Fintech and credit unions: risk vs. reward
“What do we need to be doing to take advantage of financial technology in an intelligent way?” I was speaking on a panel at an event this past February, and this was one of the first questions from the audience. The man asking it was representing a credit union, and it was easy to hear the concern in his voice.
The challenge he and other credit union strategists are facing is a daunting one. Lean too far one way, and you expose your organisation to unnecessary risk. Lean too far the other way, and your customers begin to look elsewhere to get their financial needs met.
It’s a dynamic that any financial institution has to struggle with, but credit unions in particular feel that pinch. With fewer resources at their disposal, there is a greater emphasis on prioritising the best path forward, and it can be hard to find the resources needed to properly analyse the pros and cons of engaging with one type of fintech over another. “As any credit union IT leader will tell you, you have to be very strategic about where to make your investments,” writes Steven Ramirez in a September article for Credit Union Times.
At the same time, credit unions are uniquely positioned to be able to take advantage of the opportunities that fintech brings to the equation. In his publication The Financial Brand, Jim Marous (a speaker at both FinovateFall and FinovateMiddleEast) writes, “Smaller players can be more nimble in adopting some of the new technology, because their infrastructure is smaller and they can implement new protocols much quicker than big institutions.” That is a massive advantage, and if used properly, allows credit unions to be closer to the cutting-edge.
Fintech innovators are also keenly aware of the value that nimbleness can bring. Many early-stage fintechs who demo at Finovate actively seek out smaller banks and credit unions as early-adopting customers because they’re easier to engage with. And a lot of the companies who have graced our stage before going on to do great things in the space have followed a “CU-first” customer-acquisition model.
With that background in place, let’s get back to the original question: What should credit unions be doing to take advantage of financial technology in an intelligent way? Here are three suggestions from the Finovate vantage point 10,000 feet up:
- Be true to your brand. Fintech can’t turn you into something you aren’t, but it can help you be a better version of what you already are. As you look at prioritising the myriad of fintech options out there, keep your core values in mind, and look for tools that allow you to do what you already do, but better.
- Recognise your advantages. Credit unions are frequently in a position to get new innovations into the market quickly, and they’re catnip for fintech innovators. That combination means that CUs have the potential to outpace larger banks when it comes to offering the latest tech to their customers.
- Ask “so what?” It’s difficult to prioritise which technologies you should engage with and which ones are less valuable. As you see cool technology, ask yourself “so what?” Why does the technology matter? What does it let you do that you couldn’t do before? Focus on real-world value and avoid getting caught up in something that is more hype than value.
- Finally, and most importantly, simply engage with the space. Too many credit unions are still paralysed by a lack of knowledge of fintech, a fear of the associated risks, and other factors too numerous to list. That fear is legitimate, but the only cure for it is to learn. Engage with the space, learn what’s out there, and start to take concrete steps towards integrating fintech in a way that makes sense to you.
Written by Greg Palmer, vice-president at Finovate.