Especially when you’re working with a credit union service organization on digital transformation
As financial institutions look to update their digital strategy, it’s important to remember that outsourcing an entire digital channel or process to a fintech isn’t always necessary. Some financial institutions have partnered with fintechs to fill gaps in expertise and staffing and ensure continuity between front- and back-office functions.
Prepare for a Digital Transformation
Origence’s new whitepaper about digital transformation looks at the vital role collaboration plays as financial institutions pursue new digital strategies to remain competitive and evolve to meet consumer needs and expectations.
The whitepaper details successful approaches to digital transformation taken by some financial institutions. One institution, $12 billion Alliant Credit Union, Chicago, developed its own mobile app. However, according to Michelle Spellerberg, VP/digital strategy, Alliant CU also partnered with a mobile fintech to create a project team comprised of fintech and credit union employees.
“Our internal team created all APIs (application programming interfaces) on the back end, and we partnered with a firm to help with front end,” she recalled. “You have to find the right partners—nobody knows it all.”
“Partners” is a word used frequently in the credit union community because credit unions are cooperative institutions. In a cooperative environment, everyone’s contributions toward a shared goal are valued. As a result, credit unions tend to use the term partnership, when in reality, their relationship with a fintech may be more of a client-vendor arrangement.
What’s the difference? According to CUES Supplier member and strategic provider Cornerstone Advisors’ Managing Director of Fintech Research Ron Shevlin, if a credit union purchases technology services from a company, that’s a vendor relationship. A partnership is when two parties share risk and reward. Credit union service organization fintechs, which sell technology services to credit unions, are a little bit of both, especially to those credit unions that invest in them as owners.
As partners, CUSO fintechs can be more responsive to their credit union client/owners. For example, many tech CUSOs have built their solutions using open API programming because it offers the most flexible options not only when integrating with other technology products, but also in how credit unions can use those products.
Like Alliant CU, $3.3 billion WSECU in Olympia, Washington, has invested in its own proprietary technology solutions. However, COO Paul Kirkbride said that while the credit union owns many of its front-end solutions, it depends on fintech firms to aggregate business behind the scenes and develop technology the credit union can’t afford.
Origence is one of WSECU’s partners, and Kirkbride said the lending platform’s open API is crucial.
“We like that Origence has open platforms that allow credit unions to have their own front end but handle the back end. That’s how you build business,” he said.
Benefits of Fintech CUSOs to Credit Unions
A Filene Research Institute report, “Weighing the Risks of a Fintech Partnership,” also lauded the benefits fintech CUSOs can provide to credit unions. Filene’s report, “The Credit Union of the 21st Century,” notes that the CUSO structure allows credit unions to pool their resources and talent while still retaining ownership of the resulting technology.
The report states that credit unions that want to collaborate with other credit unions—but don’t want to complete the entire CUSO process—can form less formal partnerships that produce competitive benefits. It’s important that such credit unions share the same challenges, goals and membership demographics; however, with those foundational common bonds in place, credit unions can share employees, risk modeling and operational structures. They even work together to vet and negotiate with a fintech vendor.
As credit unions invest in digital channels, especially in the wake of COVID-19 and social distancing, success depends on leaders avoiding an all-or-nothing mindset when it comes to working with fintechs. Fintechs can assist with part of a digital channel, rather than outsourcing it entirely.
Additionally, financial institutions must remember that a digital channel won’t necessarily replace existing channels, at least not immediately. Online banking has been around since 1994. And yet today, most credit unions still rely on in-person branches.
However, there is one all-or-nothing consideration when it comes to technology collaboration: is it working? Technology requires constant and proactive monitoring, adjustment and improvement to be successful. Bottom line, technology collaboration is working if it is meeting shared goals, delivering on the technology, and benefitting both parties, allowing the partnership to grow and prosper.
VP/Enterprise Solutions for Origence, a CUES Supplier member based in Irvine, California, Brit Barker is an experienced sales and product executive with 20 years of experience helping financial institutions improve their lending performance and exceed consumer needs. He’s recognized as an industry leader with an innate talent in balancing strategic focus with operational execution. He’s also an authority on consumer, mortgage and indirect lending, with expertise in facilitating the transition of new clients into the financial lending market and enhancing lending programs.