Fintech Partners Power Credit Union Growth

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Gone are the days when traditional financial institutions saw fintech as serious threats, ready to steal business by attracting tech-savvy, convenience-seeking consumers. Today, there is a consensus within the credit union industry that partnering with fintechs is the way forward, especially to drive loan and membership growth.

A new initiative that has demonstrated the growing willingness of credit unions to partner with fintechs is the Fintech Forum, an online community and webinar series hosted by CMFG Ventures (the venture capital arm of CUNA Mutual Group), who trained credit union leaders on fintech. good partnership practices and present them to potential partners.

Brian Kaas

Brian Kaas, President and CEO of CMFG Ventures, said the industry has reached an inflection point in fintech, with more credit union executives realizing they need to embrace such partnerships to stay competitive. However, many feel overwhelmed by the sheer number of fintechs — there are currently about two fintechs for every credit union in the United States — and grapple with overall project fatigue. Additionally, Kaas said fintech executives are eager to connect with credit unions, but have struggled to do so.

“I see huge opportunities for both parties, where you can leverage the strength of the credit union and the strength of the fintech company,” Kaas said. “One area that makes credit unions very attractive to many fintechs is their large and loyal membership. What fintechs often have is great technology, but they lack market share and trust. Put these two elements together and you create something very powerful. You enable credit unions to offer their members the technology they expect from other industries – perhaps even some of their other financial service providers.

Kaas said that since the launch of the Fintech Forum in response to enthusiastic but often unsuccessful efforts by credit unions and fintechs to connect, credit unions of all sizes have participated in the program, hundreds of presentations have been made and some fintech executives said they gained a year of leads after attending a webinar.

According to Kaas, one of the key desired outcomes for credit unions partnering with fintechs is loan growth. He said lending-focused credit union-fintech partnerships generally fall into three categories: First, a credit union can provide funding for loans issued by a fintech, turning the borrowers of those loans into members of the community. credit union. The second involves more advanced loan recovery, where a non-credit union loan is converted into a credit union loan. The third involves integrated finance and represents a key area of ​​opportunity for credit unions that want to avoid seeing their lending volumes decline.

“There’s more disintermediation between traditional financial services and lending that’s happening, so you’re seeing more companies moving into integrated financing, where financing happens at the point of sale. As the purchase of automobiles moves online, financing for those vehicles will happen through the digital channels where consumers engage,” Kaas said in explaining the third use case. He added, “Unless we find ways to bring credit unions into the retail transaction, we’re going to continue to see an acceleration in the decline in lending volumes in the credit union space.”

As an example of how credit unions could benefit from embedded financing, Kaas said CarSaver, a CMFG Ventures portfolio company that operates an e-commerce platform for buying and selling automobiles, powers an auto buying program for retail giant Walmart and CMFG Ventures. is exploring how credit unions could potentially provide financing for these vehicles.

“When you look at the predicted volume of cars that could go through Walmart, it becomes a very large number,” Kaas said. “It’s easier for these players to deal with very large banks and have one partner, or maybe a small number of partners, who can provide funding for the volumes of lending they’re going to see, rather than manage 1,000 partnerships with credit unions. So we’re trying to think of innovative ways, through partnerships, loan participations, and technology, to ideally help credit unions of all sizes take advantage of the integrated financing solutions that are being deployed through various traders. »

Another popular goal of the credit union-fintech partnership is to drive member attraction, attrition, and engagement. For example, CMFG Ventures portfolio member Goalsetter offers an app with a TikTok-like feel that educates young consumers about finances and lets them open savings accounts and hold fractional shares in businesses. This allows partner credit unions to develop relationships with young account holders through a teen-friendly app that would be difficult for the credit union to develop on its own, Kaas explained.

With legislators and regulators generally lagging behind in their oversight of fintechs, another reason credit unions may be hesitant to pursue fintech partnerships – aside from lack of direction and project fatigue – is the risk. Kaas recommended that credit unions pursuing a new fintech collaboration conduct the same due diligence they would for any new vendor relationship, but take it a step further by really getting to know the direction of the fintech, finding out who are its investors and whether they are going to be there to support fintech growth and talk to existing fintech credit union partners. “There is always risk aversion for some credit unions to work with a fintech at an early stage, but what I tell them is that the risk of not developing a strategy to work with fintech is more risky than the status quo,” Kaas said.

He added that for a fintech partnership program to be successful, it is imperative that credit unions get buy-in from their CEOs, senior executives and board of directors. And if the credit union has the resources to do so, it helps to appoint someone to a position solely responsible for managing fintech partnerships.

Robert Perelli

One credit union that has recently done just that is the $15.1 billion Chicago-based Alliant Credit Union, which in January 2022 hired Robert Perrelli to take over sourcing, development and incubation of fintech partnerships as Vice President of Partnership Development of the credit union. Perrelli is new to the credit union space and brings over 15 years of experience building and managing products and partnerships, most recently for Huntington National Bank and TCF Financial Corporation.

Alliant, whose current and planned fintech partnerships are all aimed at loan growth, has five fintech partners in place today and a goal to add three more in 2022, according to Perrelli. The credit union plans to issue a total of $800 million in loans this year — a combination of HELOC and home improvement, solar and unsecured loans — solely through its fintech partnerships.

At Alliant, the relationship-building journey with a new fintech partner typically begins with a qualitative assessment — including conversations that can help reveal the potential partner’s expertise, values, maturity, and accountability — and progresses to the goal of turning the partnership into a line of business, Perrelli explained.

“So if this were a HELOC financial technology provider, we would reach our critical milestones over X period of time, and throughout this process, from launch to transition, we will have someone from the line of business engaged with the partner so that there is a good introduction, relationship building and ongoing management of opportunities or issues that need to be addressed,” he said.

What could be the critical steps? “They can be related to service or credit performance, or they can be milestones or deliverables related to technology as we fully implement the relationship and automate certain aspects of the processes,” he said. .

When it comes to assessing risk before moving forward with a new partner, Perrelli pointed out that to perform a truly thorough assessment, credit unions must allow sufficient time and space for those who are responsible for the task.

“I act as the shepherd between the external and internal parts, and the fact that [fintech partnerships are] a strategic objective for the organization means that it is not a side project. It is a priority at all levels. It gives me the opportunity to engage very regularly with partners – whether it’s information security, compliance, legal management, credit risk or third-party risk management – and we can focus our effort, collaborative problem solving and really setting a strong cadence in risk assessment, risk control and risk mitigation.

For credit unions that may not have as strong a fintech partner program as Alliant, Perrelli offered three tips. First, because values ​​and goals differ from organization to organization, define what a successful fintech partnership looks like for your individual credit union. Second, create space for all necessary groups within the credit union to focus on evaluating and understanding the partnership – and involve those people as early as possible.

Finally, Perrelli recommended starting with the end in mind: “Discuss with your financial partners and upper management the opportunities for the credit union and how you can optimize your balance sheet. Take a more top-down approach, but with very clear goals and objectives.

The path to establishing a successful fintech partnership may still seem hazy to some credit union leaders, but one thing is clear: credit unions and fintechs are more on the same page than ever. Perrelli recalled that in 2017, when he started engaging in the space, traditional financial institutions viewing fintechs as competitors was a common theme, leaving him with the challenge of turning perceived threats into opportunities. Now, he and Kaas have agreed that the two industries have more in common than differences — and that their differences represent a chance for them to learn from each other.

“One thing I like is when we talk to a number of [fintech company] founders in our portfolio, the mission of those founders and the mission of credit unions… I mean, they are completely aligned,” Kaas explained.

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