Over the last several years, credit unions have shown tremendous growth, even alongside the uprising of many “fintech” companies. In the last number of years, credit union membership has experienced robust growth, with this year exhibiting the fastest member growth in more than 25 years, as measured from October of 2016 to that point in 2017; meanwhile, fintech companies have seen a 778% increase in funding in the last 5 years. As the buzz around fintech continues, much attention is given to the market share these early-stage companies were actively seeking within the credit union space. However, at an age of nearly infinite resources and technology right at our fingertips, consumers aren’t specifically looking to do business with a “fintech”; but rather, consumers are simply looking for businesses to meet their needs in a convenient and trustworthy manner. Credit unions continue to meet this need, but as the industry changes, credit unions will need to embrace technology and innovation to build for the future.
Financial Institutions are facing a choice: spend a significant amount of time and money developing their own capabilities to meet the changing market, or pursue partnerships with fintech companies that are disrupting this space. Even the major financial institutions are facing this dilemma, and many are choosing to partner with fintech companies to bring in new technology, products, and channels. Since 2012, the top 10 major financial institutions have invested approximately $3.6B in fintech companies.
According to a recent study done by Accenture, more than 40% of consumers would be more loyal to their credit union or bank if they simplified the car or home buying process, and 39% would like their financial institution to proactively provide real-time, actionable financial advice. For each credit union, partnering with fintech companies can look drastically different, however there are some commonalities that a credit union can explore now. Here are a few examples of ways fintech companies can bring added innovation and value to credit unions:
- End-to-end digital loans: providing loans at the convenience and control of the member, so that they can apply anywhere at any time from their mobile device or laptop.
- Reaching underserved markets: Data continues to be one of the most critical elements to identifying and serving new market segments. For example, the “thin file” consumer who does not have an established credit score has in the past received limited financial options, whereas with new developments, credit unions can now offer comprehensive financial services despite their lack of traditional financial data.
- Use new marketing channels: technology such as mobile platforms or non-traditional distribution partnerships can help reach new customers and offer credit union products in more convenient ways for the member.
Partnering with fintech companies can have the potential to combine cost efficiency with more comprehensive services for credit union members. In a recent study done by global law firm Mayer Brown, 87% of Financial Institution-Fintech partnerships cut costs, and 54% of these partnerships boost revenue.
So how should credit unions respond?
1) Get educated and seek out potential mutually beneficial strategic relationships between incumbents and startups.
2) Keep an open mind to the new and sometimes intimidating or crazy sounding ideas of startups.
3) Use caution when negotiating agreements with eager young companies, and seek validation from industry experts, startup customers, other credit unions, and CMFG Ventures.
[x_alert heading=”About the Author” type=”info”]Brian Kaas is Managing Director CMFG Ventures, the venture entity of CUNA Mutual Group. Contact him at Brian.Kaas@cunamutual.com.[/x_alert]
[x_alert heading=”About CMFG Ventures and CUNA Mutual Group” type=”info”]CMFG Ventures, LLC is the venture capital entity within CUNA Mutual Group that focuses on strategic, early-stage investments in the credit union, financial services, and insurance industries. Additional information about the company can be found at www.cmfgventures.com. CUNA Mutual Group is the marketing name for CUNA Mutual Holding Company, a mutual insurance holding company, its subsidiaries and affiliates. Corporate headquarters are located in Madison, Wis. [/x_alert]