Credit unions eagerly pursuing fintech partnerships

Credit unions are having to keep up with shifting consumer expectations, shaped by the latest offerings from digital challengers. Their previous technology priorities, such as mobile wallets and digital account openings, have become must-haves, forcing them to look to new services to remain competitive.

“New areas are overtaking these priorities for credit unions,” said Owen Wheatley, lead partner for banking and financial services at Stamford, Connecticut-based consultancy Information Services Group. Wheatley’s list includes real-time payments, cryptocurrency services and customized product offerings, such as AI-based loans.

Lacking the budget to develop their own real-time payments, Bitcoin accounts and AI-based lending, credit unions are working with third-parties to launch services, reach new members and remain relevant to younger consumers.

Implementing real-time payments

Introducing real-time payments is a priority for credit unions in order to keep up with larger institutions and paytechs, such as Venmo and PayPal, that offer simple real-time payments. A December 2021 survey by Cornerstone Advisors, a consulting firm in Scottsdale, Arizona, found that 24% of credit unions are planning to deploy real-time payments in 2022. That number jumps to 30% for 2023.

“Credit unions need to participate in real-time payments if they want to remain their members’ primary financial institution,” said Keith Riddle, president and CEO of Sherpa Technologies, a credit union service organization owned by Columbus, Ohio-based Corporate One Federal Credit Union, which helps credit unions modernize their payment systems. “Many consumers use non-bank services such as Venmo as they are highly focused on money movement.”

“Use cases include paying car dealers in real-time when purchases are financed through credit unions, and mortgage settlements,” said Melissa Ashley, Corporate One’s president and CEO, left. Thomas Novak, chief digital officer for Visions, middle, said his institution’s strategy was to give members “more value than they could get from other financial institutions and stand-alone fintechs.” Mark Willden, chief information officer, right, said that “a growing number of ICCU members have been registering and becoming active with their Bitcoin accounts every day.”

Currently, out of the 190 financial institutions connected to the Clearing House’s RTP network, only 31 are credit unions, including two corporate credit unions. Natural person credit unions are mostly only able to receive incoming payments, according to Melissa Ashley, Corporate One’s president and CEO.

Corporate One and Sherpa Technologies are piloting sending business-to-business payments on the RTP system with four Corporate One credit union members. “Use cases include paying car dealers in real-time when purchases are financed through credit unions, and mortgage settlements,” Ashley said.

Alloya Federal Corporate Credit Union in Naperville, Illinois, has launched a real-time payments educational initiative for its credit union members. “Our goal is to help members build a roadmap for faster payments so they can offer improved customer experiences and remain relevant with younger consumers,” said Kurt Stevenson, senior vice president of payments at the $7.1 billion-asset institution.

Offering Bitcoin accounts

In December 2021, the National Credit Union Administration said federally-chartered credit unions can provide cryptocurrency services in partnership with crypto firms. Bitcoin accounts are both a challenge and an opportunity for credit unions.

“As trusted financial institutions, credit unions are well placed to offer crypto, and it’s a good way for them to attract younger members,” said Information Services Group’s Wheatley. “But, until effective cryptocurrency regulation is introduced, credit unions should be cautious due to potential reputational damage if something goes wrong, and just offer basic services such as buying, holding and selling crypto.”

Visions Federal Credit Union in Endwell, New York, launched a basic Bitcoin account, which is accessible from its digital banking platform, in January. Unlike a cryptocurrency exchange that lets customers exchange Bitcoin with each other, the $5.6 billion-asset Visions only allows members to buy, hold and sell Bitcoin from their Visions account. Purchases are funded from the institution’s checking or savings accounts, and the proceeds of sales are returned to the same accounts. New York City-based Bitcoin company NYDIG acts as custodian.

Visions chose NYDIG because the fintech has a strategy of partnering with financial institutions, said Thomas Novak, the credit union’s chief digital officer. “Our fintech partnership strategy is to leverage banking-as-a-service and embedded fintech for our members by giving them more value than they could get from other financial institutions and stand-alone fintechs,” he added.According to Novak, Visions’ own research and research by NYDIG found that many customers want to transact in Bitcoin via their trusted financial institution.

Idaho Central Credit Union in Chubbuck launched a Bitcoin account with NYDIG in January. “Since this is still a new area, broad adoption likely remains a few years out,” said Mark Willden, chief information officer of the $8.3 billion-asset institution. “But a growing number of ICCU members have been registering and becoming active with their Bitcoin accounts every day.”

Both ICCU and Visions are considering offering additional digital asset services to members with Bitcoin accounts held through them such as allowing cardholders to accumulate Bitcoins instead of cashback or rewards points and enabling members to use Bitcoin as collateral for loans.

Automating the lending process

Implementing AI-based loan underwriting technology can help credit unions use their own data to approve loan applications from members that traditional credit-scoring systems might reject and compete with fintechs offering instant loans.

Michigan Credit Union League in Lansing partnered with New York City-based Scienaptic AI to help its 208 member credit unions improve their loan decisioning capabilities. MCUL’s members have a total of 5.8 million members and assets of $92 billion.

MCUL will offer its members Scienaptic’s AI-based loan decisioning tool, which uses machine-learning to analyze large amounts of data and make rapid underwriting decisions.

“With the shrinkage in staffing, credit unions can’t perform the loan appraisals that Scienaptic can do,” said Patty Corkery, president and CEO of MCUL. “Technology can prevent members from getting rejected because of their credit score alone when data, such as their previous history with the credit union, shows they are capable of repaying a loan.”

In a similar deal, Los Angeles-based Zest AI has partnered with three credit union leagues — Minnesota Credit Union Network, Montana’s Credit Unions and the Wisconsin Credit Union League — to bring its AI-based underwriting tool to their members. In September 2021, Curql Collective, a CUSO that invests in fintechs on behalf of credit unions, invested in Zest AI.

ICCU is prioritizing the introduction of automated loan decisioning in 2022, said Willden, while Visions is considering whether to apply machine-learning to automate components of its lending processes. “We have some strong lending automation rates, but would like to fully automate parts of our lending operation,” Novak said.

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