Fintechs Are the Future for Credit Unions Bold Enough to Engage
It’s clear that CUs must get proactive about engaging with fintechs and creating the future we want to see for our industry.
As the aphorism goes, “Insanity is doing the same thing over and over again and expecting different results.” Well, in the age of fintechs like Stripe, SoFi and Robin Hood, credit unions have been doing the same thing repeatedly, and it’s not working. We must change what we do if we want a different result. At a recent meeting, the assembled owners of MEMBERS Development Company were discussing the basic technology services credit unions purchase to serve their members, and John Carew of Georgia’s Own Credit Union put it best when he said, “Our solutions don’t meet our needs, our competition is innovating with fintechs, and our members are going to go to them if we don’t do the same.”
Faced with this unavoidable truth, simply soldiering on as we always have will only result in failing to meet member expectations and an overall loss of relevancy. And it would also be ridiculous to expect anything else.
How Should Credit Unions Respond?
Instead of refusing to adapt to changes in the financial industry, it’s clear that credit unions must get proactive about engaging with fintechs and creating the future we want to see for our industry. Here at MDC, we are leading our network of future-focused credit unions in a collaborative, two-pronged approach to engaging fintechs: Attracting fintechs that want to work with credit unions and funding promising fintechs with our own credit union dollars.
Attracting Fintechs to Credit Unions
There are three types of fintechs: The ones that would be perfectly happy to be bought by a large bank and walk on to their next idea, the ones trying to compete with financial institutions and those that want to do good in the world. Credit unions are uniquely positioned to engage the motivations of the third type, but our communal lack of history in the fintech space and the lack of a nationwide footprint make us largely invisible to fintechs. To change that, our industry needs to proactively engage fintechs with something to offer us and our members, becoming not just an option but a sought-after partner to fintechs looking to change the world for the better.
Our approach to this was to create our own fintech-centric event, MDC’s FinTech Expo. With help from eight of our owners, we identified dozens of fintechs with something to offer the credit union industry. After evaluating 30 of them more closely, we invited a final 15 to present at our inaugural event this past August after our Summer Owner Meeting in Chicago, Ill. We will repeat the expo again in August 2020, with the goal of sharing the best fintechs have to offer the credit union industry and inviting any credit unions that wish to engage in this work with us.
Funding (and Controlling) Fintechs for the Future
Individually, big banks have plenty of capital to invest in any fintech they perceive as an asset or to buy them outright if they perceive them as a threat. Few individual credit unions have the same option. However, by pooling our resources, we can compete with big banks in this arena. If MDC’s owner credit unions contributed just 1% of their capital, we could wield $200 million to buy into promising fintechs and ensure they don’t get gobbled up by our competitors. By sharing this burden, we can increase our impact as well as spread the inherent risk across a broad base of participants. This method allows multiple credit unions to make several multi-million-dollar bets together instead of a single bet on their own, and just imagine how large this fund could be if more credit unions joined this effort!
To make this a reality, we are laying the groundwork for a credit union ventures fund, and we have already established a plan to form a company to run the fund under the guidance of professional investment fund managers. Meanwhile, we are working to reduce the regulatory limitations on credit unions and CUSOs to enable us to invest in fintechs more easily and directly. While there is work still to be done in this effort, our plan is to launch our fund in 2020.
What Has Been Accomplished?
In addition to having hosted our first FinTech Expo, MDC and our strategic partner, Constellation Digital Partners, recently made news by founding a new CUSO, CU Payz. This new CUSO provides efficient and affordable payment solutions to credit unions via the technology offered by a fintech named Payrailz. By pooling their resources, six credit unions from both MDC and Constellation’s ownership were able to achieve this win for our industry. But this is just our first step on a long journey into the ever-growing world of fintechs, and we hope other credit unions will join us.
Jeff Kline is president/CEO for MEMBERS Development Company. He can be reached at jeff.kline@membersdevelopment.com.