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The CU2.0 Podcast
This podcast explores contemporary, critical thinking and issues impacting the nation's credit unions. What do they need to be doing to not just survive but prosper?
The CU2.0 Podcast
CU 2.0 Podcast Episode 304 CuCollaborate's Sam Brownell on Mergers, CUSOs + More
Should we merge? With whom? Those questions are heard in just about every credit union’s c-suite and boardroom.
The answers aren’t easy.
Enter Sam Brownell’s CuCollaborate which boldly states its purpose this way: “We are here to help credit unions adapt, grow, and succeed long term — and we offer the innovation, insight, and know-how to help them do it.”
In its toolkit are powerful analytical models such as AnalyzeCU which lets a credit union quantify its impact and performance.
And a big part of CuCollaborate’s present business stream is consulting with credit unions on merger possibilities and the merger process itself. This podcast has explored credit union mergers multiple times, but never quite like this. Brownell has a particular take on how to look at mergers - it’s interesting stuff that he explains at length.
In the process he references Kant’s categorical imperative, which ranks as one of the very most important ideas about right conduct ever articulated.
As the talk about mergers comes to a close, Brownell happens to say he’s in the process of turning the company into a CUSO. He talks at length about why.
Listen up.
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Welcome to the CU2.0 podcast.
SPEAKER_00:Hi, and welcome to the CU2.0 podcast with big new ideas about credit unions and conversations about innovative technology with credit union and fintech leaders. This podcast is brought to you by Quillo, the real-time loan syndication network for credit unions, and by your host, longtime credit union and financial technology journalist, Robert McGarvey. And now, the CU 2.0 podcast with Robert McGarvey.
SPEAKER_02:Should we merge with whom? Those questions are heard in just about every credit union's C-suite and boardroom these days. The answers aren't easy. Enter Sam Brownell's CU Collaborate, which boldly states its purpose this way. Quote, we're here to help credit unions adapt, grow, and succeed long-term. And we offer the innovation, insight, and know-how to help them do it. End quote. In its toolkit are powerful analytical models such as Analyze CU, which lets a credit union quantify its impact and performance. Don't guess about the impact you're having on your community and your membership. Measure it. And a big part of CU Collaborate's present business stream is consulting with credit unions on merger possibilities and the merger process itself. This podcast... has explored credit union mergers multiple times, but never quite like this. Brownell has a particular take on how to look at mergers. It's interesting stuff that he explains at length. In the process, he references Kant's categorical imperative. There's a link to the categorical imperative in the show notes. The categorical imperative ranks as one of the very most important ideas about right conduct ever articulated. As the talk about mergers comes to a close, Brannell happens to say he's in the process of turning the company into a CUSO. Why? He explains this at length. Interesting stuff. Listen up. We're going to talk about mergers. And I've talked with, say, the leading lawyer in the field of bank credit union mergers. What I haven't talked to is someone with more serious boots on the ground in the credit union world about mergers. So what does your firm do in regard to mergers? And keep in mind, what the lawyers tell me is that for every one merger, there are about 50 discussions that go nowhere. I
SPEAKER_03:think that's probably true. Yeah, there are lots of people who get to the altar and then bail. Um,
SPEAKER_02:I don't, I, it's more like they get to the third date and they
SPEAKER_03:bail. Oh yeah. I mean, I kind of am. Yeah. Third date. I'm not that surprised that there are lots of like early tentative conversations. The thing that I've been really surprised is like when they're, you know, reached a memorandum of understanding, like they've negotiated what will happen and then it still falls apart. And I think that's.
SPEAKER_02:Oh, right. There were two Virginia credit unions that, um, signed, sealed, and delivered the deal until it went to the member vote of one of them, and the members voted it down.
