Fintech Companies: Friend or Foe?
Credit union leaders must carefully consider strategic partnerships with technology companies.
Over the past several years, credit unions have seen tremendous growth, even alongside the uprising of many fintech companies. During this time, 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 October 2017. Meanwhile, fintech companies have seen a 778 percent increase in funding in the past 5 years.
As the buzz around fintech continues, much attention has been given to the market share these early-stage companies actively sought within the credit union space. However, during this age of nearly infinite resources and technology, consumers aren’t specifically looking to do business with a fintech company but, rather, are simply looking for businesses to meet their needs in a convenient and trustworthy manner. Credit unions continue to meet this need, yet as the industry changes, credit unions will need to embrace technology and innovation to build for the future.
Credit unions 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. Similarly, 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 percent of consumers would be more loyal to their credit union or bank if they simplified the car- or home-buying process, and 39 percent would like their financial institution to proactively provide real-time, actionable financial advice. Partnering with fintech companies can look drastically different for every credit union, however there are some commonalities that credit unions should consider.
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 for 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 identify and serve 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
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 percent of financial institution-fintech partnerships cut costs, and 54 percent of these partnerships boost revenue. So how should credit unions respond?
- Get educated Seek out potential mutually beneficial strategic relationships between incumbents and startups.
- Keep an open mind Explore new, and sometimes intimidating or unusual, ideas from startups.
- Use caution When negotiating agreements with eager young companies, seek validation from industry experts, startup customers, other credit unions, and CMFG Ventures.
Editor’s note: Written by Brian Kaas, Managing Director CMFG Ventures, the venture entity of CUNA Mutual Group.
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