initiatives are you willing to forego during this service conversion?
  • What will be the hard-dollar cost of the conversion?  Have you budgeted for it?
  • Will the shift be transparent or nearly transparent to members?

Invest the appropriate time to create an RFP that details your requirements and rank them in importance with a weighting system, such as a scale of 1 to 10.  A few examples of requirements you may consider weighting include:

  • Necessity of investing upfront capital to receive services
  • Cost to process ACH transactions
  • At least __ years of previous demonstrated financial strength
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10 Reasons Things Went Wrong… Has Anything Really Changed?

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For years, we have been emphasizing a list of 10 reasons (not in order of priority) risks are not appropriately managed in the financial services industry.  Many of these reasons contributed to the volatile economic environment we find ourselves in today.

  1. Mindset—We can take action when bad things happen so things will never be as bad as risk simulations are showing—forgetting that the point at which we address a problem is directly related to the number of viable options we have for solving it
  2. Decision-makers don’t agree on appetite for risk
  3. Decision-makers agree on appetite for risk but don’t make the tough decisions to manage within their appetite
  4. Decision-makers take on more risk than they are truly comfortable taking because “everyone else is doing it”— so it must be right…
  5. Lack of effective communication between decision-makers and risk quantifiers
  6. Short-term decision making
  7. Decision-makers not linking strategy and A/LM (financial structure management)
  8. Contingency plans are not tested to determine if they are adequate
  9. Using old decision drivers and measures of success in a new environment—following peers
  10. Improper risk quantification providing a false sense of security

Click here to view the expanded version…

Recent history has shown us the havoc caused by inadequate risk management, and we are concerned that the havoc will continue or worsen if something doesn’t change.

Many in the financial services industry continue to worry over tightening margins, threats to non-interest income, diminished loan growth—the list goes on.  However, we urge all stakeholders to consider the long-term viability of their credit union rather than rely on short-term decision making (#6).

We are seeing more and more credit unions focus on short-term “Band-Aids” instead of taking a longer-term view of making sustainable changes to the way they do business.  Short-term solutions often come with long-term consequences—some of which could be another cycle of credit losses, assessments or even renewed stabilization efforts.

There are no easy, quick fixes for the financial services industry.  The situation requires a thorough evaluation of the sustainability of current business models and, most likely, redefining measures of success.