SPEAKER_03:Well, the member vote, there's also been some where it's like the, what is it? It's like a memorandum of understanding, or it's just like an early stage, like this is the general framework. And now we're going to do essentially like our due diligence. And I should tell you, like, this is the part that we don't do for credit unions, probably clear from the way I'm describing it. But then, so they have like a tentative deal that people have agreed to. And then I honestly think, which seems totally human to me, but people realize that they're no longer going to be, have as much of a connection or control or power, whatever you want to say. Once they realize what it's going to be like to give up some control, they get cold feet.
SPEAKER_02:That's a common thing I've heard. I'm never for attribution, but I've heard from people that A powerful block in killing many mergers are the board members of the firm that's being, for all practical purposes, acquired. And those guys suddenly are saying, geez, I'm not going to get that Q's trip to Hawaii no more. Boy, that sucks.
SPEAKER_03:Yeah, I think that's probably the most common reason. And then maybe a little bit after that, I'd be like, the CEO is sort of like, oh, generally, I'm going to be more of like CEOs that are not a full-fledged retirement age, but are like, you know, maybe I don't want to be the regional CEO or whatever. Maybe I do like being the captain of the ship. But I would say, yeah, primarily it's the board members, the board realizing that it's maybe not something they want to do.
SPEAKER_02:So take me through, what kind of process do you have with credit?
UNKNOWN:Yeah.
SPEAKER_02:Yeah, and how does it originate with you? Are you talking with a credit union? They say, and I understand quite a few of them are saying exactly this thing, geez, at our size, we think we should be merging with another credit union soon. And that's the end of their thought, really. If you say like, any prospects? No, no, no.
SPEAKER_03:Yeah, I think like every credit union believes that they're too small to survive. And you would think that, Even at very large credit unions, they wouldn't feel that way. But I think just compared to their main competitors, they feel very small still, even at what for us in the credit union movement feels extremely large. There's some credit unions who are really focused on their core field of membership, and those are generally going to be sort of like single common bond credit unions, maybe community chartered credit unions who are don't want to merge because they just want to focus on purely their field of membership, serving their field of membership and don't want to expand it to do more. But most credit unions, I think, would fancy many more acquirer-minded credit unions than acquiree-minded credit unions. We got into it actually because we started with field of membership. We've come up with some very clever, sophisticated field of memberships strategies and do a majority of all the underserved area applications that NCUA approves. Anyway, we're leading in field of membership work. And we actually weren't doing mergers. We had some lawyers who we were connected to. Actually, maybe the gentleman you talked to worked on the credit unions buying banks front who used us for a memberization plan for credit unions buying some banks. And then they started pulling us in for like when credit unions charters don't align, we're very good at making them align essentially. And then we started doing just like the merger application documents. And now we've gotten into, we brought on Luis Topico, who is our chief economist, who was the economist for Filene. And he spent 30 years studying credit union mergers and has built a predictive model to sort of identify the credit unions most likely to be acquired. And so we've gotten into helping credit unions sort of come up with their merger strategy, develop their, I don't know what else to call it, but sort of their pitch book and helping them with prospecting. We've found there's like one main problem that I'm very interested in solving and we are just launching this really in the second half this year, I would say, It is in its infancy. But I want to prevent, help, let's say, help acquiree credit union boards evaluate acquirers in a data-driven and a really sort of like deeply data-driven way to ensure that they're picking the right acquirers for their members. I've seen a lot of mergers where the acquiree is, I'm just going to say, makes more loans to lower tiers of credit, and then they're acquired by a credit union that predominantly does prime lending. And that really means that the credit union wouldn't be willing to make loans to the members of the acquired credit union, which I think is bad for the world. We've come up with a framework where we can take each credit union's data and basically run one credit union's business model against the others and tell them if you applied their, particularly their, also their deposit, but really their lending products and pricing and underwriting strategy to your members, how well would they serve your membership? So going beyond sort of like branch network or mobile technology or just scale arguments, but making sure that you're not getting absorbed just for your capital. That's what I'm most interested and excited on working on and now launching. And how does that
SPEAKER_02:work? I mean, how do you charge? What's the nature of the arrangement?
