How Credit Unions Can Help Businesses Win in 2021
Credit unions will need to work alongside their communities to regain their footing in this new economic environment.
Traditional banking models have been disrupted due to the pandemic, with innovation and the shift toward digital becoming the undisputed priority in 2020. One of the big questions for credit unions is, how can they win in 2021? For many, a big piece of that answer lies within business relationships.
Credit unions will be challenged to develop relationships with new businesses, and will need to work alongside their communities to regain their footing in this new economic environment. Economic relief efforts are temporarily keeping businesses afloat, but credit unions need to think about what comes next when short-term cash infusions reach their limits. Businesses and credit unions alike can take notes from B2C fintech’s success by embedding themselves in everyday lives. Embedded finance will be the $4 trillion market opportunity that credit unions, especially, won’t want to miss out on.
Catching Up to B2C Fintechs
Fintechs brought competition to financial institutions over the last several decades, with banks and credit unions slowly losing customer/member wallet and mind share to companies prioritizing more accessible, frictionless digital services. Now, fintech 3.0 is ready to enable credit unions. This new generation is about fintechs integrating their advanced technology and modern services to improve banking – not necessarily to compete with credit unions. For credit unions, that means leveraging partnerships with fintechs to integrate their artificial intelligence, machine learning and modern services to enhance value to members.
Open integrations and application programming interfaces have made this a reality. Nowadays, it’s all about connection, speed and convenience; that’s how credit unions can catch up to the service B2C fintechs are known for. As proven during the Paycheck Protection Program (PPP) and other pandemic-related operational disruptions, prioritizing digital initiatives will be on everyone’s strategic plan for 2021.
Embedding Finance Into Everyday Life
One of the drivers of fintech 3.0 will be brands embedding financial services directly within their core offerings; B2C companies like Uber and PayPal, for example, have already mastered this concept. These brands seamlessly integrate financial services into their ecosystem through partnerships with banks and credit unions that deploy their assets on behalf of brands. This Banking-as-a-Service model allows for financial institutions to add value and drive growth through access to their balance sheet and financial products, while letting the brands own and serve their ecosystem.
Soon, embedded financial services will become a basic feature of consumer experiences, but for now, there’s still time for credit unions to be involved and capture new members through non-traditional touchpoints. Businesses are seeking to become more integrated into the daily lives of their customers, and institutions should be empowering them to offer financial services such as real-time loans (backed by a credit union’s solid reputation for security and longevity) when they’re needed most.
Trusting AI
There will be a rise in AI/ML adoption as credit unions partner with fintechs to gain better results, save time and build businesses. Behaviors have changed as a result of the pandemic; without the relevant data, financial institutions aren’t able to see where members stand financially and predict what tomorrow brings. AI/ML can be used in ethical ways to account for and/or remove biases to ensure the consumer is receiving more accessible credit and financing while also reducing fraud.
People will continue to differentiate AI models and usage in the months to come, grappling to come to terms with the sheer volume of data and data scientists available. It’s going to take some practice, but AI/ML can be highly effective in interpreting the deluge of data created in today’s digital world, helping leaders truly make better decisions.
Giving Consumers More Credit
COVID-19 has made the case for using alternative data as a complement to traditional credit models. Think about the number of non-reported delinquencies and how they will impact financial stability. Income, delinquency rates, FICO and debt-to-income ratio have been major credit attributes for a while; however, post-COVID, these attributes no longer represent the whole truth. Credit unions will be forced to look at alternative data sources, such as public records, utilities, social media, spend habits, employment, history of file, fraud and risk sources. Trended cash flows will be especially important when lending to small businesses. Credit unions might be pulling back on lending because they have had trouble determining consumers’ creditworthiness, but members and businesses alike are still in desperate need of loans during this pandemic and beyond. Moving forward with wise, data-driven opportunities will be a tremendous asset to communities in need.
Credit unions have proven they deliver great value when they partner with fintechs for speed, agility and expertise. While there’s still a good deal of work to be done on both sides, these partnerships have helped businesses tremendously during this time. The future is about embedding finance into everyday life, something credit unions have started to do with online and mobile banking, but could focus on even more to help businesses. 2021 will be about being there at the point of need with daily services such as on-the-spot financing.