ST. PETERSBURG, Fla./RANCHO CUCAMONGA, Calif.–Despite the significant and tough decisions that lie ahead around integration, product offerings and potential cuts to headcount, the CEOs of PSCU and Co-op Solutions say their proposed merger all comes down to “being better together.”
As CUToday.info reported, two of the largest CUSOs in credit unions have announced plans to combine by year-end, pending an upcoming vote by member credit unions. The companies are citing efficiencies of scale and the declining number of credit unions as the drivers of a merger that has been discussed on and off for more than a decade, before restarting again earlier this year during a meeting hosted by CUES.
The move came as a surprise to many when it was announced Monday, with those involved in the discussions all having signed non-disclosure agreements, according to the organizations.
‘IMO’ Formed
PSCU and Co-op Solutions said they have created an Integration Management Office (IMO) to oversee the merger of the two large companies, with CUToday.info told a third party vendor has been retained to help oversee what will be a complicated process.
PSCU and Co-op said they will continue to operate as two independent companies until the close of the transaction, which is expected to be completed by the end of December 2023 pending a vote by both organizations’ owner/shareholder bases.
New Brand Likely
A new brand has not been announced, but the companies indicated new branding is very likely.
Florida-based PSCU, which has a larger footprint in the eastern U.S., serves more than 2,400 financial institutions and processes more than eight-billion transactions annually. It offers payment processing, fraud and risk management, data and analytics, digital banking, strategic consulting and real-time payments platforms, along with 24/7/365-member support via its contact centers. The CUSO is 45 years old.
California-based Co-op Solutions, which has a larger footprint in the western U.S., serves 2,650 credit unions, and also process more than eight-billion transactions annually.
Holding Company to be Formed
Following the close of the transaction, PSCU and Co-op said they will begin operational integration under a holding company led by a combined board and executive management team, with headquarters in St. Petersburg, Fla.
PSCU President Chuck Fagan is to lead the combined company. As of this reporting, the companies did not say what role Co-op Solutions’ CEO Dean Michaels will play should the merger be approved. After previously serving as chief strategy officer, Michaels was named CEO in mid-September following the departure of Todd Clark.
In a statement to CUToday.info, Bill Prichard, the director of public relations for Co-op Solutions, said, "The leadership team of the new combined organization will be announced following the close of the transaction."
Both companies stressed the merger is not being driven by financial challenges, with each emphasizing they are enjoying a robust 2023.
Company Revenues
Earlier this year, at the company’s Member Forum, Fagan said PSCU had 2022 revenue of $753.6 million, a year-over-year growth rate of 16%. Co-op Solutions reported more than $527 million in 2022 revenue.
PSCU has approximately 3,400 employees, while Co-op has more than 1,900. The companies have considerable overlap, especially in credit, debit and payments, and during a call with the media declined to answer a question posed by CUToday.info about what will happen to head count as a result of the merger. CUToday.info will provide an update as that information is provided.
In addition to growing organically, Co-op has also made numerous acquisitions over the years, including buying Covera Solutions, Everlink Payment Services and The Members Group.
The one area where there is no overlap is in Co-op’s national network of 5,700 shared branches and an ATM network with more than 30,000 machines. Co-op has grown that branch network also through acquisitions that have included CU Service Centers and Financial Service Centers Cooperative over the years.
PSCU has also made acquisitions, including of Lumin Digital.
Both companies currently each have 11-person boards. The plan calls for the creation of a 13-person board for the combined company, made up of nine members of the current PSCU board and four members of the Co-op board. The board members are listed below.
Talking in ‘Great Depth’
During a call with the media, Fagan said the two organizations had “talked in great depth” and found their strategic plans to be almost “mirrors” of each other.
“I think it helps a great deal as we bring these two great industry assets together that the focus is already there,” said Fagan.
Fagan said a future-focused member experience must incorporate the lessons from the pandemic, including, critically, that even in virtual environments data must be fully leveraged to provide a personalized member experience, including payments.
Fagan further stated he believes it’s “unparalleled service” that really differentiates both PSCU and Co-op Solutions, and that that “will be an absolute central theme” as the organizations move forward.
$75 Million in R&D
In addition, Fagan said by bringing together the talent and resources of PSCU and Co-op, and by collectively investing more than $75 million annually, solutions that provide that level of service will continue.
Citing Co-op’s Co-Creation Councils and PSCU’s Advisory Groups, both of which are made up of credit union representatives, he said it’s an example of how “if you build it they might come; if you build it with them they're already there.”