SPEAKER_03:So it's a merger network. Credit unions, when they join, can say whether they're interested in being an acquirer, an acquiree, or mergers of equals. There's
SPEAKER_02:no such thing as a merger. Never has been.
SPEAKER_03:It is true. We are defining, I would say like a merger with more equitable leadership and board integration, if that makes sense. I think that is really the closest you can get to mergers of equals. There will always be a acquirer and acquiree, but like, I think the way we define an acquirer is basically like, willing to give up one or less board seats. It's basically based on board seats that someone is willing to explore mergers that would entail that. So acquirers, acquirees, mergers of equals. And then we've built this analytics platform where we take all of the credit unions and we do this already for all of our clients where we're measuring community impact. And one key element of that is we calculate a risk-based member benefit for every product they've provided for every one of their members. And then you can use that to essentially establish credit unions' risk-based pricing and the likelihood that they will lend to members of certain credit scores and at what price. And then you can apply the acquirer's historical risk-based pricing to acquiree data to produce essentially like would they have went to the acquirees members and at what rates and what would the would that come out being better than what the acquiree had done for their members worse the same uh really we're trying to hope that no one will merge with a credit union that would do worse by the acquirees members i'm sure there are additional factors that should be considered. You shouldn't just necessarily just go with the person who would create the highest results for risk-based member benefit. But yeah, that is the methodology that we would be applying.
SPEAKER_02:How sophisticated are credit unions? When banks are in an acquiring mode, and I'm talking about pretty big banks, they're very sophisticated and realistic about how much business they're going to retain in this acquisition. The thing might have$2 billion on the books, but they'll say, geez, we're probably going to lose 40% of the members and 40% of the money. That's cool. We can deal with it. A credit union is that sophisticated in the analysis, where they just say, oh, I'll add this column to this column, and golly gee, we're so much bigger.
SPEAKER_03:Unsurprisingly, my answer is going to be a bit of a punt, but I'm like, it depends on the credit union. I think that... Yeah, it does depend on the credit union. It depends on the merger. It depends on the merger strategy. There are certainly credit unions out there that are looking to gobble up capital. And that is the focus of their merger strategy.
SPEAKER_02:Now, have you seen mergers? And I know this is true in the world of technology. I don't know if it's true in the credit union world. So have you seen any mergers where it's talent-driven? In other words, sometimes a technology company will acquire another company purely for the talent. Sometimes they're looking for a CEO.
SPEAKER_03:Yes, I have seen that in a couple of places. So one with credit unions, the way I've seen that is essentially a credit union is the lack of a succession plan and them wanting to have the CEO of another-
SPEAKER_02:Or you had a succession plan and the person who was supposed to succeed dies or takes a job elsewhere, they're out the door. So now you're three years of succession planning down the toilet, the CEO's 65, he's already filed his papers to get out the door.
SPEAKER_03:Wait, and I actually even think in one of the ones that I've seen, it was, I don't know for certain, but the credit they ended up merging with was a sort of second command, who went over to be the CEO of another credit union. So like he, I believe, was the succession plan for- That
SPEAKER_01:makes sense to me. Hey, we wanted you one way, we'll take you another way.
SPEAKER_03:Yeah, yeah. And then the other thing is not as much on the credit union side, but more with credit unions buying banks where a credit union wants to start doing commercial lending or like a certain, generally a certain type of commercial lending and buys a, bank that is very good at that.
SPEAKER_02:Right. There are actually at least a few success stories in that universe. Now, on your website, you talk about a software platform, ExpandCU, which has, quote, an additional feature which considers billions of different expansion options and to make sure your credit union chooses the best way to expand. Tell me about that.
