January 23, 2024
On this first of two episodes, host Vince Passione is joined by Ronaldo Hardy, President and CEO of the National Association of Credit Union Service Organizations (NACUSO). Ronaldo talks about the basics of a credit union service organization as well as the benefits for fintech companies in partnering with credit unions through CUSOs. With nearly a decade leading financial institutions, Ronaldo provides insights into how CUSOs operate today and the direction they are moving towards in the future.
(00:48) CUSOs act as the entrepreneurial arm of credit unions, providing shared resources.
(02:07) Any entity taking just $1 of investment from a credit union becomes a CUSO.
(03:14) CUSOs allow for increased collaboration between fintechs and credit unions.
(05:09) CUSOs evolved from cooperatives to more innovative models responding to consumer expectations.
(08:36) Credit unions are reorganizing as fintechs while still delivering the credit union model.
(15:20) Removing lending restrictions allows credit unions to reach their members better.
(20:48) Building talented people focused on empathy and purpose is critical for credit union success.
In this episode
[00:00:00] Ronaldo: I think credit unions need to participate in the development of the technology as much as they possibly can, especially because they understand what the outcomes need to look like to adequately reach their members, the communities that we’re serving. And when you’re not at the table helping to drive that in any way then I think that you run the risk of being left behind.
[00:00:57] Vince Passione: Well, welcome everyone to 22 minutes in lending. I am your host Vince Passione, and I’m excited to introduce our guest for today’s podcast, Ronaldo Harney, president and CEO of the National Association of Credit Union Service Organizations, otherwise known as NACUSO. So Ronaldo is a seasoned executive. He spent about 15 years in leadership and nearly a decade as president and CEO multiple financial institutions and was appointed president and CEO of NACUSO back this past July. He’s a musician. He is a pastor. He is a self described change agent whose personal mission statement is to change the world by building people who will change the world. So I’m excited to welcome Ronaldo today’s podcast. Welcome sir.
[00:01:28] Ronaldo: Thank you. I’m so glad to be here.
[00:01:30] Vince Passione: So Ronaldo, let’s start off with simple stuff. What is a credit union service organization and how many are there?
[00:01:37] Ronaldo: You know, credit union service organization is simply to me, the entrepreneur arm of credit union. So it’s for profit entities that credit unions have the opportunity to start or become a part of. In order to solve problems that they may be having or access, economies of scale through shared resources with other credit unions, the number of them is kind of hard for us to back into. So I was in a discussion recently. some of our thoughts are that there may be, more around 1500 or so. You know, there are those that are being tracked right now. And then I think that just because of the nature of the industry, we’re having a hard time finding them all or getting them all to come forward. And there’s various sizes of them. but our thoughts are that it’s probably around the 1500 mark of QSOs that truly exist.
[00:02:28] Vince Passione: So Ronaldo, we’re a financial technologies firm. So if we wanted to become a QSO, is it as simple as taking a dollar from a credit union? And then what do we have to do post getting the investment?
[00:02:35] Ronaldo: Yeah, it’s literally as simple as taking 1. from a credit union. So once you have any investment from a credit union, you do begin the process of becoming accused. So, now I know that there is governance structure that you have to work out to make sure that it’s, organized properly. what’s the oversight, things of that nature. the guru that would actually help you to walk through that process even better than me would be Brian Lauer with Messick, Lauer, and Smith. But, once you take that investment of any level, it sounds crazy to say 1 will do it. I was talking to Brian about this just recently, but I mean, that’s what it really is once you have any investment from a credit union, voila, you are a CUSO.
[00:03:17] Vince Passione: Yeah, no Brian well, and also no guy Messick really well,
[00:03:21] Ronaldo: great, great, great great guys.
[00:03:23] Vince Passione: Absolutely. and very proficient in this part of the business and understanding this part of the law. So now what’s the pitch? why would a FinTech want to become a QSO? What’s the value to the FinTech? What’s the value to the QSO? What’s the value to the credit unions that invest in it?
