MADISON, Wis.—CMFG Ventures–the venture capital arm of CUNA Mutual Group–expects the investments it’s making in startups will help credit unions keep pace with all the “market disruption” taking place within financial services.
Brian Kaas, president and managing director of CMFG Ventures, said the entity was formed in early 2016 to invest in startup companies that have potential to address needs for credit unions as well as CUNA Mutual, as consumer expectations change and fintechs elbow in on the financial services space.
Kaas acknowledged that there are a growing number of startups, such as Rocket Mortgage, competing directly with credit unions, but there are also many looking to partner with CUs.
“Those are the companies we are focusing our investment strategy on,” said Kaas. “These companies are focused on cutting-edge technology and can spend all of their time and energy building out best-in-class platforms. Their goal in many cases is to license their technology to FIs, so that really gives credit unions an opportunity to partner with them ad take advantage of emerging technology—and most importantly, remain relevant to their members in a changing environment.”
Investment Targets
CMFG targets startups focusing on data and analytics, consumer lending and asset protection technology, and advanced mobile channels.
Kaas said that those in the financial services industry, outside of the very large banks, have lagged behind other industries in keeping pace with innovation and therefore customer and member expectations. He said it is much more efficient to partner with startups than try to recreate what many fintechs are doing.
Brian Kaas
“When you look at the time and cost it takes to develop a single new technology platform, it’s often a couple of years and millions of dollars,” he said. “That is not something that is scalable for any credit union to take on.”
Kaas said that CMFG now has made investments in seven startups with a goal of bringing the total to 12 by the end of 2017. He said CMFG looks at several aspects of a business when it considers an investment. First, Kaas said, a startup’s offerings must resonate well with credit unions and their members.
“We look at the size of the market they want to address, the quality of the management team . . . a number of things to determine if the business model is viable,” he said. “And because we understand the credit union industry well, that also helps guide our investment decisions.”
Kaas discussed some of CMFG’s recent investments.
“Our latest venture is with a company out of Chicago, MortgageHippo. They do business as Swift Mortgage,” explained Kaas. “They have a technology platform to originate online mortgages. They don’t originate mortgages, they offer the technology FIs can place on their platforms to create a strong consumer interface to deliver mortgages online, and also boost efficiencies. I like to compare them to Rocket Mortgage.”
CMFG this year has also invested in Rippleshot, which has developed technology that allows banks and credit unions to detect fraud at an earlier stage and therefore prevent or limit losses.
“A lot of times we will work with our portfolio companies to complement their products with something CUNA Mutual Group offers,” explained Kaas. “CUNA Mutual Group offers plastic card coverage, often used to mitigate the cost of reissuing cards following a data breach. We are exploring ways where we could combine our plastic card coverage with Rippleshot’s technology to further protect credit unions against fraud losses.”
SmartAsset
SmartAsset is another company that has received investment funding from CMFG.
“They have developed various financial tools and financial content to address consumer life events—such as helping people to decide to buy or rent, understand tax obligations . . .,” said Kaas. “I know there are various types of calculators in the market that do these sorts of things, but what Smart Asset does is offer consumers knowledge, insights and advice based on pulling data from about 100 sources. We have made an investment with them, but have yet to come to a business agreement. But we are exploring that.”
One of of CMFG’s earliest investments was in SpringboardAuto, which makes loans to nonprime borrowers. Kaas explained that credit unions can partner with Springboard to offer an alternative for low-FICO members who stop in for a loan but are turned down. The loan, including all the paperwork completed at the CU, would be turned over to Springboard.
“Hopefully, then, the member would qualify for an auto loan through Springboard,” Kaas said. “We have just started to launch this with credit unions.”
CMFG is also working with ForeverCar on a pilot with two credit unions. The company offers extended vehicle warranties. “They have a different payment structure to make a vehicle service contract monthly payment more affordable,” Kaas explained.
“We will continue keep our eyes on emerging technology to make investments, all the time getting feedback from credit unions about their interests and needs,” said Kaas. “As the marketplace quickly changes, as well as consumer expectations, we want to bring credit unions new opportunities and make sure they are on the front line of this change.”