“We have more in common with fintechs than we probably acknowledge.”
Those words, from Partners FCU CEO John Janclaes, are striking, given that there is a significant amount of talk within the movement about competition from fintechs.
Janclaes and more than 80 others participated in a recent collaboration between the Filene Research Institute and the University of California, Irvine’s Institute for Money, Technology and Financial Inclusion’s colloquium, “Sorting the Hype Cycle.”
The colloquium produced “great insights about how CUs can partner with fintechs and how that can be a great equalizer for small and mid-size CUs versus large banks,” said Janclaes, adding that participants also discussed “the need to evolve empire vetting processes of fintechs.”
Of the 85 attendees at the event at UC-Irvine’s University Research Park, 60 hailed from credit unions
Filene Fellow Richard Swart was among presenters at the one-day event. He, along with PhD student, Chandra L. Middleton, offered findings from their research paper entitled: “The Art of FinTech Decision Making.”
Swart posed the following question to the audience: Are millennials using fintech instead of traditional banking services because of ease of use or are they using fintech as banking training wheels?
“The counterintuitive finding we arrived at – which I think a lot of the credit union executives were surprised by – was that one of the reasons fintech is so popular with millennials is that they have so little money,” said Swart. “They are the poorest generation in American history. They’re looking to solve simple financial challenges with an app, but our research indicates that as millennials age, and as they increase in wealth and income, they will migrate toward more traditional financial services.”
As fintech companies continue to expand respective suites of services – from mortgage loans to P2P payment platforms – Swart said credit unions have to focus on what in-house services will provide the best value to membership.
“Unless you are one of the top 10 credit unions and can go toe-to-toe with fintechs on technology, credit unions have to realize that they can’t compete with everything,” said Swart. “Credit unions should study what drives members to use fintech apps and figure how to do that one thing well. These members are not lost forever.”
The $1.5 billion Burbank, Calif.-based Partners Federal Credit Union recently signed on with the New York-based Temenos, a banking software vendor. This venture, which will go live in October, will result in an end-to-end platform to open new memberships, consumer loans and share accounts, such as savings and checking. Additionally, it will allow members, or perspective members, to transact business anytime, anywhere and from any device.
“I think most folks think of fintechs as new entrants into the market – disruptors,” said Janclaes. “We’ve selected to build our new platform in partnership with a trusted partner – game changing still the same. It requires that both our CU and Temenos, along with other tech third parties, to stretch our current capabilities to achieve our vision.”
The event also offered attendees the opportunity for dialogues, including a conversation between Swart and Middleton and Infinity FCU CEO Elizabeth Hayes about CUs’ tendency to be slow to adopt new technologies.
Hayes noted that CUs have historically been slow to respond to opportunities, even when there appears to be an “imminent disruptor” like fintech, that “challenge” the credit union industry’s ability to grow and thrive.
“My experience with credit unions is that we are at our best when we cooperate versus going it alone; however, there is an important balance in credit unions having a ‘herd’ mentality that makes differentiating ourselves difficult,” said Hayes. “In my experience, some credit unions are innovative and willing to try new things, but the majority struggle with resources and talent.”
Most CU leaders Hayes spoke to at the event agreed that the fintech issue is “overwhelming” and that engaging with respective board of directors is “important to achieving progress.”
While Hayes said that the $330 million-asset Infinity FCU is not actively considering any fintech partnerships, in recent years new tech initiatives have been rolled out to compete against banks and to better serve its 16,300 members.
This fall, for example, the Portland, Maine-based CU is launching a new mobile platform. Last year, the CU opened a new data warehouse that has enhanced process efficiencies and up to the minute reporting as well as digital marketing and analysis and communications with members and employees.
“We’re able to make smarter decisions and execute faster and more effectively as a result of how we’re combining the data with our core,” said Hayes. “Really great stuff.”