… as they help shape the future of the member experience.
Though no one can predict the future, some organizations certainly help to shape it. When it comes to financial services, financial technology companies are doing just that. With their actions today, they are influencing how credit unions will serve their members in the future.
To gain insight into how fintechs are molding what’s to come, we asked four leaders to weigh in.
1. Fintechs Raise the Bar
Today’s consumers expect more than ever from their financial services providers, including CUs and banks, and you can thank fintechs for that.
“They are leveraging technology to improve the customer experience, lower costs, accelerate decision-making and remove friction points in the delivery of financial services,” says Paul Davis, director of market intelligence at CUESolutions provider Strategic Resource Management, based in Memphis, Tennessee. “They are raising customer expectations. People want convenience. They want options, and they want quicker responses when it comes to setting up accounts and applying for loans. Fintech is playing a large role in all of these areas.”
That brings plenty of good news for credit unions.
“Fintech partnerships can help credit unions maintain and renew member loyalty by introducing more to the breadth and range of the CU’s products and services,” Davis says. “As more customers rely on digital channels to handle financial transactions, a shift to fintech can also lower a credit union’s costs over the long run.”
But CUs should also keep an eye out for some key red flags. Davis recommends thoroughly vetting any fintech partnership since there could be a reputational risk if customers experience problems.
“Management teams would be wise to involve their boards in decision-making and have conversations with their regulator before diving into a fintech strategy,” he says.
A good jumping-off point for vetting a fintech is following regulatory guidance. A few areas to focus on include business experience and qualifications, financial condition, legal and regulatory compliance, risk management and control, information security, and operational resilience.
“It is critical for credit unions to first develop a strategy, including an understanding of what members they want to bring in, before pursuing fintech partnerships,” Davis says. He suggests keeping these four considerations in mind: 1) involve the board; 2) consult with your regulator; 3) thoroughly vet any potential partnership to weigh risks to rewards; and 4) look for fintechs that can credibly deliver a product that meets your strategic goals.
Once a CU gives a fintech the green light, the partnership can be rewarding since fintechs are creating apps and strategies that are forward-thinking.
“I am interested in the apps that are appealing to Gen Z,” Davis says. “Till and Goalsetter have products that connect kids and teenagers to savings accounts. Goalsetter offers ‘GoalCards’ so relatives can contribute funds while setting up entertaining ways to educate kids on financial terms. Financial education is another big opportunity. And apps designed to help small businesses are interesting as well; Monit has one that helps owners manage and forecast cash flows.”
The Amazon effect has trickled over to the financial industry, and now financial services is all about personalization.
“Customization and segmentation are critical to connecting with consumers and small businesses,” Davis explains. “People want to have more control over the look, feel and optionality of their financial services. At the same time, making full use of data to better understand and access subsections of the population will be a difference-maker in a hypercompetitive environment.”
Blockchain is a key technology to watch.
“Credit unions and banks will look at blockchain as a way in areas such as mortgage and payments,” Davis says. “Two banks recently announced plans to invest in Figure Technologies to explore those types of improvements.” As fintechs continue to sway the industry, it will be fascinating to watch it evolve, he adds.
2. Fintechs Fill Key Gaps
When you think about it, fintechs were born to close the gaps in what members want from their financial services experience and what they currently can get.
“By design, fintechs are created to resolve a specific functionality gap in our industry or enhance an experience that exists today that is often too complex,” says Scott Young, VP/innovation and design for CUESolutions provider PSCU, St. Petersburg, Florida. “Fintechs typically isolate a niche experience that needs enhancing and build a more intuitive digital solution that is easier to use.”
That’s why it’s no surprise that fintechs are delivering cutting-edge solutions and driving innovation.
“Fintechs are absolutely raising the bar on experience, setting the tone for the member’s expectations,” Young says. “Certainly, what’s caused some of the biggest buzz in our industry over the past several years has been the growth of the buy now, pay later technology driven by fintechs such as Affirm, Afterpay and Klarna.”
