Dream Team: Credit Unions and FinTechs Partner to Deliver Financial Innovation

Credit unions (CUs) have plenty of rivals across the financial landscape, chief among them the big banks that dominate the market. As financial technology progresses, consumers expect their financial services to provide a smooth, innovative experience, regardless of where they bank. However, CUs often find themselves outmatched in this competition, vying for market share with just a fraction of the assets, budget and technical know-how of their deep-pocketed peers.

FinTechs could prove to be valuable allies in this fight for financial innovation. CUs are increasingly recognizing this potential and, instead of viewing FinTechs as competitors, are partnering with these firms to harness their technical expertise and IT capabilities. While these collaborations still face some growing pains, they offer significant benefits to all parties involved.

FinTech Collaborations Accelerate CUs’ Financial Innovation

Roadblocks to Successful CU-FinTech Partnerships

FinTechs and CUs Align on Self-Service Banking

Unlocking Mutual Benefits Through CU-FinTech Partnerships

FinTech Collaborations Accelerate CUs’ Financial Innovation

CUs and FinTechs are increasingly viewing one another as allies rather than rivals in the highly competitive banking market, forging partnerships to deliver innovative products and services.

Most FinTechs see CUs as clients and collaborators rather than competitors.

A recent PYMNTS Intelligence study revealed that 66% of FinTechs see CUs as clients, and nine in 10 view them as collaborators. Only a mere 4.3% consider CUs more competitors than clients. The study further found that roughly 43% of FinTechs currently sell products or services to CUs across diverse categories, with many actively innovating features and capabilities tailored to their needs. Among the most notable innovations in the pipeline are member experience enhancements (45%), self-service digital solutions (35%), budgeting and transaction management (22%), digital payments (13%), and loyalty and rewards programs (8.8%).

9 in 10

FinTechs view CUs as collaborators.

All of these solutions align with CUs’ and FinTechs’ shared overall goal of providing nonbank alternatives for digital-first consumers. Anyone choosing a CU or FinTech over a traditional bank is shifting the market share toward these innovating underdogs.

Scienaptic AI and Kentucky’s Credit Unions recently partnered on a new AI initiative.

One recent FinTech-CU partnership comes from artificial intelligence (AI)-powered credit underwriting firm Scienaptic AI and Kentucky’s Credit Unions (KCU), formerly the Kentucky Credit Union League. The two organizations are pursuing an initiative to introduce advanced AI-driven underwriting technology to CUs statewide. This collaboration aims to enhance lending capabilities, improve risk management and provide more inclusive financial services.

The partnership leverages Scienaptic’s AI-powered credit decisioning platform, which has processed more than $80 billion in credit decisions and 400 million transactions for 150-plus lenders. Combining advanced machine learning algorithms with robust risk monitoring processes, the platform enables CUs to expand lending to underbanked and underserved individuals, make faster decisions and improve overall member experiences, according to a press release.

“This collaboration empowers credit unions to meet evolving member needs while fostering financial wellness across our communities,” noted Jim Kasch, CEO of KCU.

Roadblocks to Successful CU-FinTech Partnerships

While many CUs and FinTechs are eager to collaborate, they often encounter obstacles that hinder successful partnerships. Differences in decision-making speeds and incompatible core systems are among the most common challenges.

FinTechs face multiple hurdles when partnering with CUs.

47%

of FinTechs cite slow decision-making at CUs as the biggest challenge to selling products or services to them.

According to PYMNTS Intelligence research, 68% of FinTechs cite CUs’ slow decision-making processes as a challenge when attempting to sell to them, with 47% calling it the biggest impediment. This is followed by a lack of innovation readiness at CUs, cited by 40% of FinTechs as a challenge and 26% as the top hurdle. Other significant partnership challenges that FinTechs encounter include CUs’ small budgets (28%) and a lack of skilled employees (11%), though only negligible shares of FinTechs consider these their primary obstacles.

For their part, CUs say they prefer well-tested financial solutions to the cutting-edge products on which FinTechs pride themselves. FinTech-CU partnerships will need to bridge this expectation gap to achieve success through more productive collaborations.

