Pondering the End of a ‘Transformational’ Fintech Decade

How much has financial technology changed for credit unions in the last 10 years? Can the past decade’s events foretell the future? A number of fintech professionals provided some perspective from their frontline vantage points. CU Times interviewed six fintech professionals and the following remarks were taken directly from those interviews.

Allan Brown, vice president/general manager, digital community markets, Finastra

The last decade was transformative for credit unions. On the tail of the financial crisis, we saw consumers turning back to credit unions as financial institutions that they could trust and rely on for a high level of personal service and education. At the same time, the rise of the smartphone made the digital channel more important than ever, and credit unions were slower to adapt it than large banks were.

Most credit unions made significant inroads in providing the digital capabilities that have defined financial services over the past decade. The challenge going forward will be learning how to leverage those channels to keep up with the speed of innovation. Open banking and using open APIs will enable credit unions to evolve quickly and provide the same type of banking experience that large institutions can offer consumers. Partnering instead of competing with fintechs will accelerate these opportunities. But credit unions need to recognize this and be prepared or risk falling behind the deep-pocketed competition once again. We are seeing the need for faster, easier money movement and accessibility. A savvy credit union will get in early to avoid rushing to play catch-up once consumers come to expect it.

Members expect immediate satisfaction. The internet, iPhone and on-demand retail have all played a role in changing consumer expectations, and that goes for their financial institution as well as anything else. If a credit union cannot provide the experience that the member demands, there are plenty of options, elsewhere, that can.

Ted Bilke, chief technology officer, Jack Henry & Associates

I have seen more technology advancements in the past decade than in my entire career, and we will be saying the same in another 10 years. Technology has done incredible things for financial services, especially for the sake of automation. The period ahead of us should reveal that technology’s role is anything but to displace humans; it is instead here to augment and deepen the meaning of personal service. We will see this revealed in a few key areas:

Digital: Consumers continue to have more flexibility in their choices over financial products and delivery channels. The personalization of digital will become the most strategic point of differentiation for community institutions. This means using digital technology to provide live, local personal service at the moment of need to create authentic, meaningful connections.

Data: Data will come alive to drive product adoption, identify new needs and improve decision-making at the member as well as institutional level. Data and analytics will be part of a credit union’s business strategy for smarter marketing and providing a better user experience.

Openness: The traditional definition of openness will expand beyond the technological aspect of integration and accessible APIs, to become an understood philosophy that embraces collaboration and innovation, between all industry participants.

Gary Lee, chief client officer, Member Driven Technologies

The past decade has been a busy and transformational time in the credit union landscape. Members have sought out a singular digital experience, causing home banking and mobile banking channels to become one. All formerly separate digital features and functions have essentially transitioned to a true digital ecosystem. Members now have the ability to apply for membership and loans via the digital ecosystem and can provide an e-signature for easy and convenient execution. There have also been significant advancements in fraud detection, such as real-time fraud alerts, geolocation of fraud activity and cross channel detection of fraud activity.

Over the next 10 years, many software companies and organizations will continue to adopt the open API concept. There will be further acceptance of the cloud and organizations will continue to move solutions and software to this delivery model. We will also see a major shift toward credit unions focusing on overall business relationship partnerships versus evaluating individual pieces of software. Finally, institutions will find ways to couple data analytics and predictive analytics to improve the overall member experience.

Tim Milz, general manager, credit union solutions, Fiserv

Credit unions have always had a deeply innovative and positive outlook toward areas like fintech, smartphones and digital banking. Certainly, as we have gone through the past decade of tech evolution, there has been a lot of work to do – and credit unions have been more than willing to tackle that work to keep up with their members’ preferences and needs.

Technology innovation and experience are now very much at the heart of the credit union value proposition, and will remain there. Over the next decade, it will be important for credit unions to unite thoughtful strategy and an understanding of their current and prospective member bases with the right tech tools – allowing them to deliver differentiated and meaningful experiences.

There are some challenges that every credit union will face, such as driving member growth successfully. Technology will play an outsized role in delivering the right experience, easing cumbersome processes such as account opening that can make it harder to grow the member base.

Member expectations have and will continue to accelerate tech development. Members want their credit union to have technology on par not only with larger financial institution offerings, but with the most sophisticated companies they interact with every day.

Bill Handel, vice president, research, Raddon

The second decade of the new millennium proved to be an interesting one for the credit union industry. The two clear challenges were the economic collapse and the emergence of new technologies and new competitors.

However, two somewhat more subtle challenges also impacted the industry:

1. A significant generational shift. Baby boomers passed the torch to the emerging generations – millennials and Gen Z. These younger generations have not yet replicated the strong affinity between credit unions and baby boomers.

2. Changes in the credit union business model. First, the indirect lending model rapidly replaced direct lending at many credit unions, and while in the right economic environment indirect lending can be profitable, it cannot always serve as a new member origination strategy. Second, non-sufficient funds and courtesy pay grew rapidly, particularly during the first half of the decade. This high level of noninterest income allowed credit unions to survive on lower net interest margins. But the ability to count on NSF income is declining.

Certainly, the most apparent change of the last decade was the emergence of new technology and new competition. Consumers expect products and services delivered on their timeframe and turf and expect the process to be frictionless. This is fundamentally different than it was 10 years ago – it is the ‘Amazonification’ of banking.

Larry Edgar-Smith, vice president, business solutions and product strategy, Temenos

The biggest challenge has definitely been the change in expectations. We have successfully recovered from the 2008 recession, and with such a positive economy, members are able to think about wants, not just needs. Additionally, the advent of smartphones, and anywhere access has limited our patience as consumers, has raised the bar for tech providers and financial institutions.

Regulatory Change: Financial institutions have gone through significant regulatory change for origination and onboarding, such as the Home Mortgage Disclosure Act, TILA-RESPA Integrated Disclosure and Telephone Consumer Protection Act.

Competition: Fintech start-ups introduced a new wave of competition and continue to challenge the status quo.

The Result: To respond to needs and changes, credit unions and the tech vendors have embraced open APIs and open architectures.

A decade ago, we would have had to develop customized integration to third-party providers that would have taken years and multiple iterations, but with open APIs, a company can quickly and easily integrate into our system.

What are the new tech challenges facing credit unions in the next decade? Everyone has been saying you need to get into tech and you need to have a digital-first strategy, and that is all true. Credit unions need to look at how the technology they have been investing in can meet the member where they are.

The development cycle has sped up immensely – it is actually one of the biggest challenges for technology providers. Responding to member expectations has also amplified the need to allow credit unions to make changes to systems and processes on the fly – you may need to stand up a new product within a couple of hours, so you need a flexible, dynamic system.