[00:03:39] Ronaldo: I think that, Fintech become an CUSO So to me, the value proposition there is increased collaboration, with the credit union industry directly. So, you know, we are a very interesting affinity industry. Like we respond so much better. to people, to organizations that we feel are more closely connected to who we are as a movement.
[00:04:02] Ronaldo: So I believe that, QSOs are trusted, in our industry, a lot more. You also increase your opportunity.To collaborate with credit unions as a fintech, and to bring more into that fold with you. So that’s kind of what I see. Now, I will tell you that I am one of those individuals who, I still like the word fintech and I understand the necessity of it.
[00:04:27] Ronaldo: I love fintechs. I was telling someone this recently. I remember when we first started hearing about fintechs in our industry, it was like a bad word. Because, you know, we were only considering, outside, FinTechs that were trying to challenge what we were doing as an industry.
[00:04:44] Ronaldo: And I think we, we got a sense of fear about that. What would that mean for our future? but I’ve seen over time that we’ve grown out of that. And not only are we looking at FinTechs. from a positive viewpoint, but , you’re watching more investment go into FinTechs as well. Credit unions are finding ways to explore that more.
[00:05:08] Ronaldo: So I’m in that, you know, frame of mind where I understand the value of both. And I do understand from a business perspective, the two are organized differently, but. In many both are after some of the same things, depending on the type of Q. So that’s being organized. there’s the legacy Q. So’s that were started to kind of give us access to insurance , and also, Wealth accumulation and management and, you know, giving us access to business lending was a big deal. Indirect lending. Those are traditional models that were, put in place. But even over time, we’re watching some of those as they’re growing and expanding and evolving. they’re becoming more FinTechs that are just organized as a QSO. So that’s where I stand on that in particular.
Vince Passione: So let’s circle back. So we touched on this before the call. Historically, QSOs are more cooperatives. they were credit unions pulling together capability, outsourcing it into this cooperative and then jointly funding it. Is that sort of right? But today, what we see is more fintechs where credit unions find the capability, whether it’s AI or loan origination, and they find a company that’s doing it. And as a result of the QSO, they’re allowed to invest in it. So are we seeing this become changed more from this was all about leveraging economies of scale to reduce the cost of a service being delivered like, phone centers and processing credit cards to now. It’s a marketing and investing opportunity for credit unions to get engaged in the venture capital world. how do you square that?
[00:06:46] Ronaldo: You know, I think it’s a little bit of both and I think it’s a natural evolution as well, like responding to adjustments in consumer expectations, which has accelerated the need for the advancement of technology in order to keep up right now, it doesn’t really matter what you do. You have to move it forward through technology for the most part.
[00:07:04] Ronaldo: So I think as that evolution really began to ramp up, and I think that we’ve seen the speed accelerate faster. than we’ve ever seen before, probably over this last decade. And I think the next decade, who, I don’t know what’s to come, but I believe that we’re going to have to speed up, what we’re delivering in the market going forward.
[00:07:25] Ronaldo: So, you know, although the model was started, originally to give access to collaboration that allow for the introduction of solutions that were necessary to serve members, also allow for. The achievement of economies of scale through shared resources, that was the original intent. But when you insert the need for technology into that, then I think that’s why we’ve seen such an evolution of the types of QSOs that are being developed so that need for more technology. to me, it’s causing the two to look the same in so many ways. I feel like we call FinTech when they have not done the work to get direct investment from, a credit union.
[00:08:09] Ronaldo: And in some instances we have QSOs that truly are. Fintechs in quotation, right? But they’ve organized themselves as a QSO and then I separate in my mind, what is more of a traditional QSO, that has been developed versus the QSOs that we’re seeing that have a technology focus, because, you know, there’s actually still a need for both of them. So even when traditional, QSOs are being. organized some of them are needing resources that are advancing them via technology, but they’re still running a more traditional model.