SPEAKER_03:Oh, man, that is the service that put us on the map in a number of different ways. We built a mapping engine that does, I'm just going to say, conventional mapping stuff that just shows you data, demographic data, where your members are, competition, sort of like general market analysis stuff. But then we added a functionality where we programmed in the regulatory rules for people Field of membership was the first thing we did. Now we've done CDFI, also actually like low-income communities. I should mention that too. But you give the software an objective that it needs to achieve within the regulations, essentially. And then it does so much copy. When we first ran it, it was going to take our server 50 years to do all the necessary math. So we had to We hired a person who's now literally a rocket scientist, who is a PhD mathematician to come up with some algorithms to speed it up. It still takes two days to run actually, but it then figures out how to draw maps that mathematically maximize whatever you're looking to do. For field of membership, what has been where we've used that, which is with underserved areas. So if you are, a community chartered credit union, you can only serve one community and that community typically capped at like 2.5 million in a statistical area or a rural district, which is capped at 1 million people. But if you're a federal multiple common bond charter, you can have an infinite number of employer groups and associations and a national association, but also you can have an infinite number of underserved areas. And with this software, we can figure out how to draw like perfectly drawn underserved areas that I'm just going to sort of try and describe this as best I can, but like fit together, like puzzle pieces to accomplish a bigger goal. So it
SPEAKER_02:is. I'm watching this on my screen. As you talk, the graphic that illustrates your expense to you and what the graphic shows is exactly what you're talking about. It's, it's, two-color pieces of a jigsaw puzzle coming together. It's overlaid on a map of Atlanta, Georgia, I believe. And the disparate pieces are pulled together and then form a cohesive whole. It's a pretty map. It's worth checking out. I'll have a link to it in the
SPEAKER_03:show. And then we figured out that that can be used like credit unions who want to get low-income designations. And this is actually not a strategy I would recommend in most cases. But if the community you serve is a majority of low-income population, then... you get a low income designation. It's presumed that a majority of your members are low income, so you get a low income designation. So in some desperate situations, we've helped credit unions draw communities that a majority of their potential members count towards a low income designation. But then the third way that has been very helpful is also with the CDFI custom investment areas. Before the reworking of the certification process, before the new certification process, you could draw enormous custom investment areas that really served as a way for anyone to be able to obtain CDFI certification, which is exactly why they came up with the new certification process, which was basically brought on to close that loophole. And they have limited it, but it still is quite effective. It can't be used to make anyone eligible, but it can certainly be used to help someone who is pretty close, but not quite there get there. I'd say like within, I don't know, I think it's 5%. So if they're like, you have to be over 60% of your loans by number and dollar being made to qualifying people. target populations. And I think theoretically, it can help you much more than 5%. But in practice, when we've run it for credit unions, it can get someone who's at like 55% to 60% pretty consistently. That has been an interesting tool we've made.
SPEAKER_02:You've been involved in credit unions long enough to remember when almost all credit unions were mercy marriages arranged by the regulator who would probably have denied that they arranged it, but they did. I remember distinctly the first time I really thought about this topic, I was talking to the CEO of a big credit union I knew pretty well. And I asked him why the hell he'd bought this horrible, horrible failing credit union. He said, doing a favor for the regulator. Okay, I'm not going to tell you any more. But in his theory was that the regulator at some point might do him a favor. Now we're seeing those kind of mergers are a minority mix now. We're seeing two pretty healthy credit unions in many cases choosing to merge. It's a whole new world. Does anybody have any sense of how successful this is?
SPEAKER_03:Define success.
SPEAKER_02:Okay. One way to do it would be to look back at, say, a merger that occurred 10 years ago and look at what the stated goals of the merger were. And did they hit any of those goals? Are they more competitive? Because almost all mergers are billed as a way to become more competitive in a hyper-competitive financial services world where big seems to really matter. Are you more competitive now? If you go from$2 billion to$4 billion, does Chase actually give a damn? I don't think they even know you exist. They know Navy Federal exists. Other than that, I'm not sure they know any credit union exists.
