LAS VEGAS–There are “good, bad and necessary” aspects of credit union partnerships with fintechs, and how to know which is which, why a credit union should invest (or avoid doing so), and what to look for in company founders were all part of a panel discussion here.
The discussion was held as part of Mitchell Stankovic’s Underground Collision conference.
Participating in the panel discussion were:
- Brian Kaas, president, CMFG Ventures (moderator)
- Paul James, board member, Kinecta FCU
- Steven Stapp, president/CEO, Unitus Community CU
Here is a look at some of what was discussed:
Kaas: As a board member, what conversations are happening at the board level and what conversations should be happening? How do you get board members more engaged around fintechs?
James: In terms of the obvious, we’re all here to talk about fintech. To fintech, or not to fintech. I think we’re all here because of the obvious question. As fintech evolves, and this is an evolutionary period, the stuff that used to be revolutionary is now just taken for granted. Why is that important? (It raises questions) around how much, when do we make decisions? I don’t know and my guess is no one in the room has the answer, and those who do are selling something.
Governance is the other issue. There are two approaches. The first is, bet the horse, don’t bet the farm. The second is that we view thinking about fintechs as part of our long-term strategy. Strategy is those things that give a competitive advantage to serving our members. The emphasis is on process, it’s not an event. We make thinking about fintech part of our ongoing process.
Kaas: What is your process for vetting fintech opportunities?
Stapp: Partnering with fintechs is absolutely necessary for us. In vetting, there are three areas we look at: How does it improve the customer experience? How can we create better efficiencies in the backoffice? And, third, how can we better serve our community?
We watch our partners very closely. What are they doing? Maybe they are creating a path for us. We look to see if there are fintechs with which we need to partner. And if something is not out there, how can we create that path?
In Portland, we had over 100 consecutive nights of protests after the death of George Floyd. Calls went out to about 25 credit union CEOs in our area where we asked what can we do to do better work here. Five responded and we got together and partnered with the Urban League of Portland. We leaned in with them, not with a solution but to take a step back and have them take us through their client journeys. We learned there were different paths. Ultimately, we want to get their clients to home ownership. Each of the five (CUs) had strengths and weaknesses and not one of us could do this work alone. We have partnered with a fintech to build an app so their clientele can track where they are on this journey.
Kaas: We have met with a few-thousand fintechs over the years. We like founders who share some of the common views and missions that align with credit unions. There is a perception that these are all people looking to sell and get rich. But many come from a background where their parents couldn’t get credit, are first generation residents of the U.S. There are more commonalities than we might think.
Q: We’re seeing more CUs make investments directly into fintech. What is your view on making investments?
Stapp: One of the things we have done is form a CUSO with two other CUs, Technological Innovation Alliance. It allows us to look at our different fintech partners and decide collectively how we want to invest. We look at each opportunity. In some we are investing capital, and you have to have a close working relationship between the CEO and the board. These can be companies that have never made money. This can be at-risk capital, at-risk member money. And if we don’t make it what will we learn from this that we can apply and push forward?
We also have the agile process where we look at these case offerings in real time.
Second, we make some direct financial contributions. And then have our teams interacting with the fintechs in the development. We will find many times the fintech may have an idea but they don’t know how it really applies within the credit union space. We say that’s not it, let us join with you in the co-development. It’s a lot of work and you’ve got to find a way to put that into the process.
Kaas: The concept of innovation is something you have to work at to get good at. You don’t just partner with fintechs and then have immediate success. In our organization we had a learning curve. For credit unions sitting on the sidelines it’s going to take a couple of years to get things really right. Every day, every month you wait you are falling behind.
Kaas What about getting through the rockier times?
Stapp: There are those in this space without genuine interests, they have a (profit-centered philosophy). We spend a lot of time upfront getting to know their management team and philosophy and how well aligned are we.
When I was at World Council (as chairman), we also looked globally. We have been following open banking very carefully. Eventually, that is going to land here. What are we doing to prepare for that? What are the business cases in the U.K and Australia?
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