Credit Unions, FinTechs Warm-Up to Collaboration Instead of Competition

The old financial services landscape used to be divided between the traditional financial institutions (FIs) and the FinTechs, locked in a battle for customer loyalty and wallet share.

The FinTechs? They went all out to poach FIs’ members. The FIs? They were determined to use scale and decades of experience to hang onto those members.

Now, amid the great shift that has forced credit unions (CUs) to address their digital shortcomings, partnerships have taken shape to offer the experiences that consumers demand. Along the way, FinTechs benefit from the CUs’ scale.

In a panel discussion with Karen Webster, Atomic CEO David Dindi, BECU Senior Vice President of Digital Mike Zell, PSCU CEO Chuck Fagan and Uniphore Chief Revenue Officer Ritesh Idnani said this “Odd Couple” relationship doesn’t seem all that odd in these heady digital days of 2022

CUs don’t have the resources they need to meet those digital demands. FinTechs can help, offering customers more technological opportunities with speed and security in the mix, without introducing brand confusion.

The shift is evident, as Fagan said, in the fact that CUs are showing more interest in striking partnerships that take advantage of the fact that so many individuals and families are moving online to transact — and are looking toward long-term relationships to capitalize on the digital transformation.

That’s a marked shift, said Idnani, from the days (not all that long ago) when traditional FIs, CUs among them, viewed FinTechs as temporary challengers, threatening to poach members.

But any linkup between historical rivals poses the question: Just how much should these firms co-operate? For the CUs, the consideration is paramount. They need to enhance digital features without ripping out and replacing legacy infrastructure. For the FinTechs, there’s the lure of moving beyond the “plucky startup” phase.

Dindi observed that the runway is especially clear for embedded infrastructure providers that do not necessarily compete for members, but instead offer capabilities for national FIs to layer new features on top of extant value propositions — and, often, tech stacks.

In that way, said Dindi, “one firm provides the infrastructure, and the other provider is the one who manages the end-user relationship and the end-customers’ relationships.”

CUs are putting their money where their mouths are. Recent data from PYMNTS and PSCU shows that 98% of CUs invested in loyalty and rewards programs during the pandemic, where adoption had previously been around 27%. However, a broader reach requires a bit of outsourcing, as CUs often cannot offer buy now, pay later (BNPL) opportunities to consumers without partnering with a FinTech.

Fagan explained that integrating new technologies into the CU can fast-track new initiatives and create new financial services ecosystems that link digital channels, call centers and even branches as members navigate life-changing events.

The Partnerships

FinTechs can help CUs improve both the front-end and back-end functions, ultimately modernizing the CU — operationally speaking — and improving the end-member experience.

Idnani explained that Uniphore works with CUs, using application programming interfaces (APIs) to create frictionless journeys within the contact center and build agent-assisted guided workflows, with real-time analytics parsing interactions between individuals and the CU.

“COVID was kind of that rising tide that raises all ships,” Fagan remarked. “The contact center has become increasingly important even as digital activities have increased.”

Atomic’s Dindi said that in order for CUs to offer a broader array of services, such as investing, the FI can build a value-added service that is not necessarily a part of its core competencies.

FinTechs such as Atomic, Dindi added, make it possible for FIs to do so without having to build entire teams to manage back-office processes, deal with regulators or hire portfolio managers.

The goal, he said, is “to eliminate the barriers and the obstacles that make it difficult for credit unions to be able to offer a service like investing — where the cost/income ratio is favorable for the CU.”

No matter the innovation, it’s important that the partnerships between CUs and FinTechs have a conversation, Zell said.

He continued that BECU enables FinTechs to test their solutions with CU members and receive feedback so that they can continuously think about design — data, of course, is the glue that ties it all together.

The 2022 Road Map

Looking ahead, Zell said that CUs’ customer origination and loan originations will be in focus; Fagan chimed in that BNPL will be a key consideration for CUs as they look to deepen their lending relationships.

On that last point, Fagan noted that CUs will find value in the data that can be collected and analyzed by CUs around decisioning as they move beyond traditional FICO scores — and change management entails a bit of a cultural shift.

CUs will be able to deepen their relationships with members, said the panelists, under the pursuit of financial wellness.

As Zell told the panel, “The pandemic is creating a whole slew of opportunities for credit unions to create emotional moments in customer and employee experiences using conversations, artificial intelligence and automation.”