“We both like the feedback and input from our member-owners and that's how we’ll go about determining how we invest our precious resources,” Fagan said.
Similarly, Michaels said the benefits and value of the merger will extend beyond the two companies to credit unions themselves.
‘More Solutions’
“Some of those same benefits and efficiencies from the combination are going to allow for more innovation and allow for more investment, and they're going to result in more solutions that will help us improve the member experience,” said Michaels. “Both of our companies have already made some really significant investments in improving our member-facing digital solutions, but this combination is going to allow both of us to really spend more on developing those solutions that that deliver personalized, connected experiences in terms of service.”
Michaels added that both PSCU and Co-op Solutions have millions and millions of service interactions with members through contact centers, fraud solutions and more, and that’s “really millions of opportunities to improve and impact the member experience.”
Both Fagan and Michaels stressed the strengths of each company’s culture, said advocacy and DEI will remain strong, and said they will only become bigger “champions” of the credit union mission as a combined organization.
The Cornerstone
“The cornerstone of both organizations, the foundation, is our employees and the amazing talent that we have,” said Fagan. “Both organizations have boot camps/training programs that educate our employees…on what it does mean to be a credit union member and what a credit union is all about, and that that will only strengthen as we combine.”
While he did not comment on any potential effects from the merger on the number of employees, Fagan said that in a more complex and larger organization there will be new opportunities to build a career, and that the merged company will be a “destination-type employer."
“We're already seeing new positions now that didn't exist two and three years ago, and I think that trend line will continue,” he said.
The Q&A
During their meeting with the media, Fagan and Michaels responded to a number of other questions. Here’s a look at some of those responses, which have been edited for length.
Q: What is the Time Schedule?
According to Fagan, the focus between now and year-end 2023 is best summed up by the slide below.
Much of what takes place will be driven by the Integration Management Team, which will be meeting this week, he said, and which includes representatives from both organizations.
Fagan said he and Michaels, along with their respective account management teams, will be out talking to credit unions about the merger and seeking membership approval. He added it will be a very busy seven to eight weeks.
Michaels noted that while the framework is currently being put in place, efforts to really integrate won’t begin in earnest until the transaction closes at year end.
Q: What Are the Initial Plans for Product Integration?
Product integration will be among the initial tasks in front of the IMO, which will be reviewing each company’s extensive product menus, said Fagan.
“There are some like solutions, but there are some assets that Co-op has that will be beneficial to PSCU member-owners and vice versa,” Fagan said. “We want to come out with absolutely what's best for our member-owners, but at this point we really haven't been able to get into the depth of looking at what would be the specifics behind that.”
Added Michaels, “I think it's important for our clients to know that we're not stopping any of the work that we're doing today. We have commitments and marketing commitments to clients for things that we will follow through on from a product perspective. We've got a lot of employees that are doing great things; we don't want that to stop.”
Q: What Will Be the Surviving Brand?
Fagan said both brands are “so strong” in credit unions, and he believes it would be “huge mistake if we didn't take advantage of that strength. For right now it'll be PSCU/Co-op or Co-op/PSCU, however you want to position that. There is an effort to take a look at how the brand would be structured, but we can't really do much about that until the deal closes. Just know we'll be looking at it not only from a consumer perspective, but also from the perspective of the respective organizations’ structures. So, more to come on brand.”
Michaels said launching a new entity with a new brand would help reinforce with employees and credit unions that the merger is in the best interests of everyone and it marks a new start.
Q: What About Conferences, Including the PSCU Member Forum and Co-op THINK in 2024?
Both Michaels and Fagan said the plan for now is to continue with their currently planned events. PSCU’s Member Forum is scheduled for April 10-12, 2024 in San Antonio; Co-op’s THINK 24 is set for May 7-10, 2024 in Nashville.
Q: What Becomes of Credit Union Contracts With Each Company?
Both Fagan and Michael’s said contracts will remain in place and be honored.
Q: What Kind of New Payments Experiences Can Result From The Merger?
“I think we're both on the cusp of really realizing what data can mean in terms of the interactions with members,” said Fagan, noting the two companies conduct approximately 15-billion transactions with CU members every year. “We obviously have many contact points…so utilizing a lot of that data to help credit unions position for deeper engagement around what we truly believe is what defines that primary financial institution, which is payments and the digital experience. I think you'll see a lot more there and you will definitely see a lot more investment. I think both companies have a strength in the industry around fraud and a secure environment for members to conduct their business, and you'll continue to see aggressive investment in that area.”
