TAMPA, Fla.–Credit unions gathered here were told “now is not the time to deemphasize” innovation by the leader of a CUSO that is on track to be a “billion-dollar cooperative,” who then went on to list many of the innovations his company has rolled out and is pursuing.
Speaking to PSCU’s Member Forum here, CEO Chuck Fagan cautioned that if “credit unions don't stay current with innovation, it will be very difficult to catch up and close that gap with those larger banks, especially in the face of economic uncertainty and downturns. While credit unions may not be bleeding edge when it comes to innovation, PSCU is committed to being at least as fast as you. We cannot slow down on your innovation journeys and I encourage all of you here today to listen to your members as you work to reaccelerate your innovation plans and determine what's next.
“As the saying goes, if you build it they will come, but if you build it with them they're already there,” he continued. “That's the way we approach development and I think it's a great way for you to work with your members.”
Saying the people helping people philosophy of credit unions is ingrained in the company, Fagan said PSCU “understands the culture of your organization and puts the needs of your members first.”
About Those Card Production Delays
Before he addressed the innovations and plans PSCU has planned, Fagan said he first wanted to address the recent card production and shipping delays it has experienced with its embossing partner that affected credit unions from November 2022 through February of this year.
“We recognize the timing of those issues was not ideal and would never be ideal, and we thank you for your patience and cooperation as we navigated through that process with our partner,” he said.
Fagan said PSCU has now effectively addressed the card production backlog and is current on plastic production, with timelines largely returning to normal.
“Our work hasn't stopped. We're currently working with two global consulting firms to ensure that situation never happens again,” said Fagan. “We take pride in the fact that we do what's right and our actions throughout the situation have been and continue to be sincerely with the best interests of our credit union owners.”
Key Indicators at Top of Radar
Other “key indicators” Fagan said are at the top of the 45-year-old CUSO’s radar include:
Inflation
Fagan said supply-driven economic components such as energy and higher retail prices point to decreased levels of discretionary income available to members and will increase challenges to small businesses. He further noted the Bureau of Labor statistics recently reported the Consumer Price Index declined by nearly half a percent from February, bringing the 12-month average inflation rate to 6%. “Hopefully, inflation is creeping down but it’s not enough for credit unions to be in a comfortable state of mind,” Fagan said.
Lending
Fagan said lending remains a key indicator, with loan originations seeing significant growth in 2022, before dropping at year-end. “As mortgage apps and used car prices fall and consumers consolidate debt, credit unions will need to consider auto lending, HELCs and credit cards as potential growth opportunities in 2023,” Fagan said. “We see lending as an exciting opportunity and we want to be part of it. The way credit unions lend is ripe for change as we move toward a data-driven approach.”
Fintech
Fagan noted fintech was initially perceived as a threat to credit unions, but now is viewed for the opportunities it represents. “Many credit unions are beginning to embrace fintech collaboration realizing the value it can bring to our owner credit unions.”
Payments & Global Lessons
Fagan said the U.S. has typically been last to adopt new technology, not because the country is made up of laggards but because of the complexity of U.S. financial markets. “We can get a really good picture looking around the world at what other countries are doing and the payments around and be more prepared when they ultimately get here,” said Fagan. “The options continue to accelerate. FedNow is scheduled to go live, which will provide another source for real-time payments with promising commercial and account-to-account applications. BNPL options continue to see explosive growth.”
Interchange.
Merchants have been increasingly vocal on the interchange issue and legislation, Fagan reminded, and said PSCU is closely monitoring regulations. “PSCU has been very public in our opposition to the Durbin Amendment and our belief it should be repealed,” he said. “But we continue to work with our clients to ensure you are compliant and prepared for the fraud impact the regulation will have on our businesses.”
Long-Term Impact of Pandemic on Delinquencies
With the pandemic largely subsided, and government stimulus money largely spent, Fagan said financial institutions now need to devise plans for consumer-centric strategies to collect on outstanding debts without alienating the account holders and members and possibly jeopardizing the future business with them.
“It's also important now, more than ever, for financial institutions and consumers to not let their guard down in terms of fraud-mitigation efforts,” said Fagan, before joking, “The fraudsters are having their conference just down the street. They have become more sophisticated and look for the most vulnerable channels to exploit as e-commerce has boomed over the last three years. Card-not-present fraud has fluctuated between four and six times the amount of fraud year over year. The fight continues.”
Financial Performance
Fagan said PSCU’s financial performance remains strong. During 2022 its revenue reached $753.6 million, a year-over-year growth rate of 16%. He said the CUSO is investing 8% of annual revenues back into the company, while transactions increased by 10% across PSCU credit union members. The company has also grown to 3,400 employees, he added, and is working to “optimize its footprint” with physical facilities.
