Finding Innovation: Credit Unions Unite to Seek Help From Fintechs

How do credit unions compete with the big bank-fintech alliances as they seek to develop innovative products? The answer may lie in collaborating with other credit unions and credit union organizations to find, foster and showcase potential fintech partnerships and solutions.

That was the goal of two Columbus, Ohio-based firms, Sherpa Technologies and Horizon Two Labs, when they combined to form FintechAccel | CU, a fintech innovation and acceleration platform focused on working with credit union industry executives to identify and solve common, pressing issues.

When the Columbus-based Corporate One Federal Credit Union announced the kickoff of Sherpa Technologies last January, it signaled the creation of a CUSO that was strategically focused on leading credit unions on a digital transformation journey, creating an efficient method of engaging innovative fintech firms and enabling integrated, seamless member experiences.

Sherpa’s core offering is its Mosaic Platform, an open, digital business platform that created a unique framework and ecosystem where credit unions and partners can engage and integrate the latest solutions.

“When we launched Sherpa, it was with a singular focus: Leading the member experience journey for credit unions,” Sherpa Technologies President/CEO Keith Riddle said. Riddle noted Sherpa has an innovation council representing around 30 credit unions that range in size from very large to mid-tier and smaller. As Sherpa interacted with those financial institutions about fintech solutions and emerging trends, council members indicated a desire for a greater degree of engagement with fintech firms, but they wanted it to take place in an organized fashion and in a manner specific to their problem statements.

In response to that request, Sherpa and Horizon Two Labs formed a credit union-specific innovation program and platform that would allow credit unions to state their requirements, or problem statements, in areas applicable to financial services. Riddle said, “Our partnership with the operating team and program participants at FintechAccel | CU allows us to build on that mission by linking credit unions with the top fintech startups in the world to solve our industry’s unique problems.”

Riddle emphasized the process started with credit unions driving the problem statements they could then leverage with the network and use to recruit fintech firms into the program. This involved a review process to help them understand each fintech’s value proposition and a quick demo from each company. Credit unions had direct input on the problem statements, as well as solution categories such as member experience, payments, security ID and fraud, lending, deposits and artificial intelligence/machine learning.

They also made certain each fintech had a solution in place – not a conceptualized product – and presented a value proposition strong enough for the credit union marketplace. “[They asked,] Do they have a financial services background and offer those solutions to other entities that are financially services driven?” Riddle explained. FintechAccel | CU then narrowed the list of fintechs to the top 25, and those were then entered in another scoring process that produced the top eight firms and their products.

Following the comprehensive investigation and evaluation process, FintechAccel | CU presented its inaugural cohort of eight fintech startups in a showcase event as part of SherpaFUSE 2019, Sherpa’s annual credit union conference, in early November.

“The credit union industry is ready to partner with innovative fintechs,” Riddle said. Initial sponsoring participants of FintechAccel | CU included: Corning (N.Y.) Credit Union ($1.5 billion), Gulf Winds Credit Union ($700 million, Pensacola, Fla.), Kemba Credit Union ($978 million, West Chester, Ohio), KEMBA Financial Credit Union ($1.5 billion, Gahanna, Ohio), Virginia Credit Union ($3.7 billion, North Chesterfield, Va.), Northrop Grumman Federal Credit Union ($1.2 billion, Gardena, Calif.), One Nevada Credit Union ($929 million, Las Vegas) and ConnectFSS, a multi-credit union CUSO.

The eight participating fintech startups were:

• APiO, which provides help with data acquisition, credit scoring and monitoring for financial services;
• Arcus, which offers a payment infrastructure to connect financial services professionals and merchants through one integration;
• CreditSnap, which uses an intelligent matching engine (powered by AI) and a cross-sell engine to match credit seekers with offers;
• Digs, a savings app, which helps customers build wealth through homeownership;
• Finovera, which offers a digital bill management and payment platform;
• IdentityMind, which creates and analyzes digital identities for verification proofing, onboarding and fraud prevention;
• Kindur, a retirement income management solution; and
• Shastic, which offers business text messaging for credit unions.

Participation in the FintechAccel | CU program allowed credit unions to share the outlay rather than appraise and examine fintechs on their own, Riddle pointed out. “It is especially true when looking at innovation as it applies to the fintech arena. There are so many firms credit unions could certainly evaluate that may not specifically align to their problem statements.”

He added, “The credit unions don’t have the resources to perform all of the functions we did as a program with a shared expenditure. They don’t have the resources or the allocation of time – or in many cases – the knowledge on staff to perform those functions, especially in the fintech environment.” Riddle also noted there is a competitive motivation behind the partnerships announced by financial institutions and fintech firms entering the marketplace, or expanding their solutions, to approach credit union members about their solutions.

“It was allowing those participants to have direct interaction with those fintechs individually so they could ask questions relevant to them and their environment, and understand how they could benefit their member experience, or deepen relationships, or whatever their strategic focus was,” Riddle said.

In addition, not all credit unions are alike. “Each credit union, as we all know, is just slightly different in how they view those things. It was a great opportunity for them to have more hands-on interaction with those fintechs they helped us select as part of the showcase – but as part of a very engaging day that also brought them back together.” Riddle added a majority of fintech and credit union participants indicated there would be an opportunity to at least complete a proof-of-value over the next six months or so.

For example, Deepak Polamarasetty, president and co-founder of program participant CreditSnap Inc., said his fintech’s solution solves two major pain points for credit unions:

• It applies machine learning to make it easier to cross-sell at a branch, over the phone and with online account logins, emails and SMS. “With CreditSnap, cross-sell conversations are not only with pre-qualified offers, but also focus on an offer that our M/L determines to be most relevant to that member,” he said.
• It enables credit unions to activate a reimagined lending experience that includes “no credit impact to check your rates” capability and significantly reduces debt-to-income ratio and loan-to-value declines − in all consumer channels. “By democratizing access to this technology, CreditSnap is helping credit unions compete with online fintech lenders that are otherwise chipping away at credit unions’ loan market share.”

Polamarasetty explained, “Unlike traditional accelerators that focus on investing and product development, FintechAccel’s sole focus is to fast track innovation adoption by putting innovation-hungry credit unions and the startups driving that innovation in the same room. In just under a week, CreditSnap is now working on doing several pilots for credit unions, and that kind of engagement is unheard of in any other forums that we participated in.”

Riddle acknowledged credit unions want tech-heavy engagement. “Certainly, we allow that to happen in an organized fashion at a very managed-services cost level. We provide a lot of services and guidance and engagement to the fintech firms and to the credit unions,” Riddle said. “We have a significant portfolio of fintechs that potentially can be nurtured and reintroduced to the credit unions or evaluated again as part of a second phase of the program.”

Riddle noted additional credit unions have already expressed interest in joining the program. “So, the portfolio of program participants should widen, which obviously creates an opportunity to perform additional functions within the program.”