Most credit unions that end up merging cite expanded service offerings or increased technological capabilities as their number one reason for the merger. Many feel they cannot compete with larger institutions or offer their members the services they demand and expect from their financial institutions today.
However, instead of seeking new ways to meet this challenge, they instead opt for merging into a larger credit union they feel can better provide for their members.
Additionally, credit unions are facing increased financial burdens, resulting in more spending, while their main sources of income, such as fee income, are under attack from regulatory agencies. With more spending and a threat to income, how can credit unions relieve some of these burdens while still meeting their members’ needs for new technology and services? All while avoiding a merger?
Recently, I attended a panel that strived to answer that exact question. The session discussed how credit unions can expand their technological and entrepreneurial capabilities to better improve the member experience in ways that wouldn’t cost a fortune. The panel of credit union experts shared their personal experiences and triumphs in achieving what often feels like the impossible.
In short, the solution to offering expanded services, increasing technological capabilities, and finding supplementary sources of income can all be seemingly found in the same answer: finding and investing in financial partners such as CUSOs and FinTechs.
The need for innovation
When we think of technology and innovation, our minds tend to jump to AI, and certainly, that can be a component of the overall strategy, but there needs to be more. How does your credit union’s strategy account for investments in new technology? How does it plan on meeting your member’s growing and evolving needs?
As Mark Meyers, President + CEO of the Filene Research Institute said during the session, there are a few huge reasons credit unions need to be focused on innovation in today’s marketplace. First, the credit union industry, as Meyers puts it, is at risk of being “Netflixed.” This was a phrase that was mentioned a few times throughout the GAC this year by several speakers, including NCUA Vice Chairman Kyle Hauptman. As financial services become digitized and expectations for such services rise, credit unions are in danger of being pushed out the door by other institutions that can innovate faster.
In order to keep up with the big banks as well as the new players such as FinTechs and neobanks, credit unions need to upscale their talent and technology. But as mentioned before, this comes at a significant cost, one many credit unions cannot keep up with, especially when income streams are stifled. Meyers’s solution to the issue at hand is to let your deposits work for both the credit union and the members by using your balance sheet to invest in FinTechs or CUSOs to drive innovation.
The benefits of investing in FinTech and CUSOs
Turning to the panel of experts, each shared their experiences in investing in these technologies and the benefits that doing so brought to the credit union.
April Clobes, President and CEO of Michigan State University FCU, spoke first, noting that while credit unions tend to be in the habit of building products and services themselves, doing so can be time-consuming and costly, and may not be what the members need. Instead, MSUFCU looked at the FinTechs their members were already using and invested in bringing those services to the credit union. This allowed the credit union to remain competitive and meet consumer expectations while staying within its budget.
“FinTechs support our ability to bring many different products and services to members quickly,” said Clobes. “We had a history of building everything ourselves, but technology is moving faster today and software teams are expensive. This allows us to reach niches that would only apply to a segment of our membership but now we can.”
Clobes also noted how this path had created an innovation mindset at the credit union, encouraging staff to look for technologies that could be of use to their members and cultivating an environment where it’s okay to test and try new things, knowing they won’t all be winners. It brings the spirit of continuous improvement to the forefront of the credit union and provides members with the best experience possible.
How to invest easily and safely
But stepping into such an endeavor can be overwhelming. Credit unions may not have the expertise or funds of a large credit union such as MSUFCU. Additionally, the costs and manpower required to vet FinTechs and CUSOs for investment and ensure they are meeting all the compliance and cybersecurity standards necessary is a lengthy process. And if not done properly, can leave the credit union and its members vulnerable to data leaks and other issues.
However, there are financial and cooperative partners that can help credit unions access the technology of FinTechs and CUSOs and determine which would be the best investment for them. TruStage (formerly CUNA Mutual), for example, saw a significant threat in the industry in terms of where innovation was driving financial services and saw opportunities for credit unions to collaborate with FinTech companies, resulting in the creation of TruStage Ventures in 2015.
TruStage Ventures intends to be a partner for credit unions looking to step into FinTech and CUSO investment and aid the entire industry in getting access to new technologies. Other companies such as the Cirql Fund offer similar services, bringing new strategies and solutions to credit unions. The benefit of these services is that they will do the heavy lifting when it comes to vetting FinTechs, ensuring compliance standards, and promising a product that will bring value to the credit union for credit unions that may not otherwise have the staff or financing to do so themselves.
Find a financial partner that will help you get there
It is essential that credit unions continue to innovate and bring new services to their members at the same pace as other financial institutions. Failure to do so could mean a slow exodus of members from the credit union industry to newer and shiner financial institutions. To prevent credit unions from being “Netflixed,” the industry needs to stop focusing on mergers as a solution for expanding service offerings, and instead look for financial and innovation partners that can bring worthwhile products to their members.
The first step in this process is to determine where your members are, what their needs are, and how your credit union is currently doing in meeting those needs. What services are you lacking? What services will you need in the future? How can you get there? As Clobes mentioned, developing an innovation throughout the credit union is a critical component, whether a credit union chooses to start finding FinTech and CUSO partners on their own or looking for a company that can assist them in doing so, the staff should be thinking of what technologies would bring the most value to the members they serve.
Now is not the time for credit unions to be looking for a merger, but for a financial partner that can provide the innovation and technology they need.