SPEAKER_03:I bet they're aware of Alliant and PenFed and maybe... Connexus or, you know, the people who are sort of competing with them on nerd wallet or bank rate or those
SPEAKER_02:things. Yes. You're probably right. I, I've, I've been a little too, but it's not a heck of a lot. I mean, I talked to the CEO of one credit union. He said, Hey, you know, I can beat chase anytime I want to, because they won't even notice I'm competing.
SPEAKER_03:Yeah. I think, you know, defining success. I think that, um, Those types of mergers, and it's funny, my experience has been a mixture of both of these things. I think there are many credit unions, and the part where I find it most interesting is when they are what I think of as being like quite large credit unions, let's say like$5 billion to$6 billion in assets. And they're seeing that they're going to cross$10 billion in assets where a whole new layer of compliance comes in and burden. And they're basically like, we need to merge with another five or$6 billion, you know, actually ideally bigger. Ideally we like both get to like 8 billion and then merge with another target around like a$15 billion resulting credit union. That has been pretty fascinating to see sort of behind the scenes and like what the thinking is.
SPEAKER_02:It's that 10 billion CFPB benchmark. that has these people. I hadn't thought of that. Okay, we're approaching this. What do we do now? Do we sell off parts of the business or do we get bigger?
SPEAKER_03:Oh yeah, we had clients who were, they were desperately trying not to grow. They were like, we're going to pass 10 billion before we're ready. We need to shrink so that we can do this when we're prepared to do it. because running into that without being prepared would be bad. Then they got prepared and passed it and are now going well beyond it. But yeah, that's a big concern for credit unions is passing the 10 billion mark and not being fully prepared for it.
SPEAKER_02:Interesting. I hadn't thought about that. I mean, it's only a few credit unions at any one time, but I hadn't thought of people saying, geez, let's just slow down growth. Let's sell our auto lending portfolio. Interesting.
SPEAKER_03:The other thing that I've found really interesting is when credit unions have a five-year, 10-year plan, when they have hit the size that in their minds, they were like, this is the size we have to hit. I feel like actually this is generally once you're over 10 billion and you've probably dealt with the compliance things and now you're going along. I don't know how else to say this besides sort of like, I think that most credit People who do not work at these types of credit unions think that the credit unions have gotten that large, have not focused as much on the credit union mission. But what's really interesting that I found is once they get to that big, they're like, wait a second, why was getting big important to us? We've hit the size now where we're not worried about not existing. We have the resources to do more or less what we want to do. And then there's a swing back to using KPIs that are more, I don't know how to say, besides they're like credit union KPIs than bank KPIs, but measuring member benefit and looking more at social impact, which I've also found pretty interesting. I think generally when people are just looking at growth, it is in order to achieve really rapid growth, oftentimes it is challenging to you're going to rely more on sort of like profitability than member benefit you're going to be focusing more on that which can be appropriate right like i'm not actually knocking that strategy i think if you believe that you need to be a certain size in order to be viable then that's the prudent way to run your credit union but it's only prudent so far as it gets you to a place to be viable to then pull up and then focus on member benefit. It shouldn't be to become bigger than Chase.
SPEAKER_02:Well, we also see a small trend where some very senior positions in credit unions are being filled by bankers. I can think of two CEO jobs that bankers fill, very big credit unions. And I personally don't see anything wrong with that. I know quite a few people that I talk to see it's like dancing with the devil. That's a bit of an exaggeration in my mind. But those bankers do bring some mindset that isn't necessarily the old credit union mindset. But credit unions themselves are going through this existential crisis. When you were a single employer SAG, you didn't seek to grow. The company had to grow. Grow? What would that mean? Whereas pretty much every credit union
SPEAKER_03:now wants to grow. They still exist. They do. I call them up and I'm like, we can help you grow. And they're like, we don't want to grow. I'm like, wait, what? I mean, it's so antithetical to like American capitalism. I remember the first time I called the credit union CEO and I was like, we're the credit union growth company. He's like, well, I have no interest in growing.
SPEAKER_02:I love these guys. At least he was telling you the truth.
