Emerging Trends to Incorporate Into Your Fintech Blueprint

Credit unions, now more than ever, need a comprehensive fintech strategy. While a shift was years in the making, the pandemic accelerated the migration toward digital channels. The market continues to evolve rapidly, and credit unions must keep up. Several emerging trends should be monitored as you consider what to incorporate into your fintech blueprint.

Open Banking Presents Opportunities

Using application programming interfaces (APIs), open banking shares financial data between credit unions and third-party service providers, including fintech apps. Essentially it enables consumers and credit unions to manage their financial data and leverage it across different platforms.

Open banking allows for the networking of accounts and data across institutions for use by consumers, credit unions and third-party service providers. It provides members with more personalization and a more seamless experience.

The nation’s largest financial institutions are already leading a broader industry push into open banking. Because they are confident in their ability to retain customers, large banks can promote information exchange by allowing clients greater access to their data.

Open banking must be in every credit union’s fintech blueprint because of its potential impact. Using modern API managers and ecosystems, innovative institutions can move forward with an open banking practice that will provide new opportunities, particularly with real-time payments.

Embedded Finance Comes Into Focus

Considering the relationship between traditional financial institutions, fintech firms and the payments ecosystem’s end users is crucial. Let’s distinguish between two types of open banking partnerships.

Embedded fintech integrates fintech products and services into a credit union’s online banking platform, mobile app or back-office workflows. This helps create new revenue streams to offset other revenue pressures. Overall, it helps credit unions retain relationships and often improves wallet share.

Conversely, embedded finance integrates financial services into a non-financial company’s products or services. This can take the form of added financial features, such as making payments or borrowing money, or it can involve partnering with a credit union to offer financial services to members.

Citigroup offers retail clients various embedded payments products through its Citi Retail Services brand. JPMorgan Chase has an embedded finance solution where retailers can integrate the bank’s financial products into their digital platforms.

Banking-as-a-Service Gains Momentum

Many credit unions are embracing Banking-as-a-Service (BaaS), a broader strategy underpinned by embedded finance. BaaS sponsors share their data and infrastructure with nonbanks. It can be a great source of deposits and revenue for the sponsor, but it also creates a need for tighter vetting of potential partners.

It’s encouraging to see a large number of financial institutions entering BaaS have less than $10 billion in assets. The value proposition is that those institutions are not subject to interchange fee caps under the Durbin Amendment and other broader regulations.

Before implementing embedded finance, credit unions must define their approach and ensure it aligns with long-term financial goals. A member assessment is integral for determining ideal partners and if there is a suitable runway to expand and scale the business.

Consider going to a payments hub that manages ACH, wire transfers and credit/debit operations. Review your infrastructure, tech architecture and APIs to make sure they are in good shape.

Regulatory compliance is another critical component. Bank regulators have been looking at BaaS partnerships and how sponsor institutions oversee compliance with the Bank Secrecy Act, Truth In Lending Act and other laws. So it would be advisable to consult with your regulator before pursuing a similar strategy.

Embedded finance can be offered to anyone who needs assistance with secured payments, including gig workers, professional services firms and third-party finance companies. It could eventually lead to deeper ties to existing members – or a tool for bringing in new ones.

Credit unions can’t sit idle; they must create a modern fintech blueprint. You can successfully embark on your innovation journey by carefully evaluating your organization’s strengths and weaknesses.

Jeff Ostheimer is Director of Fintech Advisory Services for Strategic Resource Management (SRM), a Memphis, Tenn.-based advisory firm serving banks and credit unions.