The Case for Credit Union-Fintech Partnerships
By Chris Corse, Corporate Development & Strategic Relationship Director, Co-op Solutions
A partnership, in its simplest form, allows two parties to produce a result that is greater than the sum of what they could each do individually. Naturally, the partnerships with the strongest goal alignment tend to be the most successful. In the case of credit unions and fintechs, it just so happens that both are chasing the same ambition – growth.
Something is standing in the way, however. As Cornerstone Advisors research tells us, about half of financial institutions, including credit unions, did not expect to enter into any fintech partnerships in 2023. If credit unions are trying to attract and retain members via modern, tech-centered experiences, and fintechs can provide these experiences, what is behind the reluctance to partner?
Fintechs Eager to Make Partnership Simple
From our Co-op Strategic Provider Program, we have gathered insight from credit unions and fintech providers alike that is shedding light on the conundrum.
As it turns out, fintech providers are eager to partner with credit unions. In fact, numerous early stage fintechs have even pivoted their go-to-market model over the last two to three years. They’ve evolved from a direct-to-consumer approach to a credit union distribution model after realizing they can tap into the industry’s vast and loyal member base to scale more efficiently.
Credit union leaders would be forgiven for thinking that fintechs view credit union partnerships as an arm’s length arrangement, but that is not what we’ve seen. Most fintechs, including Co-op’s Strategic Provider Program participants, go the extra mile to configure their products specifically for the credit unions they partner with. Almost all fintechs offer white-labeled versions of their solutions, allowing credit union brands to remain front and center with members. Perhaps most importantly, many fintechs are willing to build integrations into the credit union’s core or digital banking solution where one isn’t already in place.
Sounds great, right. So, what’s the hold up?
Traversing New Terrain is Worth the PFR Value
The most common objection to partnering with fintech providers that we hear from credit unions is that the prospect represents a new frontier that requires experience and expertise to traverse. Many don’t have a partnership team in place to determine the best-of-breed players. Even if they had the expertise in-house, the daunting trifecta of vendor due diligence, technology integration, and solution onboarding seem untenable given the many other priorities credit union staff are tackling in today’s highly competitive financial services environment. Further, the fintech ecosystem has gotten so large that it can be intimidating to even know where to start a sourcing process.
Finding a way over these hurdles is critical if credit unions are to achieve the growth they are aiming for. The primary financial relationship (PFR) potential alone is worthy of the effort.
Consumers who consider credit unions as their PFR have on average 3x the number of financial relationships as non-credit union members. What this tells us is that, although these members love their credit unions, they are not getting everything they need from the relationship. Members are going elsewhere to support their full set of financial needs.
Conversely, consumers who use neobanks like Chime, SoFi, and Revolut have the fewest number of financial relationships. These branchless, digital-first disruptors have grown steadily to meet the complete set of demands consumers have for today’s financial institutions. Whereas many began as providers of basic banking solutions, they now offer expanded products and services, such as budgeting tools, early access to paychecks, credit score building, and even investment services. They’ve evolved into one-stop shops to win consumer mindshare and wallet share.
Neobank Challengers Earning Trust through Rapid Product Iteration
Without a doubt, neobanks have a product development advantage. Their nimble and partnership-friendly architecture accelerates solution iteration and reduces time-to-market. Their internal systems are modern and tightly integrated, allowing data to flow freely and providing metrics to help make real-time, data-backed modifications swiftly in response to changing consumer needs and preferences. And, because they have open architecture, neobanks are able to leverage external fintech providers to introduce new products rapidly – products that are hyper-personalized due to the strong data at their fingertips. This environment has led to the creation of an entirely new fintech ecosystem, one that feeds on itself through its participants’ ability and willingness to partner.
Most credit unions do not participate in this ecosystem today; but they easily can. Here’s how.
Trust + Convenience is a Winning Recipe
The answer is not a total re-architecture of the credit union’s data structure or tech stack. It’s not competing for product developers in a difficult labor environment. Instead, credit unions can partner with plug-and-play fintechs that have intentionally created simple technology integration and solution onboarding processes specifically for the credit union environment. And, because fintechs bolster their products with their own data sources, credit unions can provide the same hyper-personalized experience as neobanks.
Combining credit unions’ strongest attribute – trust – with fintech convenience and product expertise is a winning recipe. But, the member trust credit unions have spent so long building is not permanent, nor guaranteed. Over time, as neobanks continue to build their brands, they’ll garner more trust.
That is why now is the time for credit unions to leverage fintech partnerships to improve member experience. The movement has what it takes to stall the recent gains neobanks and big tech companies have made, especially among Millennials and Gen Z consumers.
Five Essential Attributes of a Strong Fintech Partner
Credit unions that are exploring plug-and-play fintechs should insist on the following five qualifications:
- Demo: A partnership needs buy-in from both sides. Ahead of solution demos, credit unions should explain their goals while also asking about the fintech partner’s own ambitions. If you have any concerns, raise them, and let the fintech solve them (they’ll be eager to).
- References: One of the credit union industry’s main strengths is its network. Leverage that.
- ROI calculations: Credit unions are often surprised to learn that the break-even point on their fintech partnership investment is more achievable than originally thought.
- System integrations: Fintech providers often prioritize integration because they know it is the gateway to new customers.
- Due diligence packets: Without strong risk and compliance frameworks, it doesn’t matter how robust or compelling a fintech provider’s product or solution is.
Credit unions that need help getting started may want to consider taking advantage of preferred partner arrangements like Co-op’s Strategic Provider Program. Initiatives like this help streamline the vendor procurement process and can even offer preferred terms and pricing for participants. By letting a trusted partner identity and vet best-of-breed fintechs, credit unions can concentrate valuable staff time on those everyday member moments that matter most.
Learn more about Co-op's Strategic Provider Program.
This originally appeared in CUInsight’s Community section, December 11, 2023.