HONOLULU—“Robust” credit union member growth may not be enough to help credit unions in their fight against fintechs, according to one analyst.
Instead, credit unions would be smarter to partner with fintechs, as more are friends than foes, according to Brian Kaas, president and managing director of CMFG Ventures—the venture capital arm of CUNA Mutual Group.
Kaas suggested the solid membership growth credit unions have enjoyed since the recession may lull some into a false sense of security about their futures.
“Membership growth has been strong,” said Kaas. “And while we have enjoyed impressive growth, I am concerned all this growth could lead credit unions to overlook the need to innovate, as well as ignore these fintech disruptors. We all know there was a time when Blackberry felt really good about its future and maybe took their eyes off the horizon.”
Kaas acknowledged a trend that the industry has regularly noted, that the large majority of CU membership growth is occurring at the bigger shops, while smaller CUs often lose members. He also reported that data shows that credit unions, no matter their size, grow members at a solid pace based on their attention to e-services.
Kaas explained that CUs that offer two or more e-services typically grow members, while those offering one or fewer tend to lose members.
“So, growth keeps pace with innovation and change,” Kaas said.
Besides the fintechs, another concern is big banks’ investment in technology, insisted Kaas.
“The very large banks are investing in Bitcoin and blockchain efforts, for example, and they are investing, too, in these startup companies,” said Kaas during NAFCU’s recent Annual Conference. “The large banks are investing billions of dollars on internal development of new technology. This scares me more than anything because this is an area of investment not many credit unions can afford to address.”
Kaas pointed out that JPMorgan Chase invested $9 billion in technology in 2016, with $3 billion going solely toward innovation.
“I heard they are investing really big into online banking,” said Kaas. “I don’t mean to sound the alarm bells, but …”
Kaas also pointed to the overall investment dollars fintechs have attracted in the last seven years—$86 billion. He also said that while the amount of investment funding flowing into fintechs has recently leveled off, that is not a sign fintechs are a “passing fad.” Conversely, Kaas believes that indicates fintechs are growing their business and getting stronger, expanding without the need for investment capital.
Kaas insisted that credit unions should become educated on and seek out mutually beneficial strategic relationships with both industry partners and startups, and keep an open mind to the new and sometimes unconventional startup ideas. He said this is a particularly important strategy since most credit unions can’t spend a lot of money on internal tech development.
They can become equal players with banks regarding technology through these partnerships, Kaas said.
“However, credit unions should remain cautious when negotiating agreements with eager young companies, and seek validation from industry experts, startup customers, other credit unions, and CMFG Ventures,” he said.