Measuring success in CU-FinTech partnerships can be tricky due to a lack of concrete metrics.

Experts recommend that CU and FinTech staff focus on identifying specific, incremental aspects that can be quantified, rather than broad, overarching goals. This approach involves tailoring strategies to available resources and setting realistic objectives that align with CU capabilities and needs.

For instance, instead of integrating FinTech solutions across all CU processes, partnerships could start by evaluating current operational strengths and areas for improvement. Once both partners identify potential areas for enhancement, they can collaborate on a clear vision of an ideal outcome for these specific areas. From there, they can determine which FinTech solutions work best for achieving this outcome. This targeted approach fosters more meaningful partnerships and allows for quantifiable performance metrics.

FinTechs and CUs Align on Self-Service Banking

CU members expect their banking experiences to be as seamless and convenient as every other part of their digital lives. Their CUs are looking to provide this by partnering with FinTechs on self-service banking platforms.

CU members are increasingly demanding self-service banking.

Younger consumers, in particular, crave the ease and seamlessness of these digital services. Recent PYMNTS Intelligence research found that nearly 23% of Generation Z consumers choose their financial institutions (FI) based on self-service banking convenience, compared to just 15% of baby boomers and seniors. In addition, roughly 20% of Gen Z CU members express a desire for their FIs to innovate self-service banking features, including online and mobile banking and digital onboarding. This aligns with FinTechs’ aforementioned development of self-service digital solutions tailored to CUs.

23%

of Gen Z consumers choose FIs based on self-service banking convenience.

The research also found that CU members whose most-used channel for banking access is ATMs are twice as likely to value self-service banking as those whose primary channel is in-person banking. These ATM users are much more likely to be from younger generations. To attract and retain these members, CUs will need to focus on enhancing their self-service banking features.

Pinwheel and Candescent recently partnered on self-service solutions for CUs.

The partnership will bring Pinwheel’s direct deposit switching solution to Candescent’s CU clients, removing a key barrier for CU members. Direct deposit switching, which allows consumers to move their direct payday deposits from one FI to another, has become a critical factor as banks battle for account primacy. Historically, this has been an unwieldy and time-consuming process, requiring members to input their payroll information manually, resulting in high drop-off rates. Pinwheel simplifies this with its credential-less solution, Pinwheel PreMatch, which eliminates the need for users to know and enter their payroll details. This enhancement facilitates smoother onboarding through an FI’s mobile application. This streamlined process, in turn, allows CUs to capture more deposits, reduce churn and build stronger member relationships.

Unlocking Mutual Benefits Through CU-FinTech Partnerships

Credit union and FinTech partnerships can deliver on self-service banking solutions to meet the growing demand for digital-first services and improve member experiences. Self-service banking solutions such as ATMs, AI-driven digital assistants and mobile apps are increasingly important to consumers across generations. By collaborating with FinTechs, CUs can quickly and cost-effectively deploy innovative products and services on multiple platforms, enhancing their ability to meet members’ digital demands with modern, cutting-edge solutions. These partnerships can lead to increased member satisfaction and attract younger demographics.

To overcome operational differences, CUs and FinTechs must align their innovation roadmaps and agendas. This alignment can be achieved by focusing on shared objectives, such as improving operational efficiency and enhancing the member experience. CUs should identify their specific challenges and seek out FinTech partners with proven success in delivering tailored solutions. By establishing clear communication channels and setting mutual goals, both parties can collaborate more effectively. CUs benefit from FinTechs’ agility and rapid iteration capabilities, while FinTechs gain access to an established consumer base and valuable industry insights. This collaborative approach allows both entities to leverage their respective strengths, creating a win-win situation in the evolving landscape of financial services.

The opportunities FinTechs offer credit unions — ranging from cutting-edge technologies to workplace efficiencies — are vast when the right partners collaborate. With the increasing importance of digital capabilities in the financial landscape, Velera recognizes the importance of collaboration between credit unions and FinTech providers. Through a Fintech Engagement Program and Innovation Alliance, Velera helps bridge the FinTech-credit union gap, providing a collaborative space for developing new solutions to meet the needs of both credit unions and their members.”

Vladimir Jovanovic
Vice President, Innovation