[00:08:44] Ronaldo: Others are really thinking outside of the box. You have credit unions that, and this has been happening for a long time, but I think that credit unions have become a little bit more robust in their own, departments, their human resources that they have on staff that can help them to develop solutions. And they’re finding a way to be entrepreneurial. And stepping into these territories that fintechs are in, and, you know, now they’re actually becoming ones themselves. So, and I’m actually seeing, and I know this is like a whole different conversation, but I’m actually seeing the credit unions that are emerging themselves.To organize their business strategy as a FinTech, but delivering the credit union model. So we’re just in this really big evolution right now. And I’m very interested to see what we’re going to look like 10 years from now.
[00:09:37] Vince Passione: So evolving from the traditional cooperative to being more innovative and now really having the credit unions take on more of that innovation themselves.
[00:09:46] Ronaldo: Yeah That’s what’s happening, you know, and what we’re looking at, in our. organization at NICU. So, and you could see right here, my background, for our conference, we’re taking on a theme, advancing the future. Of credit unions. What we see is this high need to emphasize innovation. How do we think outside the box?
[00:10:06] Ronaldo: I was excited to see a recent,study that was done by, filing that even indicated that credit unions have been, more progressive as it relates to advancing innovation. But I think we need so much more of that. And as we do that, then this notion of exploring QSOs, and also partnering with fintechs more often. Is rising and also, well, let me not get ahead of myself. I was going to say also, just, I’ll say this, with the challenges that do exist and how the market fluctuates so much,I’m thinking just during COVID everybody had this influx.
[00:10:47] Ronaldo: So they’re trying to figure out what to do with that. And some people did, they invested, they tried to find ways to loan it out. And then right now we’re in a liquidity crisis and it’s like, Ooh, you know, everything is swinging so quickly. So I think credit unions are doing their best to keep up. They’re seeing QSOs as entrepreneurial opportunities to find different ways to serve their members. To, protect their bottom line as well so that they can remain relevant going forward. And, I’m excited about it.
[00:11:40] Vince Passione: one last point on formation. So, credit and credit service organizations that also look very much like venture capital firms, like the circle fund. And my experience having built several companies and going out and obtaining venture investment. those funds typically would go out and bring in limited partners.
[00:11:59] Vince Passione: Those limited partners are looking for a liquidity event, right? Typically a sale or an IPO. How does that change when you have a number of credit unions that invest and their objective is to influence the technology, influence the way it’s shaped and formed. Does it create a conflict with outside investors? Does it actually support outside investors? Do you see that as a conflict at all?
[00:12:20] Ronaldo: you know, not completely. what I see it as is credit unions, finding ways to get in the driver’s seat, and I actually love to see it personally, I spent a lot. Of the earlier end of my career, and it’s funny to say that because I’m still absolutely young, but I’m about to be 40. So I won’t be a young professional, as of January 3rd. I move over into just professional. but, I think that credit unions are understanding that we need to get in the driver’s seat of what innovation looks like in our space again. And so, I actually liked the outcome, being that credit unions want to participate. And what that evolution looks like.
[00:12:59] Ronaldo: I spent a lot of my earlier journey feeling like, man, I would love to see us do more, especially because I consider the credit union movement itself and innovation, there were people who , did not have access to financial services needed that access found a way to organize so that all could benefit.
[00:13:20] Ronaldo: And so I love the fact that. To me, the genesis of who we are as a movement happens to be built on innovation. And I felt, you know, earlier in my journey and when I came in, I would think to myself, man, I just think that we could do so much more. And I would look at what was happening in fintechs. And I’m thinking, why aren’t we? Finding ways to contribute to this. Why are we not trying to develop new organizations and models that could advance us? Why are we not exploring the technology on our own?
[00:13:53] Ronaldo: So the way look at it is I think this is long overdue that credit unions needed to jump into this conversation in a different way. I think credit unions need to participate in the development of the technology as much as they possibly can, especially because they understand what the outcomes need to look like to adequately reach their members, the communities that we’re serving. And when you’re not at the table helping to drive that in any way then I think that you run the risk of being left behind. So I love what I’m seeing. I like that we’re finding ways to mirror some of the things that have happened in other industries or are looking at, you know, what has typically worked and starting to think through how do we bring this into our, model?
