If a credit union had an app store, what would it look like?
That was the question on Chuck Purvis’s mind when he read about Deutsche Bank releasing its 150th app through its app store. Purvis quickly opened Microsoft Excel and began to map out the concept for credit unions, creating sets of boxes for transactions, insurance, real estate services and so on.
Purvis, president and CEO of Coastal Federal Credit Union, passed the spreadsheet on to his chief information officer, explaining that he wanted to create an app store for members to access mobile financial services all in one place.
That idea was the kernel for a credit union service organization with the mission to transform digital banking. It is called Constellation Digital Partners LLC, and the standalone CUSO is led by Kris Kovacs, who was Coastal’s CIO before making the move.
“It’s an entirely new digital banking platform for credit unions,” Purvis said.
Constellation aims to expand the options CUs have to offer their members digital financial services.
Most online and mobile banking platforms offer five functions: Transfer, remote deposit capture, bill pay, balances and transactions.
“But there’s 1,000 other companies that have been created for financial services,” Kovacs said. “All of these are because credit unions and financial institutions are not meeting consumer needs, and the reason they can’t meet those consumer needs is because of the business model they have been operating under—it has to be more open. They can’t get the services they need from any single provider.”
Constellation won’t build those services, but it will construct an open development platform where they can coexist and have a homogenous appearance, Kovacs said.
Pulling from a different playbook
The CUSO takes a page out of the disruptive technologies playbook: To separate content from delivery.
“Apple TV aggregates media from a lot of different companies,” reminded Kovacs. “It is possible in mobile banking technologies.”
Ron Shevlin, Cornerstone Advisors’ director of research, called Constellation a “platform service provider.”
“They are hoping to create a platform of applications and tools and systems together without being the actual developers of the systems themselves,” said Shevlin, a banking industry analyst for more than 25 years.
Constellation views both service providers and CUs as customers. Service providers want lasting relationships with CUs and credit unions want to integrate their financial services; Constellation aims to fill both these needs.
One reason CUs often struggle when integrating their mobile offerings is the hodgepodge of providers they use, Kovacs said. “We buy digital-banking mobile solutions the same way we bought core systems in the 1970s: Choose one of those five providers and sign a five-year contract.”
Small providers struggle just to get attention, as CUs often turn to the most popular providers for products. “You would most likely look at the four largest providers,” Kovacs said. “You’re not looking at the small creative companies. They don’t get a sniff.”
Once they developed the idea of Constellation, Kovacs and Purvis met with 30 credit unions and service providers to talk about investing in a research and development project to prove that the concept could work. In the end, all parties – Coastal, along with six other CUs, three service providers and one CUSO – put in $200,000 each, for a total of $2 million. That initial funding helped move the concept from an idea to a reality, and helped pay for initial testing.
“We then spent the next year and a half building it to show that it worked,” Kovacs said. “We wrote 600 pages of development requirements. We wrote financial models and business plans and had them audited to challenge our assumptions.”
In November 2015, the CUSO filed for the patent on the technology. In 2016, it started what many in the industry have told Constellation is the largest single round of capital raise in CU history: $28 million. With 10 investments totaling $22.5 million, Constellation is well on its way to hitting its funding target.
Nusenda Credit Union CEO Terry Laudick and CIO Kevin Murphy learned about the platform early on through a meeting with Purvis at a networking event. When Purvis demonstrated Constellation, the Nusenda executives signed on.
“What we have today is so many different applications from several different providers,” said Laudick, who is also Constellation’s chairman. “We’re simply looking to streamline and create a better member-engaging experience on the mobile device – a single point where they can access all of our information and capabilities and services in a branded form that’s us.”
One of Nusenda’s biggest challenges has been trying to find service providers that offer flexibility with the user interface.
“We want the member to think that we’re what we are — one single entity,” Murphy said. “One single company providing them their financial services.”
Constellation may also mean some new services for Nusenda members.
“What we’re most excited for is the prospect of taking services and products that we don’t even necessarily offer through a digital channel today and being able to make those available through this app,” he said.
Meritrust Credit Union executives became interested in Constellation after having several conversations with representatives other CUs who were already on board, said Wade Bruendl, executive vice president of strategy at Wichita, Kan.-based institution. “Speed to market is the biggest issue,” he said. “With this, we can create our own ideas quicker and realize them faster.”
The product is in the early stages of development, but 20 companies have already signed up to join the service development program. Those companies got their first set of code samples in October so they could begin creating services on the platform.
Breaking the gridlock
Before the year is out, Constellation expects to release its first software, Aquarius –so called because it is a constellation that starts with the letter A and it is a term denoting a new astrological age. The second major release in 2018 will be the constellation Bootes, a version of the software with core data connections as well as authenticated containers.
Kovacs describes the product as an open-development platform for financial services that allows credit unions to access a marketplace of services written specifically for that platform. CUs can choose which services they want to offer their members and those services are aggregated together and delivered to the device as a single mobile app.
“The real value is in breaking the gridlock and roadblocks that exist with the myriad of different fintech companies and services providers and unwillingness of other providers to build other services,” Kovacs said. “Our goal is to do an integration first strategy.”
In five to 10 years, Kovacs sees Constellation becoming the premiere platform for digital service delivery for CUs — supporting both credit unions and their service providers.
“We’re not doing this to do a startup and flip it,” Kovacs said. “We are here, and we’re going to be here for the long run building value and services for CUs.”