Young says the focus at PSCU has been on meeting with a range of fintech partners that focus on financial health and literacy, as well as opening accounts for the unbanked or underbanked.
“Some of these solutions that we are exploring align very well with the credit union philosophy of ‘people helping people,’” he says. “Fintechs are laser-focused on these issues and are building out solutions that may have real impact on our industry.”
For example, PSCU’s innovation team has recently met with several forward-thinking fintechs that focus on nontraditional lending methodology, biometric authentication, digital agents built on artificial intelligence and subscription management services.
Another area where fintechs have had great success is with the coveted Gen Z group. “Fintechs have quickly (and easily) grabbed the attention of the Gen Z consumers by building digital solutions ‘where they are’—on their devices,” Young says. “Odds are that it will be increasingly more difficult over time to win a new member away from their existing digital solution unless you are offering something on par to what they have today.”
For all these reasons, it’s imperative for credit unions to find ways to work with fintechs so that they can grow with them.
“The credit union industry has always been collaborative in nature,” Young says. “Now is the time to lean into that collaboration by embracing new tech partners that can offer our members a differentiating experience.”
However, Young admits that partnering with fintech companies may not be as easy as it sounds, and a proper vetting of new partners is essential. He recommends asking just how “new” a solution is. Another challenge can be integration, which is a crucial factor to consider. Finally, Young recommends ensuring that regulatory and compliance checkpoints are in place before partnering.
Though finding the right fintechs to partner with can be time-consuming, the payoff can well be worth it.
“We’re living in a digital-first world now, and there’s no going back,” Young says. “Keep a constant pulse with members to understand their digital expectations. Look inward on what ‘jobs to be done’ could be enhanced via digital solutions. Raise your hand with your providers to be a pilot or early adopter of the technology they are building. Our current members and our future members will expect digital financial services that meet all four pillars of an experience: easy to use, convenient, secure and personalized. When we add what we do best—building relationships—to these set of expectations, credit unions can’t be beat.”
3. Fintechs Promote New Ways of Thinking
The way Doug Williams sees fintechs, they are pushing the envelope of what is possible in how members can be served.
“They not only bring about new perspectives on ways to provide products and services to members but also present opportunities for credit unions to reconsider their business model and how they operate,” says Williams, senior director of product development and strategy at CUES Supplier member LSC, Naperville, Illinois.
Fintechs provide forward-thinking solutions in quite a few ways, starting with customization.
“Many fintechs know their identity, and they target a specific audience based on that,” Williams says. “On the member acquisition side, you see more and more providers targeting a certain niche group and building their solution solely with the premise of meeting needs for that group. Contrast that to credit unions, which often try to compete in broader markets and have solutions that meet the needs of most everyone.”
Williams also sees fintechs leading with transformation.
“Many fintechs I talk to are looking for ways they can make a difference in people’s financial lives,” he says, noting this goes beyond transactions. “Many of them are developing proprietary solutions they feel can do this for consumers.”
Williams sees the work CUs have been doing over the last few years to amplify the member experience they offer as aligning with the vision of many fintechs. Both are unwaveringly committed to a unique experience.
“They are looking for outside-of-the-box solutions to overcome any barriers they face to help create the most frictionless experience possible,” he says.
An additional area where fintechs are adept is in overcoming tech hurdles, Williams says.
“There is a tremendous focus on leveraging APIs (application programming interfaces),” he explains, “and they invest significantly in development resources. That spirit of finding solutions has served them well as they have gained momentum in the marketplace.”
Finally, fintechs are at the forefront of personalization, which is predicted to become even more important as time goes on. “They are able to identify their market and then develop solutions that meet the needs for that particular audience,” Williams says. “They have found a healthy balance of creating solutions that can meet the needs of many people, but yet those people feel like the services were developed just for them.”
