Credit unions enlist fintechs to vie with commercial, challenger banks

The ongoing challenge for credit unions of how best to upgrade technology to compete with traditional banks and challenger banks is an internal conflict that many believe has an external resolution.

Developing new technology and integrating it into a credit union’s suite of services is a timely and costly process. Many small institutions simply don’t have the economies of scale required to undergo a digital transformation and retrain staff.

Credit unions have partnered with firms like Posh Technologies, which grew from MIT’s artificial intelligence lab in 2018 as part of the Spoken Language Systems group, and Alacriti, which offers cloud-native payments processing software, to do things like increase decision-making speed through artificial intelligence and improve member-facing mobile applications.

“We knew that we wanted to use our own data to help augment or help make decisions in processes like creditworthiness, and we knew there was a better way to do it,” said Mark Rowan, chief technology officer at the $2.2 billion-asset Credit Union of Colorado in Denver.

Recently, the credit union partnered with New York City-based Scienaptic, whose AI platform will allow the institution to reduce credit decision times and enhance consumer access to lines of credit.

“We came across a fintech that allowed us to use machine learning and artificial intelligence to utilize that data to help with that credit scoring,” Rowan said. “We’ve definitely seen the value-add of utilizing a service that could look at thousands of data points, and return a decision within seconds versus the traditional method of employees having to look at certain credit attributes.”

Partnerships between fintech firms and credit unions aren’t new, nor are they unique to credit unions. Large banks, midsize banks, community banks as well as Visa and Mastercard all work with fintech partners.

In addition to fintechs, credit unions are also partnering with other types of financial service firms to aid growth efforts and fortify technology. Ameriprise Financial, based in Minneapolis offers financial planning technology and services that range from asset management to insurance. Its partnerships with credit unions have largely been a result of the shift in the consumer preferences toward digital options.

“For the last several years, financial institutions have been looking for more tech-based partners, and a lot of that is being driven by the membership base,” said Jay McAnelly, who serves as the group vice president of Ameriprise’s institutional arm, Ameriprise Financial Institutions Group. Through partnerships, Ameriprise helps credit unions and other financial institutions offer their members services like online storage for important financial documents and virtual meetings with their advisors.

“We don’t think we’re competing against other financial firms,” McAnelly said. “A lot of times, we’re competing against Google, Netflix and Amazon, who are driving consumer behavior where they are wanting their information at their fingertips and in a matter that’s different from before.”

Recently, the $4.1 billion-asset California Credit Union based in Glendale teamed up with Ameriprise to continue pursuing its focus on cultivating member relationships. Recently, the institution shifted its investment division to the Ameriprise platform to bolster its back-end infrastructure and strengthen connections with its members through individually tailored financial services. With the new platform, California Credit Union’s advisors will have the ability to create more diverse financial planning models and allow the members themselves to keep track of goals remotely.

“Our desire at California Credit Union is, we’re all about relationships,” CEO Steve O’Connell said. “We only have about 165,000 members, compared to Bank of America or Wells Fargo, who have millions, so we have a much more dedicated relationship team that is focused on deepening these connections. The way we’re going to do that is through the tools and the software that Ameriprise is providing.”

Deepening said connections, while also working to foster new ones, means listening to feedback from members and pivoting to offer new services. According to research conducted by American Banker and the creative experience agency Monigle, roughly 61% of consumers in the Generation Z age bracket are more comfortable using online and mobile platforms for their needs, whereas only 39% prefer going into physical branches. Older members from the baby boomer generation, as a contrast, still prefer to bank in-person at almost 60%.

Peter Duffy, who serves as a managing director at Piper Sandler and assists in matchmaking credit unions with fintechs, stressed that arrangements such as these are integral for credit unions seeking success in the long term.

“When I speak at strategic planning conferences for credit unions, I talk about the three-legged stool of credit union strategic planning, which is to say the credit unions that will be the happiest five years from now are the ones who are performing better than most in organic growth, productive mergers and productive partnerships with fintech,” Duffy said. “Fintechs have become such a part of consumer lending in America in such a short period of time that to ignore their prowess will be fatal.”

But for arrangements such as these to be truly successful, both parties need to benefit from the agreement. Credit unions gain access to advanced technology and established marketing channels, and in turn the fintechs gain knowledge from their credit union partners to help enhance their offerings.

“As we help credit unions enhance the capabilities and experience that they provide their members, they acquire more members in their wealth management programs and grow, which in turn adds to our growth,” McAnelly said.

The increasing focus on digital channels from consumers has left credit unions strategizing which areas of infrastructure would benefit most from a technological boost, and how it will all come together to benefit the member experience.

“Our members count on us to bring them services they need and new advancements in technology, sometimes even before they know they need it,” said Brett Engstrom who serves as the chief information officer at the $5.5 billion-asset Veridian Credit Union in Waterloo, Iowa.

This month, for instance, the credit union announced that it will work with Alacriti, a provider of cloud-based payments and money movement services based in Piscataway, New Jersey, to enable real-time payments over The Clearing House’s RTP network and to accelerate Veridian’s Fedwire modernization.

“What’s becoming more and more important for us is the extensibility of our various partnerships,” Engstrom said. “A credit union of our size has multiple partners that we use for the different services we offer, and the endgame is to be able to blend all those solutions together and have it be a seamless experience for our members.”

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