A Fintech Core Can Help Credit Unions Untangle the Digital Labyrinth

Rapid digitalization is pressuring organizations across all industries to overhaul their business models and adapt to a new market reality where consumers expect enhanced, personalized digital customer experiences (CXs). Financial institutions are not immune to these growing demands. In fact, as the keepers and agents of society’s capital, FIs are thrust into the uncharted waters of innovation – whether they’re ready to swim or not.

This is especially true since the start of the COVID-19 pandemic, during which credit unions have closed or operated on a limited basis, sending more members online than ever before. Members’ digital needs are evolving en masse and the competition to win them over with a superior user experience is stiffening, giving unions a run for their money.

Competition Is Thickening for Credit Unions

The FI playing field has opened up to almost every industry imaginable, from colleges and universities, to governments and municipalities, to supermarkets and cellular phone companies. For example, Starbucks’ mobile app and cards hold more user money than many banks have in deposits. The coffee giant also engages more users than Google and Apple Pay services.

But there’s a common, resounding theme across all industries. The modern consumer, apart from expecting an always-on digital experience, wants to interact with brands that make all touchpoints interactive and each transaction seamless. In looking at the brands gaining market share today, convenience is sweeping the marketplace clean. There’s Amazon’s one-click ordering, Zoom’s one-click conferencing, and one-click ride hailing from Uber and Lyft. Notice a trend?

In each industry, the power has shifted from organizations to the end-user. For credit unions, evolving member demands and more sophisticated expectations are presenting challenges for legacy processes, summoning change and innovation. As end-user demand increases for unified financial solutions, many credit unions are looking for ways to keep pace and remain on the bleeding edge of the one-click digital experiences that members are demanding.

But to achieve digital empowerment, credit union executives must go somewhere they may not be too familiar with: The core. That is, they must advocate for their organization to pair their core banking or processing systems with a malleable Fintech core so the two can work in unison to deliver frictionless, member-driven experiences across digital banking, account opening, money movement, behavioral insights and card portfolio products. Only then will credit unions be able to deliver superior front-end user experiences for their members that rival larger national banks and leading apps like Starbucks, Spotify and, dare I say it, Venmo.

Down to the Core

Traditionally and historically, tracing back decades when banking was conducted nearly exclusively in person, at ATMs and over the phone, credit unions relied on their core banking system or transaction processors to move money and operate key back-end processes. Credit unions still get much of their core back-end technologies – account management, general ledger balancing, card management, deposit management, loan origination, reporting, compliance and security – from one or two of the major vendors in the industry.

In present-day, the banking core functions are still very important to fulfilling both front-end and back-end processes. After all, they serve as the backbone to every financial transaction that takes place across an FI’s entire ecosystem, whether conducted in-person or digitally.

However, while core banking and payment processors focus on what they do best – powering back-end processes – they were built within a hierarchy that places process above people. To remain competitive in an ever-evolving consumer-centric world, this hierarchy must be recalibrated when entering the digital marketplace. Subsequently, credit unions must refurbish their digital ecosystems with a people-first approach instead.

The Problem With Digital Banking Today: Fragmentation

In the aftermath of the 2008 Global Financial Crisis, new fintech companies stepped onto the scene to help credit unions innovate various functions. They’ve since been providing credit unions with solutions to common problems, zeroing in on members’ demands such as for remote deposits, remote credit card processing and wealth management.

To date, credit unions have contracted with third-party vendors to complement their traditional offerings with piecemeal tools and services. These are much-needed services, but integration is currently happening within a temporary, makeshift model. As a result, the “Band-Aid” approach to innovation has bought credit unions some time – but it hasn’t healed the problem.

The integration of fintech has inadvertently weaved an endless maze of third-party technology platforms, all using different forms of connectivity and technology languages. And they all require ongoing vendor due diligence, contract reviews and audits. Furthermore, it would be entirely unsustainable for a credit union to build a “middle layer” to synchronize all of these piecemeal services.

The maze is especially more complex and burdensome for credit unions as opposed to larger banks, as they often lack the time, budget and in-house technology resources needed to continuously innovate at the same pace as evolving member demands.

To untangle the labyrinth of fintech fragmentation, credit unions must review their digital ecosystems and the historical processes that power them. And, they’ll quickly learn that the key to fintech innovation is consolidation.

A Fintech Core Consolidates the Digital Ecosystem

A fintech core, which works alongside a credit union’s core banking or transaction processing system, has the unique capability of centralizing all functions into one single platform. Essentially, it consolidates services and allows credit unions to deploy products to members faster, digitally and more seamlessly. A fintech core also creates end-to-end efficiency with a significantly lower barrier to entry.

By way of a fintech core, credit unions of all types and sizes can brandish continuous product innovation that’s built and updated according to the shifting real-time needs of members. In addition to providing credit unions with the products they need to deliver a stellar user experience, the fintech core becomes an outsourced research and development and innovation department, but without the expensive overhead.

A fintech core can employ an algorithm that intelligently analyzes a member’s financial behavior, financial wellness and spending habits across all services. It can even capture behavior across their entire financial spectrum, including all financial accounts on an aggregated basis, to identify and recommend opportunities that can improve financial management and savings. For example, the system can match a member up with a new financial service, special card-linked-offers and merchant-funded rewards that fit their purchasing habits.

Tomorrow’s Capabilities, Today

Speed, agility and convenience are at the heart of digital transformation. A fintech core enables credit unions to implement the tools they need now, while also providing enough flexibility for customization and the addition of services later on, as technologies and member demands evolve.

Despite being pillars of communities across the United States, credit unions have faced a perception of not being large or sophisticated enough to implement digital banking solutions. But they are now on the cusp of a transformative high-tech upgrade that will change the way members and potential members perceive them. With the integration of a fintech core, credit unions can enjoy endless possibilities in digital expansion. Most importantly, by defragmenting and fusing together the digital ecosystem, a fintech core can help credit unions develop tomorrow’s capabilities today.

Mark Kilpatrick is Chief Marketing Officer for Urban FT, a New York City-based fintech serving financial institutions.