LAS VEGAS–If credit unions weren’t already aware of both the sobering threats and equally exciting promise presented by fintechs, one group of people here made both those scenarios clear in just 45 minutes of discussion and debate.
The issue was the focus of a panel discussion titled, “Directors, Executives & Fintechs: ROI or Oh My!,” held as part of Mitchell Stankovic’s Underground Collision meeting here.
Sharing their perspectives were:
- Brian Kaas, president, CMFG Ventures (moderator)
- Jennifer Oliver, president and CEO, SCE FCU
- Tony Boutelle, president/CEO, Origence
- Kris Kovacs, president/CEO, Constellation
Here’s a look at what was discussed:
Kaas. Fintechs are starting to gain marketshare and big banks spends billions and billions of dollars and guess what, they are going after your members. They are not going to let up and it’s not going to get any easier.
Funding for fintechs last year exceeded $130 billion. The tech budget for the credit union industry combined is $6 billion. The number of fintechs in North America now outnumber credit unions two to one. My guess is we will see that number decrease by a little bit, but the fact is there are a lot of credit unions out there. Fintechs have knocked credit unions out as the number-one source of unsecured personal loans. Today, fintechs have just shy of 50% marketshare, and there are more fintechs now hungry for other loans.
What I think is also pretty concerning is what these major retailers are looking to do. Walmart is going to begin offering checking accounts to their 1.6 million employees first and then roll them out. This is a plea to get off the sidelines. Every year that passes we are going to fall further behind.
Oliver: We just had our planning session yesterday and we talked about the amount of work and lift that has to take place in the organization in order for us to be a part of this and even catch up. And then we talk about the escalation; it’s going to be even faster. That’s the question, how do we get ahead? I have already lost my 16-year-old daughter. I have to make her use a credit union. She wants the Venmo credit card. It’s really about the speed. For the next generation, is our value proposition enough? Access and service is just the basic stuff to be in existence.
Where we can really shine is with our value proposition, but does that really connect with the next generation, Generation Alpha? I do know the marketplace is changing, the demands are changing. We still have CDs, MMAs that pay very little. Are those really the products and services the next generation wants? I’m going to guess they are not. So, what are we doing to innovate our product line and connect?
Boutelle: At Origence, we really focus on credit unions making more loans and improving efficiencies. This year we are going to help credit unions do more than $75 billion in funded loans. I would echo Brian’s fears a little bit, but CUNA Mutual has also helped us to understand fintechs need us more than we need them in many ways. Partnering with fintechs is something I would encourage. Doing it as a group is better than doing it alone. In a planning session I asked the question, do we want to hunt alone or hunt together? We want to hunt together and work with fintechs together. Hopefully, Kris and myself and CO-OP and the other big CUSOs are helping credit unions stay relevant and owning and controlling the delivery channels, which is so important.
Kovacs: I have a 16-year-old son who needed to open a checking account to get a debit card. We had to go to a branch to open a checking account. We couldn’t do it online. It took 45 minutes. This CU really touts that, ‘We give service.’ Strip yourself of the thinking that makes a difference any more. You are accustomed to providing service to a member group that is different from the group you are trying to recruit. My son told me it took me five minutes to open an account with Coinbase. In 45 minutes of service, we didn’t confirm the mobile number. And I said to him, ‘You have to call the call center.’
This is my 30th year in credit unions. I bleed credit unions. What we have to do is understand it’s about convenience. Whether it’s Uber or Walmart or Amazon opening checking accounts, it’s about meeting the member of the future where they are, and it’s not in your branch or on your website. It’s mobile. The fintechs…aren’t inventing anything new, they are just changing them around like a Rubik’s Cube. We have to really understand that next generation of credit union consumer.
Kaas: Can CUs build most of the technology offered by fintechs better, cheaper and faster?
Boutelle: I would venture to say fintechs are our innovation labs. They can think and do things faster than we can. We have good ideas and we have built some CUSOs over the years on it, but they are so much faster.
Kovacs: They are not bound by the thinking we have had for the last 15-20 years. They don’t have the same mental frameworks for assessing problems. A fintech gives you the opportunity to take a whole new look at the problem. I think it’s a matter of using them as an innovation source and getting behind them and getting funding. It’s very expensive to build things from scratch.
Oliver: There is no possible way for us to build this stuff and get it out to the market. We have to partner with fintechs. But we have to control the experience.
Kovacs: Be careful about mimicry; it’s not strategy. I really caution you about seeing something and trying to reproduce it. There is a lot more behind the scenes that makes that possible.
Kaas: With embedded finance, is it a big opportunity for credit unions or the great disintermediation?
Boutelle. That’s all we think about. I would rephrase that to ask how is the top of the funnel changing, how is the loan application changing for your members from what it was 10 years ago? Still about 80% of (auto) loans are done at POS, at the dealership. Between electric cars and autonomous cars, lending is going to change in a big way. There are going to be 150 new EV cars between now and 2026. The EV companies, the Lucids, the Rivians, they are going to make loans like Tesla does, which is basically direct. I think that is going to change a lot of how we have to hunt together. We have to find ways to get into their lending streams.
The other big phenomenon is the OEMs are the place where people look for cars. Many people buying cars sight unseen. Many OEMs putting the financing in at their level, and we are working with them to try to get credit unions involved there.
Oliver. Walmart wanted to be a bank. They kept applying for charters. What they did was partner with a fintech, and they are just using a bank on the back end. Think about what that is going to do to marginalize our operations. All Walmart does is grind down margins. When you think about that kind of threat, I think it’s something to worry about.
Kovacs: One of the trends in fintech is they are looking for someone to be that account behind their business. They said we are not earning money.
Kaas: What about blockchain: believer or all hype?
Kovacs: 100% believer. I spent two years learning everything I could about cryptocurrency, DeFi, blockchain. It’s going to disrupt finance as we know it. The reality is you have to go learn everything you can and do away with the thinking around this ‘cryptowinter.’ It’s the technology that is important and that technology is going to change the game. Do not blow this off. It scares me about how powerful this is.
Kaas: I think this is going to happen faster than everyone thinks.