Michigan CUs invest in fintech to support small business members.
“We’re not scared of fintech.”
Nor should you be, explains CUES member Andrew Kempf, president of $450 million 4Front Credit Union, Traverse City, Mich. “If it makes things better for member experience, then we embrace the concept,” says Kempf.
Embracing fintech can mean a lot of things, but 4Front CU and four other Michigan credit unions have moved beyond support to startup investment, collaboration and ownership.
“Fintech and the collaboration of credit unions is important because there are some very smart people out there, entrepreneurs that have ideas credit unions haven't even thought of,” Kempf suggests. “It's important that we be open-minded—we're all concerned fintech is going to ‘eat our lunch,’ but if we collaborate, we can all have a bigger lunch.”
These like-minded credit unions, including $855 million Community Choice Credit Union, Farmington Hills, Mich.; $632 million LAFCU, Lansing, Mich.; $489 million Team One Credit Union, Saginaw, Mich.; and $724 million Wildfire Credit Union, Saginaw, Mich.—along with Credit Union Solutions Group, Livonia, Mich., an arm of the Michigan Credit Union League—joined forces to cooperatively search for opportunities to innovate. For the past couple of years, the CUs have gathered for an annual “CUSO conference.”
“We get the directors together and all we talk about are credit union service organizations,” Kempf explains. “At the end, we have a ‘shark tank’ presentation.” From the group’s May 2016 shark tank, a fintech collaboration was born.
Autobooks, a treasure product startup based in Detroit, presented to the group last May. The CUs decided to form a CUSO and invest in the startup in October, proposed the investment to their boards in November and December, and sealed the deal in March.
“Autobooks is the big brother to bill-pay,” says Autobooks Co-Founder and CEO Steve Robert. “We help small businesses send invoices to bring money into their accounts, similar to how credit union members today would use bill-pay to get money out.”
According to the company’s website, “Autobooks combines cash and accounting into a single platform so your [business members] can do everything they need, without the hassle—in one convenient and secure place, your online bank experience.”
“It's a very robust product. We think it's a game changer in the marketplace, especially for small businesses,” notes Kempf.
Kempf recalls interactions with his CU’s business members who reached out for assistance. “They’ll say ‘I don’t really know how to do Quickbooks,’ and their receivables are negative because they don’t know how to use it” and aren’t making correct entries, he explains.
Small businesses historically haven't looked to their credit unions for small-business products, even while CUs look for ways to better serve business members. “To do that, we need to give them all the tools, whether that’s POS or processing checks,” proposes Robert. “We bundle all of those things together and make them available in one place so that the credit union can offer an alternative to non-bank providers.”
This allows credit unions to compete while also providing members with a unified experience. That’s important, as today small businesses often need to “send invoices using one system, get paid through different channels—cash, check, credit card, online or offline—and go through a variety of different vendors that weren't designed to work together.”
“Groups of people that are not necessarily finance or accounting experts need systems to help them run their business,” Robert notes. “[Small business owners] wear a lot of hats. They need to get paid on time, and quickly.” But many systems available today expect users to be accountants or bookkeepers, adds Robert. “That’s not realistic! They see accounting as a necessary evil.”
Autobooks integrates directly through a credit union’s online banking service to improve cash flow, something Kempf really likes. “[Members] can actually process debit or credit card transactions,” says Kempf. “A landscaper, for instance, can go out and mow someone's lawn, and they can right there take a credit card payment through the system.”
While it’s still early days, the CUSO owners have already contributed design ideas that Autobooks has incorporated into the roadmap for the product, says Robert. Among them is the concept of “cross-pollination,” offering a marketing opportunity for both the business and the credit union.
For example: “When a lawn care company in Traverse City invoices its customer, the customer is brought to the credit union website to view the invoice,” Robert says. “That serves as an on ramp for the credit union to forge a relationship with a potential new member.
“There may also be an opportunity for small businesses to advertise in those spaces,” suggests Robert.
While this is all exploratory, “It's something we may not have thought of without the credit union weighing in,” notes Robert.
Thus far, only Community Choice CU has rolled out Autobooks, but 4Front CU has begun the process and hopes to start a pilot program next month; the other three credit unions plan to go live this summer. There is already interest among Michigan small-business owners, thanks to recent publicity through local business publications.
In fact, business owners with limited or no previous credit union experience have already made the jump from big banks to Community Choice CU—Autobooks got them in the door and less expensive processing and account fees convinced them to stay. (Also read “Fintech Brings Small Business Owner to Credit Union” on CUES Skybox.)
That’s good news for the credit unions. “Any time a transaction is completed, like an interchange fee—a portion of that fee is passed on to us,” explains Kempf. “We aren't expecting a huge return, maybe a few hundred thousand dollars a year if it takes off like we think it will. Our return from the company itself is based on our investment, a percentage each year.
“The bigger return would be if Autobooks is sold in the future,” Kempf adds. “We may be able to keep stakes in the company if we want to, or we can get paid out.” But either way, they’ll keep the product.
Danielle Dyer is CUES’ assistant editor.