By Ray Birch
SCOTTSDALE, Ariz.—It's never been more important for credit unions to partner with fintechs, according to one analyst, who said the data make clear such partnerships help attract and retain more young members––but there is some concern CUs are not going after fintech relationships in the right way and are also operating under a false assumption.
Sam Kilmer, senior director with Cornerstone Advisors, told CUToday.info the assumption young people naturally are naturally attracted to cooperatives and their not-for-profit, people helping people philosophy is flawed, according to Cornerstone data. Instead, he said Millennials are primarily driven to choose a financial services provider based on service delivery, and their loyalty can be fleeting. As a result, he said credit unions should be working with fintechs to improve their product and service delivery methods, especially to younger members.
“The question is how do I how do I remain relevant today,” said Kilmer. “Your members and potential members who are young are using technology like PayPal, Venmo, Credit Karma…They are using services that aren't necessarily from the bank or credit union. More credit unions have to begin thinking about how can I stay relevant by working with some of these fintech providers.”
Kilmer said the “critical factor,” according to the data, is young adults switch accounts much more often than older Americans, which means credit unions have to offer the delivery services Millennials and Gen Z expect, or watch them go out the door—or never join in the first place.
A ‘False Narrative’
“There's a false narrative in the industry now that says young people like dealing with cooperatives and that they like dealing with local financial institutions,” said Kilmer. “But that is not showing up in the data. Young people in large, fast-growing urban markets are the most likely to start a new financial institution relationship and move an existing one. Only a very low percentage of consumers don’t change their relationships much, and those are older Americans. Young people are going through so many life changes, starting out their careers…and they are gravitating to the top four five financial institutions, data show.”
A recent Cornerstone Advisors study reveals CUs are aware of the need to align with fintechs, as many more credit union executives are considering such partnerships.
Sam Kilmer
“In 2019, only a year ago, 60% of credit unions surveyed said fintech partnerships or collaborations were either somewhat important or very important,” said Kilmer. “Now, in 2020, that number is 76%. That is a pretty dramatic rise.”
Kilmer noted nearly four-in-10 credit unions already have fintech partnerships for digital account opening, with 30% looking for partnerships in this area over the next two years. Like banks, new banking products and payments will be the new hot areas for credit union/fintech partnerships through 2021, he said.
The Top Objective
“Improving the customer experience continues to be the top business objective for banks and credit unions when pursuing fintech partnerships,” said Kilmer.
As CUToday.info has reported, the need for credit unions to focus on new digital delivery channels has become much more critical, as a recent study shows that for the first time American consumers have rated service provided by credit unions below that provided by banks.
Kilmer said while many CUs express interest in fintech partnerships, there’s a simple way to identify those talking the talk and walking the walk.
“If a credit union is really serious about this, and it's truly important to the credit union, this effort will be documented in their strategic plan,” said Kilmer. “Potential partners will be identified and members of the management team, who are accountable to pursue and build those partnerships, will be identified as well.”
Otherwise, if a credit union says it plans to partner with fintechs and does not have the effort outlined in their strategic plan, the organization is likely just paying lip service to working with fintechs, said Kilmer.
Asking Questions, Few Answers
“When I go to a credit union I always ask, who's working on this or that, whatever initiative we are discussing,” said Kilmer. “You ask about lending, for example, and you will get answers such as our lending growth goal this year is 15% and we have these persons working on that. For lending, it almost seems like a preposterous question to ask if the credit union has someone working on that. But it is very common, when talking to credit unions about working with fintechs, they will just say, ‘Yes, we will be doing some new fintech partnerships.’”
It's the next question that’s revelatory.
“I'll ask who do you have working on that and I'll get answers like, ‘We got a lot of different people looking at it,’” said Kilmer. “But this type of answer speaks to the commitment at the credit union toward working with fintechs. How can you say something is important if you don’t have specific internal resources dedicated to the effort? So, in the case of fintech partnerships, is the credit union putting its money where its mouth is? Do you have someone dedicated to do this? People head up payments. People head up lending. If you have no one in charge, or you say a group of eight people are looking at this, those are bad situations…It’s important credit unions assign people to fintech partnerships. This is how credit unions will really compete for those younger members.”