Fintechs can expect to field several questions related to risk and compliance issues as they begin partnership discussions. Here are a few questions they can anticipate:

How does the fintech lender source applicants? A potential partner will want to know what channels the online lender is using to originate loans, whether the marketing of its products is broad enough to reach all consumers, what loan-specific disclosures are made to the consumer and whether the fintech has adequate licensing to offer its products.
How are loans funded? There are many possible funding paths to consider. For example, the fintech may fund the loan and then assign it to the credit union, or have a third party fund the loan and then purchase the loan from that third party. Alternatively, the credit union could fund the loan and pay a premium to the fintech for using its platform.
What's the secret sauce? A credit union partner will want to thoroughly understand an online lender's market niche and differentiators. It may ask for historical data to demonstrate success of the business model, and because credit unions are subject to fair lending laws, they may also want to analyze the credit model to assure use of acceptable credit attributes.
How mature are the online lender's settlement, reporting, compliance, data security and accounting processes? A potential partner will be looking for established data and cash flows that facilitate easy settlements, reconciliations and accounting. It's important for fintechs to be receptive to a credit union's review of their compliance management systems. An institution seeking to protect itself from future regulatory missteps will likely perform a thorough due diligence review for all risk areas, including, but not limited to, the compliance management system, complaints program, information security and privacy programs, and anti-money laundering compliance program. It may ask to review process maps, disclosures, consumer communications, training, monitoring, complaints, policies, procedures and other program documentation. The ultimate goal is to get a detailed picture of the fintech's compliance management system.

While it can initially seem like a burden to answer so many questions about privacy, compliance systems and other areas, growing fintech companies stand to gain much knowledge and experience by partnering with large institutions. Upping its game to meet the more stringent regulatory expectations placed on larger credit unions will help a fintech prepare to enter the big leagues of finance. Once that level is achieved, it will create a repeatable process that will open up additional opportunities at other large credit unions and speed up the onboarding process.

Instant Insights /

Online Lenders Seeking Growth Tap Credit Unions for Funding

Related Stories

Recommended For You