Fintech: What’s Hype and What’s Not?

Ultimately, credit unions often engage with fintechs to improve the member experience they offer. That was the case for $340 million West Community Credit Union in the greater St. Louis area of Missouri, where CUES member Koren Greubel is VP/marketing. West Community CU tapped fintechs to gather more meaningful data and leveraged that for improvements with operational efficiencies through artificial intelligence, automating some of their routine processes, for example, Greubel says. 

Fintechs really shine when it comes to enhancing the digital banking member experience, such as online account opening, card management alerts and controls, personal financial management tools, member authentication, and conversational AI chatbots, to name a few.

Mickey Goldwasser sees the other side of it as the VP/marketing and chief of staff at CUES Supplier member PayRailz, Glastonbury, Connecticut, a digital payments company. 

“I get an interesting perspective, both as a vendor, but also I serve on the supervisory board of a small credit union,” he says. Goldwasser believes that innovation is the true driver of success. Initially, and for a long time in the financial services industry, credit unions and banks were the leaders. Then there was a slowdown in that leadership, and many nontraditional fintechs, such as PayPal, were born outside of the banking industry. 

Most recently, COVID-19 accelerated the need for everything to go digital, and fintechs can excel at helping to improve digital relationships in a digital world, Goldwasser says. “Fintechs, especially those that look to work with financial institutions, can offer better experiences to manage your money, better experiences to pay for things and better experiences to plan for the future. The beauty of fintechs is there’s a lot of people saying, ‘How do we make this experience better?’ To succeed, they have to think beyond that it’s just a transaction—it’s really an experience.”

Hope Versus Hype

Fintechs are getting a lot of attention these days for advancing the industry, but sometimes it’s hard to see where there is real, actual progress when headlines are just hype.

“There’s noticeable discussion surrounding the weight of legacy infrastructure on credit unions, and efforts to rearchitect to be more lightweight, resilient and nimble,” says CUES member and President of TDECU Holdings Casey Wilcox, who oversees wealth advisory and insurance services, fintech investments and partnerships, and all interests of CUSO activity for $4 billion-plus TDECU, Houston. “The hype is trending around several areas, with a particular focus on reimagining payments and digital strategy. To date, I haven’t seen anything overly compelling around an organization’s ability to take their payments infrastructure and do a solid lift out to provide a strong, nimble and open technology platform across multiple payment types, especially as we move to real-time payments. 

“There are large infrastructure changes many in the financial and credit union industry are contemplating, but the win for credit unions and fintech is in the ability to add functionality into ‘heavy’ technology stacks while at the same time being able to understand and visualize the long-term roadmap for organizational technology,” Wilcox continues. “As credit unions and fintech continue to collaborate to successfully improve, disrupt and position a best-in-class member experience, we’ll see the industry develop and deliver a meaningful difference.”

While fintechs are known for introducing fresh concepts, being able to implement them is another matter. “The fintechs offer us alternatives that are often turnkey, but we still have to put resources and marketing dollars toward them,” Greubel says, noting that some fintech partnerships have required more marketing dollars (and resources) to fulfill their potential than initially anticipated.

Much of the hype surrounding fintech can be blamed on timing since wider acceptance of a new technology often happens much more slowly than tech enthusiasts and early adopters anticipate.

Goldwasser points to a cashless society as an example. Many industry observers predicted that cash would have gone away by now. And, while we see society continuing to evolve toward that day, it isn’t a reality yet. 

“We’ve been saying that checks were going away for a while, and we’re not there yet—people still write checks,” he says.

If you’re wondering whether a fintech is more hype than not, Goldwasser suggests asking yourself a few questions. Is it solving a real business problem? Is it attracting attention in the marketplace? Is it a mainstream item yet? If it’s not, will it be—and when? Will it be accepted? These questions will help you determine if something is actually in the innovation stage or just in the enthusiastic stage.

