2023: An Invitation to Innovation

I read blogs. A lot of them. Most blogs I read are for work, but I do squeeze in a couple for my movie-loving and food-cooking self.

For as long as I’ve been at CU Times, I was a voracious reader of Henry Meier’s daily updates on his “New York State of Mind” blog that he wrote while working as general counsel of the New York Credit Union Association. There were many days on our editorial Slack channel when we’d write, “Did you see Henry’s latest post?”

Sometime around September, he resigned from the association after 16 years to start his own legal consulting firm.

Us regulatory nerds were bummed that his blog ended, but happy that he was moving on.

Late in the fall, Henry and I connected about an idea to, in a way, bring back his timely and unfiltered takes on credit union legal, compliance and regulatory issues for CU Times.

We kicked off this new editorial project with Meier in early December and it’s been really fun not only getting to know him personally, but watching the reaction from our readers out there. Apparently you all missed him just as much as I did.

Another blog I have marked for near-daily consumption is PYMNTS.com. They’ve been a truly reliable and nerdy technology news source for me since joining the credit union world several years ago.

I should state that CU Times has zero affiliation with PYMNTS and they have nothing to do with us. But, they do a tremendous job writing about e-commerce, payment trends and data analytics. Like Meier, they have a way of putting things into an easily-digestible and relatable way that doesn’t overwhelm or intimidate you as a reader.

I bring up our new Meier editorial adventure and PYMNTS as a kind of analogy for our need to push boundaries, but in a comfortable and human way.

Let’s connect the dots.

In a recent January post by Meier, he listed out what he thought will be “The 10 Most Impactful CU Trends of 2023.” Coming in at number 10 was the NCUA’s proposed rule, parts 701 and 714, Financial Innovation – Loan Participation, Eligible Obligations, and Notes of Liquidating Credit Unions.

Meier wrote that he proclaimed this proposed rule “to be last year’s most important proposed regulation and I haven’t changed my mind. Technology makes it easier for all credit unions to buy and sell loans, but the NCUA’s regulatory framework hasn’t kept up with the technology. Properly crafted regulations will provide much needed clarity and make it easier for all credit unions, irrespective of their size, to engage in the participation marketplace.”

According to the NCUA, “The proposed rule would remove certain prescriptive limitations and other qualifying requirements relating to eligible obligations and provide credit unions with additional flexibility to purchase eligible obligations of their members. Removing the current prescriptive limitations and other qualifying requirements will allow federal credit unions additional flexibility to engage with the advanced technologies and other opportunities offered by the fintech sector. The greater flexibility and individual autonomy will also allow FCUs to establish their own risk tolerance limits and governance policies for these activities, while codifying due diligence, risk assessment, compliance and other management processes that are consistent with the board’s long-standing expectations for safe, sound, fair and affordable lending practices.

“The proposed rule would also provide credit unions with additional flexibility to participate in loans acquired through indirect lending arrangements, allowing FICUs to utilize advanced technologies and opportunities offered by the fintech sector,” the NCUA’s document read.

Personally, I like how Meier puts it much better than the official 100-page explanation from the NCUA. My eyeballs are exhausted.

In short, the NCUA’s proposed rule wants credit unions to become more innovative by giving credit union executives some breathing room to work with fintechs. This flexibility will hopefully help credit unions expand their reach in lending areas that are, for now, mainly offered by fintechs.

NCUA Board Member Rodney Hood is in full support of making these changes to help credit unions innovate. In fact, Vice Chairman Kyle Hauptman and Chairman Todd Harper are also fully supporting the proposed rule. In Hood’s statement on Dec. 15, he said, “This is important because one of the biggest and growing sources of loans in the financial marketplace is fintech-originated loans. Younger and more tech-savvy borrowers and potential members are looking to technology companies to provide their financial needs and credit unions are getting left behind. Even when a credit union can develop a relationship with a fintech lending provider, they are severely limited in their ability to cultivate this relationship under the current regulations.”

Also to the NCUA’s credit, it appears they are staffing internally for this eventual fintech-related expansion in their regulatory governing.

Just a few days into 2023, the NCUA announced the hiring of a director of financial technology and access, Charles Vice.

In this position, Vice (what a cool last name) will be the principal advisor to the board on agency policy concerning “fintech, and fintech developments and transformation initiatives in the financial services sector, including cryptocurrency, blockchain and distributed ledger technology.”

Vice will oversee initiatives including “promoting the development and deployment of technologies and innovations that can expand financial inclusion and equitable and affordable consumer access within the credit union system.”

If he goes by Chuck Vice, he will get my vote for absolute coolest name in the industry.

The Vice hire appears to have timed out well. On Jan. 12, PYMNTS released a collaboration report with CUSO giant PSCU. The report, “Credit Union Innovation: Product Development Slowdown Tests Member Loyalty,” surveyed more than 4,200 consumers, 100 credit union executives and 50 fintech executives in October and November.

The findings of the report, which you should definitely read, revealed these four things:

• Credit unions are scaling back product development despite members’ growing interest in innovative products.
• More than another innovation, credit union members want additional payment methods.
• Innovative and readily available credit products can help credit unions respond to competitive threats and attract new members.
• Consumers often select a lender based on the type of loan they are taking out.

The report, which is much shorter and easier to read than the NCUA rules, found that the lack of innovation by credit unions is bumping up against intense banking and lending competition from fintechs.

“PYMNTS’ data finds that CU members are willing to take their business elsewhere if their CU does not give them the innovative products they want, but internal frictions and economic constraints limit CUs’ ability to respond through new product developments,” the report stated.

It might be an odd/obvious reveal that your members are like everyone else out there – they want a good deal and a great experience.

The report concluded, “Credit union members, long characterized as particularly loyal, have grown to be much more like customers of other FIs in recent years. Like account holders with other FIs, they want innovative products and services based on modern technologies. To keep member ties secure, CUs need to recognize this change in consumer attitudes and effectively respond.”

As Meier put it in a recent column, “Technology will continue to change the way credit unions conduct business and there are few things as basic to the business as the ability to buy and sell loans.”

It really feels as if the credit union industry is on the cusp of taking on and/or better partnering with fintechs in order to innovate and grow. If anything, it appears the right people and organizations are pushing for the same innovative steps. The pandemic crushed so many best-laid technology plans and maybe 2023 is the year those plans come to fruition.

Michael Ogden is editor-in-chief for CU Times. He can be reached at mogden@cutimes.com.