“We’ve now reached the halfway point of our fiscal year 2023 and we remain on a strong growth trajectory to become a billion-dollar cooperative within the next few years,” he said. “We’ve experienced some headwinds thus far due to the current economic environment. But despite these challenges, PSCU remains committed to both our credit unions and our employees. We also remain committed to our dividend program, which helps our credit unions with liquidity to accomplish organizational and strategic goals.”
Four Key Areas
Fagan said PSCU has grown by more than 70% over the last four years as the result of its digital-first strategic plan.
“Over the next three to five years we envision PSCU becoming a more agile and efficient cooperative as we further position the organization to be an end-to-end integrated solutions provider,” he said, adding the company is focused on four key areas:
- Executing on a new long-term organizational strategy that will accelerate the strategic initiatives that focus on its business readiness for the next five to 10 years.
- Driving consumer experience with innovation and efficiencies by redesigning product offerings and investing in new growth opportunities.
- Focusing on delivering operational excellence repositioning PSCU in all facets of the organization, including the contact center, risk and fraud, and its service model to create a “faster smarter and more efficient experience for credit unions.”
- Amplifying the company’s culture and the top talent, including upskilling and developing agile talent while also maintaining a highly engaged workforce.
T Squared
PSCU said the company has launched an “important initiative” around transformation known as Transforming Together, or “T Squared" for short.
That effort is focused on delivering operational excellence across the entire organization. While PSCU has traditionally handled growth by just hiring more people, but it is now working to technology to improve productivity. “The marketplace is shifting in significant ways,” said Fagan. “It’s impossible to ignore how these changes are affecting our organization and our clients.”
He said the cost savings from the T Squared initiative will be reinvested into solutions and technologies to continue to fuel growth, and are already being seen in the contact center and elsewhere, including real-time payments.
Additional Updates
Fagan offered additional updates on PSCU initiatives, including:
- Juniper Payments. Fagan said Juniper provides PSCU and its credit unions with managed connectivity to the Federal Reserve, the Clearinghouse and the forthcoming FedNow service. “Juniper Payments is one of the select participants in the FedNow pilot program and has been a pioneer in helping to bring this innovative payment rail to market.” Juniper now serves approximately 4,000 of the 10,000 FIs in the U.S., he said.
- Amount. Amount is “a cloud-based lending and account opening solution to some of the nation’s top banking clients,” according to Fagan. “The expertise from PSCU and Amount will unlock a best in class solution for credit unions, solving a pain point in our industry.” In 2022, the partnership with Amount began by offering credit card loan origination. Fagan said PSCU is now streamlining the integration “needed to enable a quick to market solution for our credit unions from our hosted products,” including a suite of APIs currently in pilot with plans for general availability later this year.
- Emerging Services Team. Fagan said PSCU has now created an Emerging Services Team dedicated to identifying ways to expand solutions to drive high value offerings and innovation. He called the team PSCU’s “innovation hub” that is focused on effectively positioning PSCU for future opportunities. “The end goal is to create the next generation of advanced payments and fintech solutions to meet the evolving demands your members expect and will enable you to effectively compete with the growing neo-banks.”
- Lumin Digital. PSCU acquired Lumin in 2018 to “further enable digital experiences,” Fagan said, and “we'll continue to invest in and empower capabilities and our best in class cloud native digital banking platform.” To date, he said 36 financial institutions are now live on the loan platform with an additional 18 signed on and more than three million credit union members under contract over the past year.
- Rise of Fraud. “Best to combat and block fraud at the point of sale, in the contact center, online and across digital platforms that consumers use daily. This includes PSCU for its proprietary linked analysis platform which was developed in-house by our fraud experts to prevent fraud before it happens by leveraging cross network analytics linked analysis remains a key differentiator for PSCU and we are far ahead of our competition in this area.
Over the past year alone PSCU stopped nearly 530 million potential fraud threats for credit unions and their members. Just this morning we announced the introduction of our new intelligent fraud decision solution which uses cognitive AI and advanced data analytics to detect and block true transaction fraud while reducing false positive rates. We're also excited about this upgraded offering which helps drive the best in class solution for fraud decisioning experience for the members and you're credit unions.”
- Enhanced Fraud Services. Fagan said PSCU launched Enhanced Fraud Services in 2020 for credit unions with unique characteristics, and that has since been expanded into consulting and monitoring. In one case, Community First FCU advised of an ATM fraud ring in Jacksonville, with the credit union targeted about a week after it was alerted. Within a few days specific rules were developed and the “fraudsters gave up,” said Fagan.
- DEI. Fagan said DEI is a core value of PSCU, and it is focused on psychological safety, conscious inclusion, and development and advancement of underrecognized talent segments.