While credit unions are exploring the fintech space, they need to watch out for a few warning signs. First, make sure fintechs truly understand credit unions and what makes them unique.
“Another red flag I would be cognizant of is related to service and support, Williams says. “If there are any doubts about an organization’s ability to provide service to your members or staff, you should be transparent and vocal about your concerns. There is a degree of reputation risk with any provider, especially if they are supporting your members, so be certain they have the proper resources to provide the service.”
Finally, be sure to carefully examine a potential partner’s financial standing since startups may not have the financial footing to be able to endure challenging times.
Once the due diligence is done, doors can open.
“There is a massive opportunity right now for credit unions to partner with and work alongside many fintechs,” Williams says. “Certainly, there are those who provide a direct threat to credit unions; however, there are many who want to be willing partners in helping you grow your business. Credit unions who understand this and are able to find valued fintech partners can help position themselves for success into the future.”
4. Fintechs Set an Example
One of the ways fintechs are leading the financial sector into the future is by setting an example for the broader financial services industry to follow, according to Rob Dixon, director, product and business development at CPI Card Group, headquartered in Littleton, Colorado.
“Fintechs are making consumer values and preferences the foundation of their business and brand identity,” he says. “For example, many fintechs are demonstrating their commitment to sustainability in alignment with a growing group of environmentally conscious consumers, with some incorporating payment products made with more eco-focused materials as part of their efforts.”
Those can really add up, especially when you consider the number of payment cards issued annually.
“Using more sustainably sourced payment products, fintechs—as well as financial institutions and other segments of the card industry—are gaining the opportunity to play a part in the fight against plastic pollution, while empowering environmentally conscious consumers to join in,” Dixon says.
Whether a company is sustainable matters to today’s members. For example, a CPI Card Group survey of debit and credit card users conducted by an independent research firm found that 96% of respondents were concerned about plastic waste in the oceans and 83% found the idea of a card made with recovered ocean plastic appealing. More than half, 58%, said they were willing to switch to another financial institution if it offered such cards with the same features and benefits.
“Given these sentiments, it’s no surprise that fintechs are introducing cards made with eco-focused materials that resonate with their customers,” Dixon says.
Other fintechs have pledged to support sustainable finance by planting trees for products purchased, using sustainable transportation and guaranteeing responsible waste management.
“Despite their focus on industry disruption, it remains an encouraging sign to see fintechs also make sustainability in their products and organizational changes a high priority,” Dixon says.
Fintechs are also driving the transition to digital issuance, according to Dixon, in the same vein of aligning with emerging customer preferences.
“As other companies take note of these and similar initiatives, we will see financial institutions across the board collectively shape the future of the industry—not by following in the footsteps of fintechs so much as becoming even more customer-oriented in how they do business,” he says.
Aside from prioritizing the planet, fintechs will help guide the industry into the future in lots of other ways, particularly with personalization.
“Consumers respond to more unique, tailored experiences as opposed to mass-produced, cookie-cutter offerings,” Dixon says. “Fintechs are opting for payment products that are carefully designed, produced and delivered, with end-to-end support from a payments solutions provider, to convey the essence of their brand and resonate with their target audience.”
Dixon believes that through the right payment solutions partner, the function, look and feel of cards have become areas fintechs can play with creatively to extend their brand into the physical realm. He notes that as companies look at different ways to curate a unique physical payment experience for their customers, metal cards offer a weight and tactile feel that can resonate with luxury and high-end audiences.
“Separately, colored cores can enable a colored edge for a payment card, making it more eye-catching and able to contend for top-of-wallet status,” Dixon says. “Post-laminate treatments, silkscreen finishes, vertical card designs and general use of bright, vibrant colors, are being tapped by fintechs to produce payment cards that effectively capture the essence of their brand and the audience they wish to connect with. It’s only a matter of time before financial institutions more broadly begin to follow suit and take advantage of what today’s payment card design and manufacturing innovation can offer.” 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.