[00:14:37] Ronaldo: Of course, Nick who leads on the circle fund is on my board. I love what he’s even done with venture tech, to, allow for the introduction. Of more FinTechs entire space and the funding of them. And we’re going to do even more of that as we move forward as well. So I love to see it. And I personally think it’s the right, desired outcome.
[00:14:57] Vince Passione: Yeah, Nick Evans. No, I know Nick well, he was one of our clients when he was at Veridian and, it is a pretty innovative piece of work with the Circle Fund and how that’s come to pass. So I think they’re on their second fund now. So it’s, it is amazing the success they’ve had.
[00:15:11] Ronaldo: It grew on so fast to just watching it. I’m like, okay,
[00:15:14] Vince Passione: it is moving quickly and it’s, a sign of what’s happening in the industry, I think in general. So the CUSO gets involved in also influencing the regulatory landscape to the extent that you can, right. Do I have that right? and the financial innovation and lending participation rule about two years ago, there was lots of discussion about changes that were needed there. and recently there have been some changes to kind of streamline the rule. And one of them was around lending and eligible obligations where the cap was basically taken off eligible obligations. Can you explain was that so important to credit unions? Why was it important to NICUSO and others to get involved in that?
[00:15:55] Ronaldo: I think that it was important to get involved because credit unions need the opportunity to grow in the way in which they desire to grow, to reach their members in the way in which they desire to be reached, as a previous credit union CEO, I would be ecstatic to see this change because of the fact that, you know, I could utilize this to explore opportunities to reach my members and not have Opportunities in the market because of restriction that I could not control.
[00:16:25] Ronaldo: So that’s what I love about it by us putting, having this adjustment and advocating for this with the NCUA kudos to the NCUA for listening and making this change. what it does is it doesn’t say to everyone, Hey, you must do this. But what it does say is you’re not limited if you want to.
[00:16:42] Ronaldo: And I really love having that opportunity to advance, in this particular area, like I’m thinking about the amount of, members that will get access to loans at a faster pace. I’m thinking about credit unions who can now make the right partnerships with [00:17:00] fintechs. To go directly,to the market, to where consumers are and not have to deal with as much friction in trying to advance what they’re trying to do and then losing to others in the market who can already reach consumers in that way. I think that’s the thing that was most critical in putting this in place. And I’m loving to see this evolution.
[00:17:22] Vince Passione: Yeah. And I think part of what you’re referring to, Ronaldo is about the discussion around, having a lending CUSO and the fact that lending CUSO can make loans. And I think it’s only 51 percent of the loans that come in need to be memorized that the other 49%. They don’t necessarily need to be memorized. Did I get that right? As I talk to my peers in the industry, we keep debating that,
[00:17:48] Ronaldo: I’m still digesting it, to be honest. So yeah, I think you have it right, but I’m still kind of digesting it myself. as I’ve been on pretty quick pace, I had to digest this change pretty [00:18:00] quickly, but I do understand it to,this change has done just that. It’s allowed for lending QSOs. It’s allowed for, the acquisition process of the loan to change, you know, and investing in that way. I think. Is the right step forward, for credit unions as a whole. And I know Cuso’s are excited to be able to participate in that way.
[00:18:21] Vince Passione: Yeah. I also believe it enhances liquidity, which is a topic you touched on earlier. As a result, those lending QCOs can take those loans and sell whole loans. and we’re starting to see more and more discussion at different conferences around how that might actually help credit unions generate liquidity, both in the system and also outside the system.
[00:18:40] Ronaldo: Absolutely. Absolutely.
[00:18:42] Vince Passione: So let’s, touch a little bit down on the people side of things. So another part of your job is really sort of being an evangelist and helping people to understand what QSOs are and bringing them all together. and I know this is an important topic for you about people and about talent and about building that talent and talent is certainly credit unions are like every part of the industry are also falling victim to trying to find talent, right? To get that next. You know, as CEO in that spot, what’s the role that you believe you play and the QSO plays in talent acquisition and evangelizing the credit union movement, the QSO movement.