SPEAKER_03:Oh, no. And it's also so educational to think about it. We do focus on helping credit unions grow, and it's really because we want to help credit unions maximize the impact they can have overall. And I will say that I was foolish enough to major in philosophy in college, so using some weird language here but like they have a categorical imperative to basically like provide the benefit that they can provide to as many to have the biggest positive impact on the world possible but certainly like you're chartered to serve a single set group so really from a sort of like governance perspective they're not wrong i think it's more sort of like philosophy and wanting to create the most good for the world but Categorical
SPEAKER_02:imperative, ladies and gentlemen, is Immanuel Kant. It's the basis of his ethics and is probably one of the two or three most important ethicists in the history of philosophy. Well, we actually see at least one very big credit union going through a kind of existential moral war internally between forces that want to retain the old credit union values and forces that are seeking to propel a credit union into a more competitive posture.
SPEAKER_03:And
SPEAKER_02:I-
SPEAKER_03:State employees? Yes. And it's so, I've thought a lot about that because I made the mistake of, who was I talking to? But I was like, oh yeah, risk-based. In general, I am a huge fan of credit unions doing more risk-based lending projects and lending to lower tiers of credit they do right now, especially for smaller credit unions. If they can do relationship-based, risk-based member lending, sorry, risk-based lending, it's not only going to create the most benefit for their members, but it's also going to be the most profitable and it opens doors for outside capital and resources to further equip the credit unions to grow and hire more people through like CDRLF grants or CDFI. In state employees' situation, and I actually dealt with this also with Library of Congress, where their membership are government employees and are credit scores really the right way to price risk for people who have nearly guaranteed jobs and income? Anyway, that I, had not thought through that problem. I think it is more complicated, but it's really interesting thinking about the credit unions who have single seg sponsors and what is the appropriate underwriting there. If you're a community chartered credit union or you have a sort of like we'll serve anyone approach, yes, there may be alternative data sources and things to be more sophisticated in pricing risk, but let's be honest, credit scores are still going to be the main way people are pricing risk and lending to lower tiers of credit is good and having risk-based pricing is rational, essentially. But anyway.
SPEAKER_02:So how do you see the regulator fitting into mergers? I've talked an awful lot about mergers with people and I've never heard that the regulator was much of an obstacle.
SPEAKER_03:Yeah, I don't think the regulator is an obstacle. It would be bad for my bottom line. But sometimes I wish they were. Like, I wish they were doing what we're proposing to do for acquirees and helping them, you know, really understand what a merger will mean. I think that, oh, man, I'm going to potentially stamp. I have no filter. I cannot do anything other than speak my mind. But I'm like a lot of credit union board members, not all, but many of them. they're volunteer board members and are not experts in everything that ideally they would be in evaluating something like this. And I came from Callahan Associates, read a lot of what Chip Bilson writes, and he's covered some mergers that seem extremely problematic. And I kind of can't imagine that the board's understood what was going on. I feel like the regulators need to do more to ensure that boards get what's happening in an ideal world. But I'm also the type of person who wants much more democratic governance at credit unions. So I have a lot of unpopular opinions on...
SPEAKER_02:When you say that, what are you talking about? I have never participated in a credit union. election. I don't even know how. I mean, I live 2,800 miles from the headquarters, or 3,000 miles from the headquarters of my, at this point, only credit union. I sure ain't going to go to the annual meeting there to vote. So I've never actually participated in this. So to me, I always laugh when people say, well, it's shareholder, it's member-owned. I say, well, I really don't feel like an owner, I've got to be honest. So So you tell me what you think about democratic governance.
SPEAKER_03:I think it is hard to run for the board for most credit unions. I'm speaking in generalities, obviously, but it's hard to be listed as a candidate for the board without the credit union support. So I think the template bylaws for the NCUA requires 500 signatures to get on the, to be a candidate for the board. And I don't know how you would ever get 500 signatures to become a candidate for the board. 10
SPEAKER_02:years ago, I would have said paid some two nice looking college kids to stand in front of some, some branches on paycheck day and collect signatures there. I don't know that that would work anymore. I don't think they get that kind of branch traffic.
