How & Why Credit Unions Should Partner With Fintech

Why would a credit union – or any financial institution – outsource anything to a financial technology (fintech) company?

Because there are things they do better and faster than we do.

Here’s the analogy I use in explaining why Sharonview Federal Credit Union outsources some products and processes to fintech. If I have a light that’s out, I’m going to try to replace the light bulb first. I’m not going to look at a YouTube video to learn how to build a light bulb.

You have to focus on what you do best.

Our most recent fintech partnership is with Upstart, a company that offers AI-powered personal loans. Sharonview outsourced our unsecured, personal loans to them. We fund the loan and Upstart services it. They even handle collections. Our staff doesn’t even make an underwriting decision. There’s no human intervention in the process. Everything happens automatically; non-members automatically become new members through the process.

Borrowers learn what they qualify for before making an application.

It’s been an incredible leap in efficiency. There’s no way we could build the platform Upstart has built, at least not anytime soon. Upstart is communicating, via a Sharonview-branded website, to the borrower how much the borrower is qualified for and what the terms are. The borrower then decides if they want that loan on those terms. This is a service borrowers can access 24/7. The borrower goes into the application process knowing everything they need to know.

In some cases, they may get an answer and gain access to the loan funds the same or the next day.

Our personal loan portfolio has grown substantially since our partnership with Upstart began. We went from doing about $1.5 million a month in fixed-term, personal loans to just over $10 million a month – and it only took about 60 days to set it all up.

There are still plenty of products that require personal interaction – home equity lines of credit, small business loans, a complex array of money markets and share certificates.

Pulling the straightforward personal loan process out of the branches has allowed our staff more time to focus on the products that add value to our members’ lives and their financial well-being.

Our work with Upstart wasn’t our first foray into fintech. We took a major turn two years ago when we sold our credit card portfolio to Elan and transitioned all the credit card issuance and servicing to Elan. This is their area of expertise, and we felt they could provide members with a better suite of products, fraud mitigation tools and communication tools.

There’s also huge efficiency with our card product. We got into member business lending this year, and Elan already had four different business credit cards available in the market. All we had to do is put our name on those cards. If we’d been working in-house with a card processor, it might have taken us a year to deploy. Instead, it was ready in two weeks.

When we first started partnering with fintechs in 2018 – by accepting indirect vehicle loans onto our platform through auto dealerships throughout the Carolinas – there was some staff hesitancy. Some wondered about members losing the high personal touch they value from us, but we’ve worked closely with our learning and development department to transition to a new mindset.

Easing the Outsourcing Process

We’ve made some changes internally to ease the outsourcing process. We recently created a new position: The director of lending partnerships. This team member serves as the liaison between all the teams at the credit union impacted by these relationships and the vendors themselves.  They help us mitigate and manage the risks we have.

And there are risks with fintech – such as liquidity risk, interest rate risk and reputational risk. We’ve got to make sure our relationships with fintechs mirror our own risk appetite.

We’ve only begun to tap into every benefit fintech offers. We know there’s more we can outsource.

Why? Because liquidity is much more of a challenge than it was a year ago when the stimulus money was in the economy; there was a lot more cash floating around. We’re in a different environment now. Interest rates have gone up. Inflation has put tremendous pressure on the consumer. It’s much more challenging now to continue to fund loan volume with traditional deposits.

Looking Ahead

We’ll continue to look for ways our members can benefit from fintech.

Someday, I think there could be a mortgage product that doesn’t need a human underwriter. Certainly, you don’t need one on a car loan.

But we have to be cautious. If you automate too many things without having good fraud tools, you’re going to have other problems. This is where humans come into play. Humans need to look at the data to determine if the machine is making the right decisions on a consistent basis.

My advice for those credit unions partnering or considering partnering with fintech: Make sure you’re surveying your staff and members and you understand how they feel about your processes. Get their feedback. Sometimes, what’s wrong with the member experience isn’t the experience itself, it’s the expectation of the experience.

I’ll never forget getting a survey back at another credit union many years ago and learning that somebody was upset we took about a week to close their mortgage loan because we had closed their car loan in less time. You can’t ever take for granted what somebody’s expectations are.

Fintech partnerships are saving our staff and members valuable time, while allowing Sharonview to enter markets where we don’t have a physical branch. We’re letting the experts do what they do well while focusing on providing the best personal service we can to our members.

After all, why build a light bulb when someone else is already making and selling them?

David Brand is SVP of lending operations for the $1.9 billion, Indian Land, S.C.-based Sharonview Federal Credit Union.