Credit Union & Fintech Leaders Move Critical Partnerships Forward: Part One

Over the past few years, credit unions have moved beyond a phase of simply being curious about fintech companies and into one of full-fledged partnership, according to Brian Kaas, president and managing director of CMFG Ventures, the venture capital arm of CUNA Mutual Group in Madison, Wis. CMFG Ventures, which recently launched an online community and webinar series focused on credit union-fintech partnerships, hosted the first-ever, in-person Fintech Summit in September, bringing together credit union and fintech leaders to network and discuss ways they can team up with the goal of innovating and strengthening their offerings.

For part one of this two-part Q&A with CU Times, Kaas explained why fintech partnerships are critical to the credit union industry’s survival, how embedded finance poses both an opportunity and a threat for credit unions, and more. Responses have been lightly edited for length and clarity.

CU Times: Who attended the Fintech Summit and what were they hoping to gain overall by attending?

Kaas: One of the objectives of CMFG Ventures is to create opportunities for fintechs and credit unions to actually come together, and so the Fintech Summit really reflected this ecosystem that we’re building. We had around 125 credit union executives – a lot of CEOs from large credit unions – 30 fintech companies, and 70 to 80 executives from those fintech companies. We had some other industry leaders in the fintech space – Rodney Hood from the NCUA, who has been a big proponent of supporting credit union-fintech partnerships; Lamont Black who is a professor and has been very involved in educating the credit union system on blockchain and cryptocurrency; and iHeartMedia, which is really interested in how it can work with credit unions, fintechs and this whole [idea of] financial wellness and financial inclusion, and how it can utilize its broad reach across various multimedia platforms. They really wanted to use this [event] to share ideas, highlight partnership opportunities and illustrate some fintech partnership learnings that credit unions have had. And a big part of it was networking. We had almost the equivalent of a speed dating session segment for one session, where we rotated credit union leaders to different fintech companies. We wanted to do that as a way to expose credit unions to fintechs that they might not have ever considered talking to. We also had a kind of “Shark Tank” demo session that was really popular. So the objective was to really get a conversation started that hopefully would continue long after the Summit concluded.

CU Times: What are some of the bigger-picture problems credit unions are looking to solve by partnering with fintechs?

Kaas: In my view, fintech partnerships are going to be a critical key to the long-term survival of the credit union industry as a whole. The level of sophistication around digital banking and digital solutions has really changed the way the industry operates, and [fintech partnerships allow] credit unions to be able to offer best-in-class experiences to their members. And these are experiences that are not only being shaped by the bank down the street, but it’s the “Amazon effect.” People have higher expectations across all businesses, and fintechs really enable credit unions to level the playing field and compete with the large banks. JPMorgan Chase has a tech budget that’s almost twice the size of the credit union industry as a whole, so it’s really become virtually impossible for even the largest credit unions to solve all of these challenges through homegrown solutions, and that’s why these fintech partnerships are essential for long-term survival.

CU Times: One session focused on “how the credit union system should transform their approach to embedded finance” – what were some top takeaways from this presentation?

Kaas: Embedded finance creates both a tremendous opportunity for credit unions and the greatest threat of disintermediating credit unions from the lending event. What embedded finance translates to is financing that’s occurring at the point of purchase for whatever it is you want to buy. It used to be, “I’m going to buy a car and I can either get financing in advance from my credit union or get a loan at the car dealership.” But as auto sales move online, financing is embedded as a function of what that digital experience offers, so credit unions that are not embedded into that platform are going to lose out on that loan opportunity.

Any purchases that are bigger-ticket items – say you have to get your furnace repaired and it’s going to be $5,000 – now these merchants can provide financing on their iPad in the home, and again if your credit union isn’t there as one of the options that’s popping up, you’re going to lose out on that loan opportunity. That’s why it’s so important as the lending event now occurs at the point of purchase that we find ways to bring credit unions into the homes of those consumers where those purchases and funding events are occurring. Fintechs create the opportunity for credit unions to play in that space.

CU Times: Are there currently any fintechs helping credit unions play in the embedded finance space?

Kaas: Yes, it’s already happening. We have a company called Moment that was at the Fintech Summit, which is a point of sale financing platform that works with different merchants to provide financing at the point of sale. It could be where I’m having an elective medical procedure and need a loan for that, or I’m at the vet and have a $5,000 bill, and Moment will provide the technology that the merchant can use. It enables credit unions to connect in through Moment to provide the loan for that event.

CarSaver would be another good example, and they’re actually powering Walmart’s auto buying program. Walmart will be rolling out a car-buying program somewhat similar to Costco’s … so are there opportunities where we could position credit unions to fund loans for vehicles purchased through the Walmart program? That’s the power of how embedded finance at scale could present huge opportunities for the credit union system.

CU Times: How does Buy Now, Pay Later (BNPL) fit into this trend?

Kaas: It’s a little bit different, so Moment would be more of a traditional fixed loan, an unsecured personal loan in most cases, versus a Buy Now, Pay Later structure where you might be breaking that purchase into four installments. We [CMFG Ventures] are an investor in a Affirm, which is probably the largest Buy Now, Pay Later company in the U.S. market and was at the Fintech Summit. We looked at what opportunities are there for Affirm and credit unions to partner, so we’re creating sandbox sessions for that. And similar to how CarSaver has that relationship with Walmart, Affirm has a partnership with Amazon, so are there opportunities to harness the power of the credit union system as a whole to work with some of the largest companies in the U.S.? Because we also want to create opportunities for not only the larger credit unions that have greater access to a lot of the partnership opportunities that fintechs present, but for the medium- to small-sized credit unions to also participate in some of these opportunities. So that’s a big area of focus as we start to do more and more work in building out this ecosystem – ensuring that we provide opportunities for credit unions of all sizes.