SPEAKER_03:No, I don't think branch, that is the sort of like stated thing is, you know, stand outside our branches. And I've heard of stories of credit unions then who, if they don't want the person to be the board, to accuse the person of loitering or something like that.
SPEAKER_02:Particularly if the signature gatherer isn't a member. Then they could call the police. Not to gather the signatures. Oh, okay. So in other words, I live in Arizona now, which is a valid initiative. Crazy. And those people who gather the signatures are paid, I don't know, 50 cents a pop or something.
SPEAKER_03:Oh, you're saying if you employed someone else. I see what you're saying. Not like if you are running for the board. Yeah.
SPEAKER_02:I would just hire two nice looking kids from a local college.
SPEAKER_03:I wonder how much money that would end up costing. Like it shouldn't cost... Even doing that would... I think minimum be end up being like a thousand dollars to collect the signatures. I don't know.
SPEAKER_02:How many signatures do you need?
SPEAKER_03:Well, it seems to basically be at a minimum 500. I'm sure there are credit unions who have lowered that. So again, painting and Bob brushes, but the,
SPEAKER_02:I'd say 500 to a thousand bucks to collect
SPEAKER_03:that. Okay. Probably doesn't really matter, but I'm idealistic. I'm like that, that tax shouldn't exist. You know, if you have really, engaged, motivated people who want to be active on the board, those are probably the people who will give you the best governance. The counter argument, which I cannot really argue that strongly against, is you'll probably get some crazy people. You want to avoid crazy people, obviously, but I think in that case, then you would just want to further support the engaged, smart people. But anyway, yeah, I would like much more it'd be much easier for an interested member. And quite frankly, I think it would be a huge differentiator for credit unions if they made it much more visible. You know, I have a dream that I'm sure will never come about, but like it being a push notification in the mobile app, like, do you want to run for the board? Then later on pushing like video of each candidate describing what they, why they want to be on the board, you know, that sort of things that you get in the mail that feels like it's, Checking a box and then...
SPEAKER_02:Well, keep in mind, if you own stock in a publicly held company, you do get a proxy statement once a year that will show you candidates for the board. You get to vote in that. And there's little bio notes on the candidates. Probably, if you go to the website, they probably do have little videos online now. I have some shares from an old employment thing with British Petroleum. So I get my proxy statement every year. So if those guys are doing it, it's kind of puzzling to me that credit unions don't do it. I mean, those guys are doing it because the SEC requires it. I realize
SPEAKER_03:that. Yeah, I was going to be like, well, if you don't have to do it and you can put your thumb on the scale to have the board that you want.
SPEAKER_02:How'd they do that anyway?
SPEAKER_03:Yeah, what rational CEO is going to be like, I want someone I don't know? I run a company. We're actually in the process of converting to Accuso. We're going to have a board. I don't want to have someone who might create problems for me. I think that's rational. Okay, so now why are you converting to
SPEAKER_02:Accuso?
SPEAKER_03:Why am I converting to QSO?
SPEAKER_02:I'm a big fan of QSOs. Don't think I've created a trap door for you to watch.
SPEAKER_03:No, no, no, no. I'm gathering my thoughts, which is probably rare for me. I went down... I've bootstrapped the company over the last 10 years. For the first five years, I didn't make a cent. For the last five years, we've grown very rapidly and are now a pretty... We're a real company. And... I want to do more fast. I'm impatient. I want to do more faster. I was looking at different ways to raise money, but I am not into my company and what I'm building being owned by people who will want to extract as much profit from credit unions as possible. looked around and tried to figure out how do you raise capital from people who aren't basically profit-driven. And the only resource that I could find was credit unions. And we have a lot of credit unions who it has been overwhelming for me, but who are eager to invest money in us. And we're going to end up being significantly oversubscribed, which is Really exciting. Yeah. So I think my ideal exit rather than sort of like, I don't have dreams of like going public or even honestly selling for the most amount of money possible, it would be, you know, creating infrastructure that is critical to the credit union industry or movement thriving while certainly getting compensated fairly for my innovation and time, certainly, but not unreasonably so. So Accusa seemed like the best move. I will say a minority stake will be owned by credit unions initially, and then that will likely grow over time. But
SPEAKER_02:How big are the credit unions that you think will buy into this?
