Most CUs Planning Fintech Partnerships in 2020, Survey Finds

Fintech partnerships are at the top of many credit unions’ tech to-do lists this year, but the percentage of credit unions making digital expansion a top priority is changing, according to new data from Cornerstone Advisors.

In the Scottsdale, Ariz.-based company’s survey of 300 senior executives of mid-size banks and credit unions, 76% of credit unions said fintech partnerships were an important part of their business strategies this year. Improving member experience was a top priority for credit union fintech partnerships, as was strengthening core competencies and creating new ones.

“Banks and credit unions are acknowledging that fintechs often have better design capabilities than what exists at banks or their major industry vendors,” Cornerstone Advisors President and co-founder Steve Williams said. “They see partnering as very much a chance to ‘bolt in’ a better customer experience to their legacy back end in a time frame that can allow them to stay competitive.”

Fintech Priorities are High but Vary

Almost 40% of credit unions already had fintech partnerships in place for digital account opening, according to the data, and more than a quarter (28%) had them for fraud management or lending. In addition, more than half (62%) said mobile wallets were a high or moderate payments priority for 2020; 68% said the same for mobile payment tools.

However, just over one in three (36%) credit union respondents said expanding their digital presence was a top growth priority for 2020, compared to 49% in 2019. Also, 10% said growing payments-related income was a top growth priority in 2020, down from 13% in 2019 but up from 7% in 2018.

At least 40% of credit unions also said they had no plans to form fintech partnerships for fraud management, personal financial management, new products, investment management or international remittances.

Credit Unions Leading the Pack in APIs, Cloud Computing

“Compared to banks, credit unions are way in the lead in terms of deploying emerging technologies. A little more than half have already deployed APIs and nearly half have deployed cloud computing,” the report noted. “The differences in plans to deploy emerging technologies is substantial, as well. A significantly larger percentage of credit unions plan to invest in or implement chatbots, machine learning and voice technologies.”

Almost one in 10 credit unions has already deployed machine learning, and 22% planned to invest in it or implement it by the end of this year, the study said. In addition, 7% already use artificial intelligence and 19% plan to invest in it or implement it in 2020. More than half (53%) already use APIs, and 47% already use cloud computing, according to the data.

“The increased focus on APIs is driven largely by the explosion of digital sales platforms and the need for larger sets of real-time data to and from core, know-your-customer (KYC) platforms, third party service providers, etc.,” Cornerstone Advisors Managing Director Brad Smith said.

Tech Spending Headed Up in 2020

Virtually all credit unions in the study (88%) said they planned to spend more on technology in 2020 compared to 2019.

“Changes in credit unions’ IT budgets for 2020 are mostly in line with the 2019 changes, but the percentage reducing their IT budgets increased from 2% in 2019 to 6% in 2020,” it noted.

Part of the spending increase may be because 69% of credit union respondents felt that Amazon, Apple, Google and other big tech companies will be significant competitive threats in the coming decade.

Nonetheless, 2020 is likely going to be a good year for the banking industry, Cornerstone Director of Research and report author Ron Shevlin added. “The state of the economy is the best it’s been in a long time. Consumers are more confident in borrowing, and their improved credit scores mean they’re more creditworthy. This scenario has earnings growth written all over it,” he said.

Other findings included the following:

• 59% of the respondents thought the industry in 2020 will be much like it was in 2019.
• 22% were somewhat more or much more optimistic about the industry in 2020.
• 43% of credit union execs said new membership growth was their institution’s top overall concern for 2020.
• 34% said efficiency, non-interest expenses or costs were top concerns for 2020.
• 34% said a weak economy or weak loan demand were top concerns for 2020.
• 32% said the interest rate environment was a top concern for 2020.
• Fewer than 20% of credit union execs said cybersecurity, attracting qualified employees, regulatory burdens, cost of funds or noninterest income were top concerns.
• 59% expected significant declines in branch count in the coming decade.