Michaels said leveraging data to improve the member experience has long been part of Co-op’s roadmap.
“I think we will be able to accelerate that through this combination. That is definitely an opportunity. We both do some different things today and I think there's an incredible opportunity for us to better integrate, whether it's some of the things we're doing on the network side, some of the things that PSCU's doing on the digital front.”
Q: How Long Have These Discussions Been in the Works?
Fagan reminded that merger discussions related to both CUSOs have been around for more than a decade. But they began anew at CUES’ CEO/Chairman Exchange meeting in early 2023 and then continued at CUNA’s GAC and extended into the remainder of the year. He said the deal was just wrapped up on Saturday, Nov. 4.
Michaels, too, noted the Co-op board has had similar discussions during the six years he has been with the company.
“We've been talking to our board about some really big leap changes we could make, evolutionary changes,” Michaels said. “This has always been on our radar. It’s incredible to see it actually come together now.”
Q: Where Do You See Efficiencies Being Created?
Efficiencies from the merger will be identified by the IMO, according to Fagan.
“But what I would say is that this is one of the advantages of our structure. We don't have to commit to Wall Street. We get to do things the right way, the way that I think is going to be in the best interest of the business,” Fagan stated.
Fagan said some of the areas where efficiencies will be explored include the call center, new desktop technologies, fraud management, other technologies, and, of course, duplication of products and services.
“That we are not a public company (means) we can really be intentional about how we go about making sure these changes (are as) least disruptive to our employees and to our clients as possible,” said Michaels. “One of the things I've talked to our team about is how you…have to invest in things to sort of keep the lights on: regulatory changes, compliance changes, everything related to PCI, all those things that have a tendency to often crowd out some investments that you really would like to make around impacting credit unions and impacting the member experience.”
Fagan added that efficiencies will be also be available in cyber-related projects.
Q: What Types of Meetings Are You Having With Employees and What Has Been the Reaction from Credit Unions and Employees?
Michaels said for employees of both companies the news of the planned merger has been a lot to “digest.”
“There are, of course, a lot of questions. There is some uncertainty that's introduced with any combination, but there's also been a lot of excitement,” said Michaels. “We have both respected each other's organizations for a long time, and I think employees can really feel excited about what these two companies can do together. It opens up for them (the ability to) do different things going forward…So, definitely, there is a little bit of, ‘Hey, you want to see how this progresses,’ but also a really firm underlying excitement.”
Michaels said the client CUs he has spoken with share a similar excitement, as many of them are shareholders in both entities.
Fagan said the chairs of both CUSOs made it “very clear” that there had to be confidentiality, and those involved in the discussions on both sides signed “detailed” non-disclosure agreements (NDAs). On Sunday night, prior to the announcement, Fagan said the market-facing teams on both organizations were briefed and given some talking points for their respective clients, and at mid-day on Monday it was announced to the staffs of both organizations.
Fagan said the news was greeted with “enthusiasm” by both employees and credit unions.
Q: What About Facilities?
Other than the fact the headquarters of the combined company will be St. Petersburg, Fla., where PSCU is currently housed, no decisions have been made about other facilities, the two CEOs said.
Q: How Were the Board Seats Determined?
Fagan said each company hired a firm to conduct valuations of their respective firms. Those valuations, respectively, led to nine board seats going to current PSCU board members, and the remaining four to current Co-op Solutions board members.
Q: When CUNA and NAFCU Announced Their Merger, They Cited Issues Around Sustainability. Is That the Case Here?
“You saw consolidation in the payments industry a few years ago, and scale does matter in the industry,” said Fagan. “For credit unions to have an organization with the collective scale and the resources of Co-op and PSCU, I think it's not only well timed, but it's necessary in order to keep our industry relevant and growing long term. You look at the number of credit unions in in the U.S. and it's certainly in decline with consolidation, and I think that’s going to continue.
“For us to move past some of the things that may have prevented us from getting together in the past and see this as something that sits right for the industry and sits right for our respective companies is the right thing to do, and I'm proud to be part of it and to work alongside the people at Co-op to make it happen,” Fagan added.
Michaels noted both companies are strong financially, and that Co-op is in the “middle of our best year ever.”