SPEAKER_03:We have credit unions. Our clients range from$300,000 in assets to$22 billion, over$20 billion. The people who are investing are generally, I'm going to be like$200 million to$5 billion in assets.
SPEAKER_02:Why are they investing? oftentimes the motivation for investing in Accuso is to get assured access to some service or product that you want. And also, in most cases, there's a hope to make a little money out of it.
SPEAKER_03:I think to make a little money out of it. I also think that many of this sounds so arrogant uh many of our customers believe in me and my team and what we've done for them already and i believe rightly believe that if we had resources that we could do even more for them um i think that's the the real answer i think you
SPEAKER_02:know so so you need some some new for instance you need some new powerful technology That program you're talking about shouldn't take two days to run. You ought to be able to get that down to at least a day. But that might require more power at a server level. Or just put it all up in the Amazon cloud and let Amazon take care of it.
SPEAKER_03:Well, it is in Azure. So it really does a lot of... It basically does consider...
SPEAKER_02:If it takes two days in Microsoft Cloud, it's very processor intense. It does. Microsoft is perfectly good at this.
SPEAKER_03:Yeah, it is very processor intense. But speeding up the time of that actually doesn't matter that much. It's a long-term strategic choice, so getting an answer back in two days is actually fine. I am not short on ideas. And we have a few things that are right in front of us, which quite frankly, we will get to whether we raise this capital or not. So it's really like growth capital. This is just speeding things up. I just want to accomplish more in my life. And I'm willing, you know, if my ultimate ideal exit is to credit unions anyway, now feels like a good time to take some growth capital.
SPEAKER_02:where you pull any money out of it?
SPEAKER_03:The plan right now is not to. So we're raising three and a half million. It seems like we may have interest in invest, like from credit unions, interest in investing like a quarter of magnitude more than that. I need to think about what I do in that case. I think I have an idea. I think I will not pull any money out of it.
SPEAKER_02:Do you have any competitors? Is there any other company that's doing what you're doing? I know there are companies doing individual things that you do, but does anyone have a package of services the way you do?
SPEAKER_03:I would have said no. Ultimately, I will still say no, but there really wasn't anything close until the announcement of Callahan buying CU Strategic Planning. where that combination is at least similar in spirit. We are raising this money to go beyond what we're doing now, but like that merger, I think that would be the closest sort of proxy.
SPEAKER_02:Do you compete with Callahan for clients?
SPEAKER_03:No, we would compete. I don't think so. I'm not aware of us competing with Callahan for clients, but I'm just saying from like a company that makes data analytics and does consulting around CSPG planning, does consulting around the areas that we do consulting into. We now do a few areas that they don't do, but like that's the most overlap. There's certainly no like apples to apples comparison, but they're the closest, call them a pair, you know. They are close proxy, I would
SPEAKER_02:say. Before we go, think hard about how you can help support this podcast so we can do more interviews with more thoughtful leaders in the credit union world. What we're trying to figure out here in these podcasts is what's next for credit unions. What can they do to really, really, really make a difference in the financial scene? Can't all be mega banks, can it? It's my hope it won't all be medical banks. It'll always be a place for credit unions. That's what we're discussing here. So figure out how you can help. Get in touch with me. This is rjmcgarvey at gmail.com. Robert McGarvey again. That's rjmcgarvey at gmail.com. Get in touch. We'll figure out a way that you can help. We need your support. We want your support. We thank you for your support. The CU 2.0 Podcast.