Determining the Best Path to Innovation: Credit Union-Fintech Partnerships

Credit unions face more opportunity for innovation than ever before. Fintechs continue to challenge the status quo, new technology is rapidly emerging and traditional financial models are being disrupted. While having so many options available is exciting and provides a wide range of choice, it also challenges credit unions to determine which path to innovation is right for them. There are several tips and best practices for how to more effectively determine which solutions to deploy and fintechs to partner with.

Identify the Problem

Perhaps the most important step is identifying a specific problem that will be solved with the new technology. Innovation purely for innovation’s sake should be avoided; credit unions have limited time and resources, making it important that any new technology deployed supports the organization’s overarching strategy and/or competitive differentiators.

There might be several strategic problems that a credit union identifies at once. These potential partnership opportunities should be prioritized based on cost and impact. For example, many credit unions are currently pursuing fintech partnerships in the digital, origination, payments, security and fraud space.

Think Long-Term

Once a problem is identified and a type of fintech partnership is decided upon, it’s time to create a shortlist of potential partners and start comparing, engaging in those initial conversations. During this process, credit unions can sometimes make the mistake of getting caught up in the sales cycle. They evaluate the sales and business development teams instead of thinking about those they’d actually be working with on a day-to-day basis, such as the fintech’s operational team and support staff. It’s critical to ensure that future partners are easy to work with, responsive and pass an overall “vibe check.” Team chemistry matters.

Consider the Organizational Ethos

Take time to understand the fintech’s mission and purpose – and make sure there is a strong value alignment with the credit union. The technology may be equipped with impressive features, but if it does not align with the credit union’s mission or long-term vision, its implementation may prove disruptive rather than transformative. Does the fintech have a strong grasp on and commitment to the member experience? What is their risk appetite? How do they view their technology’s role in the broader ecosystem?

Credit unions should closely evaluate how the solutions integrate with existing processes, complements company culture and advances organizational goals. Those partnerships between fintechs and credit unions with a shared ethos tend to be more successful.

Phone a Friend

In an industry as tight knit as credit unions, it is very likely that a peer credit union will be willing and able to provide candid reviews of and feedback to fintech solutions and providers. Go beyond the approved reference list and find additional perspectives. This is also an area where established industry players, like consultants or associations, might be able to provide valuable opinions as well. Be cautious of those players who are so new that they lack a deep bench of validation. While there can be some great innovation found within early-stage companies, it must be balanced with risk.

Do Your Homework

Once the final candidates are set, it’s time to double down on due diligence. Areas such as the solution’s technical architecture, ability to integrate, security posture and the company’s financial position should all be evaluated. While this process is arduous, it’s extremely necessary as there is great financial and reputational risk involved in partnering with a company that doesn’t employ proper controls or fails to meet security standards. This is an area where relying on trusted, established strategic partners for insight and support can provide significant value.

The strategic selection of fintech partnerships is critical for credit unions seeking to innovate. By thinking long term, prioritizing shared values, seeking feedback and conducting proper due diligence, credit unions can identify solutions that not only will help differentiate themselves but also contribute to growth and member satisfaction. Through diligent vetting, credit unions can navigate the complexities of fintech partnerships with confidence, ultimately driving value for their members and communities.

Pete Major is Vice President of Fintech Solutions at the Farmington Hills, Mich.-based CUSO Members Development Company (MDT).