FRISCO, Texas–The founders and CEOs of fintechs seeking to do business with or get investments from credit unions were given eight lessons and one final piece of advice by a company that has come a long way in five years.
In 2018, Ashish Garg, founder and CEO of Eltropy, was pitching his start-up company to an audience of credit unions attending the first-ever VentureTech meeting, which was held at Alkami’s headquarters in Frisco, Texas. Of the 11 companies that made pitches, Eltropy, a text-messaging solution, was the unofficial winner. After launching with three credit union clients, it has now grown to approximately 600, and Garg said he has learned numerous lessons he wanted to share with other fintechs and start-ups in the same position his company was in just a half-decade ago.
After sharing the quote, “The past is where you learned the lesson, the future is where you apply the lesson,” Garg shared these eight lessons:
Lesson 1: Credit Unions Are a Tight-Knit Community
“This is probably the only industry where your customers don’t think of themselves as competition,” Garg told the meeting. “We just signed a new credit union that travelled to another credit union to see how it used Entropy’s technology. The good news is, if you are doing well, word travels quickly. However, if you are not doing well or you screw up, word travels even faster. I tell our people we are in the business of reputation management. As a fintech founder, please keep that at the back of your mind.”
Lesson 2: Start With the Innovators
Using a chart to show where organizations are on the tech adoption curve, Garg said the segments include Innovators (2.5%), Early Adopters (13.5%), Early Majority (34%), Late Majority (34%) and Laggards (16%).
Garg stressed a credit union cannot push those three latter segments to partner on pilots.
“If they have not said yes, it means no,” he advised. “Silence means no. If you try to push a credit union to be an early adopter, it’s not going to happen. But they’re not saying no, they’re saying ‘not yet’.”
Lesson 3: First Fit, Then Scale
“One of the mistakes I made early on when Eltropy started and then started to get some traction, is I would get that high when we signed a new credit union,” Garg stated. “But the key thing is it’s not about how many logos you gather or CU contracts you sign; what is critical is to make them successful. If not, their reputation down the line takes a hit.”
Garg shared with his audience this equation as one other fintechs should follow: 3-10-100-500-1,000. In this case, the three represents three early-adopter credit unions that are won as clients.
“You focus on those three and make them tremendously successful, so successful they become your references,” said Garg. “And if you do that, you go after 10. Four through 10 will ask you for three references. Then you make the 10 tremendously successful and if do that, getting from 10 to 100 is much easier. When you cross the 100 that is the mass tipping point, and then you get to 500 and then 1000. Do not be in the business of grabbing as many logos as you can.”
Lesson 4: It’s Isn’t the Pitch That Matters
Garg said the best advice he received early in his career was, “It doesn’t matter how good you are at sales and marketing. The product has to deliver the value.”
Similarly, Garg said, it doesn’t matter how good a fintech is at making pitches and getting contracts. If the product doesn’t deliver it will fizzle away, he said.
“But what is value? This is where credit unions and fintechs need to come together and define value,” Garg said. “One of the reasons our company took off is we do collections by text. Most Americans hate collections calls--did you know that? CUs call and call and call and no one answers. You make 100 calls and one answers. But if send a text, 40 people answer. On day one, we can deliver a technology that delivers 40x value. The key thing is to agree upfront on what success looks like and what the KPI is. For us, it was how many people can we have conversations with.”
Lesson Five. All CUs Are Not Equal
For fintech founders and CEOs unfamiliar with credit unions, Garg offered an overview of how the approximately 4,800 credit unions in the country break down by assets. There are 426 credit unions of more than $1 billion in assets; 1,390 CUs between $100 million and $1 billion, and about 2,900 below $100 million.
“As a fintech founder you can’t be everything to everyone,” Garg said. “The credit unions in these buckets behave differently. You have to segment and make a decision on which part of the market you are going to focus on. And once you do that, there is tremendous temptation to focus on other segments. But you have to stick to your segment. For the smallest credit unions, it’s best to create a cloud-hosted product that needs minimal training where you can get them up and running quickly.”
What’s a Symitar?
In his case, Garg said that after he was asked a question about whether his solution integrated with Symitar, he responded, “What’s a Symitar?” That led the CEO to say thanks, but no thanks. As a result, in the early days of Eltropy he created a tech stack for each area of CU operations, including core systems, LOS, marketing, contact center, e-signature and collections systems.
“Then, when you are targeting a credit union, you figure out which integrations you need and build based on that,” Garg said.
Drawing some laughs from his audience, Garg added, “For credit unions, the moment you bring up integration with a fintech founder, the fintech founder is going to say, ‘It’s on the roadmap.’ What that really means is, ‘Yes, it’s on my slide, and I will start work on it when you give me some money’.”
Lesson Six: Integrations are Key
According to Garg, it’s well known that the biggest factor keeping credit unions from innovating is lack of budget, but the number two reason is the lack of integration.
“Fintech founders will all say they have an open API,” he said. “Unfortunately, most CUs don’t have the engineers or the developers, and they have to hire another company to connect all of that. It’s madness out there. Build a real integration--that’s really, really important.”
7: You Cannot Win Without True Commitment to the Credit Union Community
“The only way to win as a fintech founder is you must be willing to bet the farm on credit unions,” said Garg. “For credit unions, in return, I’m sure a lot of fintechs come to you. One of the questions all of you need to ask is, ‘Are you betting your farm on credit unions? What integrations do you have?’ If a fintech says they have the integration, ask them to show you it in function.”
8: Standard Venture Capital Considers Credit Unions Too Small a Market
Garg, who lives in Silicon Valley, said the big VC firms are in the business of finding companies that are going to be “massive hits.”
“They fund 100 companies and know 90 are going to die,” he said. “The whole VC business is finding that one hit that will give you that 100x return. If you go to a VC--and I did these rounds two years ago--and the feedback I kept getting was credit unions are not a large enough market.”
But some VC companies have invested in CUs, as has Curql Fund, which was created for just that reason.
“Curql Fund is raising capital from credit unions. This is probably the only industry where your customers are your investors,” Garg said. “Another asset class getting big time into credit unions is private equity. They love the credit union play. It’s a niche market and you can build market share very quickly.”
Final Piece of Advice
Pressed for a final piece of advice for fintech founders and CEO, Garg offered this: “Credit unions are mission driven. It’s about people helping people. It’s not something they say, they actually do this on a daily basis. So, the fintech founder must keep in mind this market is mission-driven about helping communities. That’s what you must understand.”
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