It takes a lot of time for credit unions to do due diligence on the fintechs they’re considering partnering with. That’s where Bankable Fintech comes in. According to CEO Kim Fraser, the company has considerable data on the offerings, performance and core data system integration capabilities of more than 16,000 national and international fintechs, including some that are proprietary. Credit unions leveraging this data won’t have to wonder if they are choosing the best option. As a bonus, the company’s data is free to credit unions since fintechs that get a contract through Bankable Fintech pay a universal revenue share to Bankable Fintech. 

A few other areas have been pinpointed as hype. Take embedded fintech, for instance, the integration and offering of financial services together with the offer of any other service of a commercial nature. 

“It’s the most popular fintech trend on Twitter and in various fintech newsletters, but real-world examples are still fairly rare,” Johnson says. “The theory is that companies from virtually every industry will embed financial services in their products and experiences in order to increase ARPU (average revenue per user) and make their offerings stickier, but apart from payments and a bit of lending (buy now, pay later), we haven’t really seen this theory manifest itself in significant ways yet.”

Another instance is just how good fintech can make the user experience. “Many organizations have experienced member priorities shift amidst the pandemic, and their strategies are to become even more member-centric—providing competitive rates and exceptional services—however, the user experience is sometimes left out of that equation,” Addabbo says. “Simplicity and effortlessness are a member demand, not a nice-to-have, if financial institutions are to attain and retain their membership.

“How easy is it to join your credit union?” she continues. “How easy is it to find your services and understand the unique value proposition over your competitors? If someone is searching for the services you offer and has your credit union pulled up on one tab—and major players on another tab—are they convinced your offering is the easiest? That is what’s winning members today. With so many competing services and all vying for your membership, it is critical to be focused on usability and seamless experience in order to win.”

Breaking New Ground

Credit unions are finding new ways to work with fintechs right now. According to Young, there are three main ways: 

1. as a vendor, where a credit union buys/contracts with a solution; 
2. as a referral partner, where a credit union is paid by a fintech for marketing access to its membership; and
3. as a partner, which includes deep technical integration, custom builds, co-creation and “powered by” scenarios, where a credit union resells a fintech solution to its membership or to other credit unions through a CUSO.

“Credit unions are partnering with fintechs to provide best-in-class services to their members, especially in the online banking space where member demand is shifting financial institutions into a digital-first environment,” Addabbo says. “Behind the authentication of online banking, we are seeing fintechs providing specific add-on services unique to the needs of members in areas of financial literacy, P2P (person-to-person payments) and overall payment services.”

Currently, the most common way credit unions are working with fintechs is by buying their products. “This model of collaboration is easy because it fits neatly into credit unions’ existing procurement processes,” Johnson says. “No one needs to change anything.”

Plus, the options from fintechs available on the market now are plentiful. “I think a lot of financial institutions are going outside of their core providers because it’s easier to use a fintech,” Greubel says. However, she notes that when credit unions do so, they lose some integration, which is something she has experienced. “I’d say that credit unions are also partnering with fintechs to leverage the data that’s out there and gather data that we didn’t even know was a possibility,” she adds.

Joining Forces

In certain cases, it can be most beneficial for credit unions to work with fintechs directly. “Organizations can benefit from fintechs when they do not have the resources to build on their own. But just like in any vendor partnership, there needs to be collaboration and ownership in order for it to be a successful partnership,” Addabbo says.

Before a credit union decides to work directly with a fintech, Young recommends asking a few questions. One, is there a specific problem to solve or job to be done that a fintech solution can quickly address? Two, does the credit union have the prioritization, funding and talent to work with a fast-moving, nimble fintech? Three, does the credit union own or have influence on its tech infrastructure to independently select the best fintech solution and prioritize integration? 

The answers can help determine if these partnerships can be structured to make the situation a win-win. When speed is of the essence, that tends to be the case. 

“A benefit in working directly with fintech startups is that they can move extraordinarily quickly when they are pursuing an opportunity that is a high priority, and building new distribution channels is always a high priority for fintech startups,” Johnson says. “If the introduction of new products or member experiences is a priority, I would strongly recommend direct partnerships with fintech startups. They are challenging, but there’s no quicker path to product innovation available for small and mid-size credit unions.”