[00:19:20] Ronaldo: Well, the role that we certainly want to play as we move forward is helping talent to advance in their ability. to innovate and to ideate better and to,find ways to also, bring a stronger sense of collaboration for the development of the leaders that we need in the future. it’s no secret that I have spent a lot of my journey advancing opportunities, especially for young professionals. So I was really a part of that wave that, you know, right. And the earliest, entry of young professionals in our space, was when Brent Dixon and Matt Davis decided,
[00:19:54] Ronaldo: Hey, we’re going to crash the GAC. We’re just going to go, we’re going to do this thing. And everybody’s like, excuse me, you’re done. You got to do what? And, and so I ended up being in year two of that. but then starting the Louisiana young professionals network. And so I’ve done a lot of work in making sure that the future is solidified, by having the right talent at the table and making sure that we remain.You know, which is why I’m a little sad to be kind of aging out of that but I’m accepting that I now have amassed a new sense of wisdom that I can impart into those who are coming, behind me organizationally, we have the opportunity to build the educational platforms that will strengthen the entire industry, in particular around innovation.
[00:20:38] Ronaldo: You will see us lean in very heavy there. And what we offer from an education perspective, because I want to make sure that our minds are bright, our minds are focused, and our minds are filled with capacity to think and dream into the future. , and we are not the only organizations that’s focused on it, but I believe that around the industry talent development is key and not only just talent development, but also retention. What are we doing to make sure that we are developing, evangelists that will remain forever and ever, you know, what I love about the generation before mine. is that such a passion was developed for this industry?
[00:21:17] Ronaldo: People got in and that was it. It’s like I got in and for 40 years, I lived my dream of helping people. And I think that, our generation, the one that I’m a part of, we found a way to do that same thing. And I’m hoping that the generation coming behind us will also find their way. to energize themselves around what this movement means. So,as you said earlier, my mission statement is to change the world by building the people who will change the world. So I wake up every day with the mindset to build people. I think if you build people, everything else will fall in place.
[00:21:51] Vince Passione: Now we’ll put, now specific skills, Rinaldo, what are the specific skills that you believe, look at your journey, right? You need to be successful, not only just we get today and to participate in financial services, but to be successful in the credit union movement.
[00:22:08] Ronaldo: That’s interesting. You know, first of all, I don’t think that you should be in this space at all. If you don’t have a sense of empathy, and are not purpose-driven because I think that this is a movement that, requires a great, sense of emotional intelligence, a great sense of empathy, and a great sense of being purpose-driven If I expand that out further, I’ve been talking a lot recently about life skills that I think are necessary across any.
[00:22:36] Ronaldo: Discipline in order to advance and to move forward. I think a sense of resiliency is something that’s necessary. I mean, right now you’re looking in our industry and I say, that may not be identified as much of a skill as it is an attribute. That’s a part of us. But I think a resiliency is necessary because Things change so quickly. There are so many things that will frustrate you along the way. As soon as you think that you have things moving in the right direction, something is going to come to challenge you. So a sense of resiliency, is important.
[00:23:09] Ronaldo: I’m also, focusing a lot on how people are developed around their ability to communicate. As well. I think that is something that, is underdeveloped in a lot of people. And if it were developed more, it also would lead to a lot more progress, but specifically in our industry, I think that, you know, yes, we have to have a sense of. business knowledge, we have to be able to run sound business, but we are a purpose driven industry. And I think without a high level of emotional IQ, empathy, and being a purpose driven individual, it’s going to be hard to succeed in credit unions. Long term.
[00:23:47] Vince Passione: Well, listen, Thank you for the time. This has been really awesome. also appreciate all our listeners tuning in. Make sure you subscribe so you can join future episodes and I’ll meet you back here for our next 22 minutes in lending. Have a great day.