“We have a tremendous amount of momentum, so this is absolutely not about either company having to or needing to do this,” Michaels said. “This is around about both companies standing back and saying we can be better together.”
Additional Details
The companies said they offer a full portfolio of solutions that when combined will allow the company to “more effectively serve the evolving needs of credit unions and their members, while ensuring long-term financial stability.”
According to the two CUSOs, together they will provide:
- “An open environment with integrated solutions to create an enhanced, end-to-end product portfolio with offerings from each organization – including access to instant payments, data analytics, digital banking, fraud and risk management, contact center solutions and services, collections, a credit union debit network, an ATM network and shared branching.”
- “Increased scale, meaningful value and additional growth opportunities for credit unions through enhanced product development resources, optimized third-party spend and reduced overhead to allow for expanded levels of re-investment back into the combined company, supporting a continued growth trajectory and meeting the future fintech needs of credit unions and their members.”
- “A combined talent base that optimizes service, creating the most knowledgeable and experienced team serving the credit union industry.”
- “Innovative tools to expand self-service capabilities and increase efficiency.”
- “Solution bundling opportunities to better deliver efficient capabilities to credit unions of all sizes.”
- “Continued support and advocacy via a collective voice (including the ongoing fight against interchange legislation), while leveraging the two organizations’ mutual commitments to further champion diversity, equity and inclusion (DEI) in the credit union industry.”
‘Rapid Evolution’
“The decision to combine with Co-op comes at a time when the payments landscape continues to see rapid evolution, with innovation and technology reshaping the needs of our industry and financial institutions,” Frank Weidner, chair of the PSCU board and president and CEO of Wings Financial Credit Union, said in a statement. “With their collective history and expertise, PSCU and Co-op have an unparalleled understanding of the credit union space. We believe that we are stronger together, and we look forward to the new opportunities for success that this combination will provide for credit unions.”
Leadership Team to Be Announced
According to the two organizations, the leadership team of the new combined organization will be announced when the transaction is complete, while the combined board will comprise credit union CEO representation from both current boards, including nine members from the current PSCU Board and four members from the current Co-op Board.
“Credit union growth and member experience are the shared central mission of PSCU and Co-op,” said Joan Opp, chair of the Co-op board and president and CEO of Stanford FCU, in a statement. “Our combined board of credit union CEOs reaffirms our commitment to credit unions, and credit union ownership of the key technologies and services needed to compete in the broader financial services space, ensuring that credit unions succeed and thrive. While both PSCU and Co-op are already leaders in the credit union space, together, we’re confident that this combination will help more credit unions sustain growth and meet the evolving needs of their members.”
Board Members
In addition to Weidner, the members of the current PSCU board who will serve as members of the combined company’s Board will be:
- Craig Esrael, president and CEO of First South Financial Credit Union, Tenn.
- Sean Rathjen, CEO of Consumers Credit Union, Ill.
- Andrew Rosen, president and CEO of Hawaii State Federal Credit Union, Hawaii
- Chris Shockley, president and CEO of Virginia Credit Union, Va.
- Amy Sink, CEO of Interra Credit Union, Ind.
- Rob Stuart, president and CEO, OnPoint Community Credit Union, Ore.
- Nathanael Tarwasokono, president and CEO of Firstmark Credit Union, Texas
- Cathie Tierney, president and CEO of Community First Credit Union, Wis.
The members of the current Co-op Board who will serve as members of the combined company’s Board are:
- Jackie Buchanan, president and CEO, Genisys Credit Union, Mich.
- Dennis Devine, president and CEO, Alliant Credit Union, Ill.
- Ezra Eckhardt, president and CEO, Spokane Teachers Credit Union, Wash.
- Rudy Pereira, president and CEO, Premier America Credit Union, Calif.
Associate Directors
The organizations said the following PSCU Associate Directors will remain in the same roles as part of the new combined board:
- Christine Blake, president and CEO, Cardinal Credit Union, Ohio
- Todd Lane, president and CEO, California Coast Credit Union, Calif.
- Maria J. Martinez, president and CEO, Border Federal Credit Union, Texas
- Mark Robnett, president and CEO of Justice Federal Credit Union, Va.
Opp will serve in an advisory capacity to the new combined Board for a period of one year. As previously planned, Cathy Pace, president and CEO of Allegacy Federal Credit Union (N.C.) and Jeff March, president and CEO of Citadel Federal Credit Union (Penn.) will retire from the PSCU Board at the end of this year.