Another crucial point to consider is whether the fintech is financially viable, cautions Greubel. West Community CU uses its established vendor management process, which also examines the fintech’s ability to manage information and security. 

“And always look at the inefficiencies that are not built into integration with the code,” she adds. “What that means is your core may not be friendly working with a fintech, so you want to make sure that that integration is in place prior to working with them directly.”

Finding a Different Route

When integration between a fintech and credit union proves challenging, it’s typically better for the CU to connect through one of its vendors, such as a core processor or a credit union service organization. 

“In some cases, when … credit unions do not have the resources to commit to the development or collaboration in working with a fintech, going through a third party can be beneficial,” Addabbo says. “However, keep in mind that the way the CUSO or vendor utilizes that fintech’s platform may be limited in comparison to going directly to them.”

Ultimately, connecting with a fintech through a vendor typically reduces the credit union’s risk.

“Traditionally, credit unions have relied heavily on their core providers or CUSO tech partners for products and services, and that’s often because these partners have already performed the heavy lifting to vet, integrate and scale a solution,” Young says. “While some product customization may be limited in order to scale, the credit union gains valuable speed to market for a solution that is already integrated into their core or payment processing tech partner. Additionally, a core or CUSO can reduce the risk of ‘going it alone’ by vetting and scaling a fintech solution for the members or owners—think strength in numbers.” 

Johnson observes that actual partnerships, in which a CU and fintech startup team up to take a joint product to market, are much less common. 

“They are riskier and require more creativity in terms of go-to-market strategy and contracting,” he says. “In Cornerstone Advisors’ annual survey of credit union executives, the percentage of respondents who said that fintech partnerships are very important to their 2021 strategies actually went down, from 30% for 2020 to 22% for 2021. I think this reflects credit unions’ evolving understanding of how challenging these partnerships are.” 

With TDECU as an early investor, Wilcox has a front-row seat to the launch of Curql, an incubator and accelerator that includes a fintech fund and collective to cultivate potential partnerships, vendor relationships and acquisition targets for the credit union industry. The Curql ecosystem is designed to benefit fintech and generate a collaborative place for credit unions to identify, assess, partner with and invest in financial technology companies.

The reason that engaging with fintechs has become so timely is because they are giving credit unions of all sizes the capability to compete with the larger banks. 

“In some instances, fintechs have undoubtedly leveled the playing field for credit unions to compete more easily against products and experiences built and offered by larger banks and tech companies,” Young says. 

“Determining whether or not to partner with a fintech can—and should be—a delicate balance,” he continues. “Partnering with a fintech for a specific financial service that solves a problem or fills a technology gap can be a good thing. However, partnering with a fintech where you relinquish control of the overall user experience and thus, potentially the member relationship, may be a slippery slope to member attrition down the road. As an industry, credit unions are great at building and maintaining personal member relationships—I wouldn’t give up control of that advantage so easily.”   

Questions to Ask to Gauge the Fintech Hype

To decide if a fintech you’re considering is hype or closer to reality, try asking yourself these questions, suggests Mickey Goldwasser, VP/marketing and chief of staff at CUES Supplier member PayRailz, Glastonbury, Connecticut. 

• Is it solving a real business problem? 
• Is it attracting attention in the marketplace?
• Is it a mainstream item yet? If it’s not, will it be—and when? 

Questions to Ask Before Partnering With a Fintech Company

To judge whether a fintech partnership can be structured to be a win-win, ask yourself these questions, says Alex Johnson, director of fintech research at CUES Supplier member and strategic provider Cornerstone Advisors, based in Scottsdale, Arizona:

• Is there a specific problem to solve or job to be done that a fintech solution can quickly address?
• Does the credit union have the prioritization, funding and talent to work with a fast-moving, nimble fintech? 
• Does the credit union own or have influence on its tech infrastructure to independently select the best fintech solution and prioritize integration? cues icon
   

Celia Shatzman is a Brooklyn-based writer who has penned stories on topics ranging from beauty to fashion, finance, travel, celebrities, health and entertainment.