While credit unions initially viewed fintechs as competitors and disruptors, they’ve become valuable partners in many instances, a panel of industry leaders said Wednesday during the 2022 CUNA Finance Council Conference in Las Vegas.
Those initial concerns weren’t unfounded, says Sam Das, managing director at CMFG Ventures, the venture capital arm of CUNA Mutual Group, citing competition from Lending Club.
“We’ve seen an evolution where fintechs realize they’re good at some things credit unions and banks aren’t,” he says. “But credit unions understand their members’ needs and have relationships with them. They understand the regulatory front and how to deliver financial services safely and with members in mind. So many of these hurdles have crumbled.”
It's all about driving value, says Jeff Harper, senior vice president/chief loan officer at Orange County’s Credit Union in Santa Ana, Calif. “Fintechs can dive into a specific problem when you’re trying to create a value proposition in your credit union. Understand the problem you’re trying to solve and see how fintech can help.”
Credit unions have three options when seeking new capabilities: build, buy, or partner, Das says. Building solutions in-house isn’t a traditional credit union strength, he says, and buying solutions can be prohibitively expensive.
“Partnering is the best of both worlds,” Das says. “It allows you to offload development and management to your partner. But it requires a lot of trust. That’s why you need to start small and grow into a relationship.”
“Fintechs can go where credit unions can’t,” says Bryan Young, founder/CEO at Home Lending Pal. “Leveraging fintech can get you places faster.”
That’s especially true in areas such as gamification, says Tanya Van Court, founder/CEO at Goalsetter, which provides gamified financial education for young adults.
“We bring compelling content and gamified ways of learning as a means to engage that next generation,” she says. “Not every credit union can have someone on staff who knows gamification. But you can have a platform developed with that lens.”
When seeking fintech partners, start by asking questions, Das advises. “Seek people who understand. One advantage credit unions have is their ability to collaborate with each other. Call another credit union to ask about their experience. Gather data and real-life experiences.”
Also, ask members what they want and examine your data to see where they’re sending money. “This will give you a sense of what they’re looking for,” he says.
When vetting potential partners, consider whether they have a fundamental understanding of who credit unions are, their mission, and how they can strengthen that mission, Das says. This will ensure philosophical alignment.
“Not all fintechs are created equal, and they’re not a one-and-done solution,” Das says. “Some parts of their solutions will fall short, but that’s fixable. A lack of philosophical alignment, however, isn’t fixable.”
It’s ok to move slowly, he adds. “There will be a learning curve. Walk, don’t run. Start with a pilot, and if it works, expand it. You can grow into these partnerships—you don’t have to sign on the dotted line and hope for the best."