Credit Unions and Fintech: What’s the Future?

A growing club of technology-fueled innovators like Amazon, Uber, AirBnB and Netflix have helped to transform consumer expectations forever. Services are tailored to consumer needs with a wide array of options, convenience is raised to an art form and consumers are growing accustomed to a smooth customer experience.

In this environment, will credit unions be able to maintain their traditional business models and still meet the needs of today's member?

In the past, credit unions have found success by maintaining a mission that emphasizes community focus and a passion for serving members. But with mobile banking rapidly becoming a channel of choice, an explosion of dead-simple peer-to-peer payment solutions, and technologies like blockchain poised to make transactions faster and more secure, will traditional credit union methods be enough?

Industry analysts argue that in order to compete in today's technology-fueled world, credit unions should consider partnering with fintech companies. For example, Jim Marous, co-publisher of The Financial Brand, has stated that cooperating with a traditional bank or credit union can provide a fintech company with some enviable benefits: Deeper pockets, an established customer base, a skilled sales team and access to payment and other restricted networks. From the credit union side, there is much to be gained as well. The innovative culture, lack of an outdated mainframe and singular focus associated with each fintech startup are all attractive motivators driving legacy banking organizations to consider partnerships.

To industry analysts like Jim, the benefits of fintech partnerships for the banking industry seem obvious. While the industry is traditionally slow to innovate, collaborating with a smart start-up to use cutting-edge technology can be a faster way to create a new competitive advantage in an increasingly digital market. However, there are some sand traps to avoid. When considering a partnership (or purchase), a financial institution or credit union needs to look at the bigger picture and properly assess the long-term impacts of a partnership or acquisition. For instance, will the collaboration cannibalize an existing product or service? These are the type of questions that will dominate conversations surrounding banking and fintech partnerships in upcoming years, questions that Jim will address in his keynote at Next Money Chicago about collaborating with customers for a better banking experience.

To address changing member preferences and needs, credit unions will also need to develop new capabilities. Technology isn't a silver bullet, and as any credit union IT leader will tell you, you have to be very strategic about where to make your investments.

For example, one of the hottest topics in financial services is artificial intelligence. With bots that can interact with customers, credit unions can build on the member focus they are known for. Currently, the industry is experimenting with how they can deploy these intelligent systems. In theory, AI can help members learn more about their spending patterns, make more savvy investments or simply resolve customer service complaints in a more seamless fashion.

However, AI requires certain enablers. Transactional data, historical spending patterns, macroeconomic factors, demographics and other data inputs are the fuel. Advanced predictive models and machine learning make up the engines that drive the insights, and the eventual recommendations. But can credit unions simply buy their way in, acquiring a turnkey solution from a vendor? Or will the deployment of something like AI necessitate new processes, people and expertise internally?

And should you invest in AI, or is blockchain, with its promise of faster and more secure payments, a better option? These are the fundamental capabilities questions that credit unions will need to answer now to remain competitive in the future.

Additionally, like all financial institutions, credit unions face a degree of uncertainty in the regulatory environment. Some argue that taking action on new market opportunities without clearer guidance could turn out to be a very costly mistake. Collaboration, and the potential to develop new capabilities, has to take place within a compliance framework that enables credit unions to manage risk. This means that the future of fintech for credit unions also needs be viewed through that lens.

Although it may now be Amazon's world, credit unions still need to live (and compete) in it. So, while these three themes – collaboration, capabilities and compliance – have huge strategic implications, it is important to also boil them down so an institution can take action. When you start to consider them together, the value of a knowledgeable community and a forum for discussions seems essential to the future of banking. That's where Next Money Chicago comes into play.

Next Money is a global organization that helps to spark dialog about key issues and emerging trends in financial services. With prior events taking place in cities including New York, Hong Kong and London, this is the first time that a Next Money event is coming to the Midwest.

For those interested in how to help credit unions navigate the changes coming to financial services, such as the shift to banking as a platform, Next Money Chicago will serve as an engaging combination of discussion, networking and discovery.

Steven J. Ramirez is CEO of Beyond the Arc. He can be reached at [email protected].