Fintech Partnership and Consolidation

This piece is based off of a roundtable discussion at the CU 2.0 Brainstorm Event in January 2022. It’s not intended to be comprehensive—rather, it will provide a quick look at emerging trends in credit union and fintech partnerships and consolidation.

An increasing number of credit unions are embracing fintech partnership. These partnerships are key to allowing CUs to expand into new markets and territories, grow their membership, and provide better support and assistance to their members.

Additionally, while much of the currently utilized credit union technology is moving towards being up-to-date, these relationships allow them to progress even further into the modern, technology-driven era.

From the Fintech Partnership and Consolidation (sponsored by Messick Lauer & Smith P.C.) session of our January Brainstorm Event, we learn some of the most prominent emerging trends and passion points regarding this shift from our expert panelists.

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Fintech: Build, Buy, or Partner

Martin Walker, Vice President of Next Level Ventures, discussed his view on current trends and whether building internal technology, buying it, or partnering with a fintech company is the wisest move for credit unions.

According to data by J.P. Morgan, an astounding $81bn was spent on technology between just four major institutions and companies in 2020. The cost of either outsourcing or purchasing a technology company is exorbitant. Consequently, Walker recommends fintech partnerships as the clear choice for financial institutions.

As of December, there were 959 fintech “unicorns” globally, with 517 of those being created in 2021 alone. This rapid creation and expansion are for a good reason, as it allows for a lucrative and symbiotic relationship with credit unions.

Walker says that Next Level Ventures believes that these partnerships are the way of the future, and that embracing them is the way to ensure survival and success.

 

Acquisition Strategy & Consolidation Predictions

John Dearing, a partner from Capstone, also suggested that credit unions can remain competitive with fintechs. Fintech partnerships allow credit unions to leverage data and scale, which is vital in the face of consolidation.

Dearing focused on the consolidation side of the industry. It’s not just credit unions now, but fintechs as well. From the biggest unicorns to the smaller startups, mergers and acquisitions are narrowing the field of participants.

Dearing predicts that consolidation among fintechs will continue. He also warns that choosing the right fintechs to partner with is made complicated by these shifts in the landscape. Consequently credit unions can increase their likelihood of successful partnerships with:

  • Don’t chase shiny objects. Just because someone else thinks a new fintech is exciting doesn’t mean it’s right for your credit union.
  • Maintain objectivity. Fintech solutions should fit your strategy and your goals—partnerships shouldn’t be made with criteria-driven decisions.

Given the trends in the last few years, you can expect a massive amount of fintech consolidation in the future.

 

Fintech Partnership: A Strategic Survival Necessity

Brian Lauer of Messick Lauer & Smith PC understands the role that technology companies play in financial institutions. He’s one of the leading experts on CUSOs, legally, structurally, and strategically.

In the session, Lauer began with a grim look at the challenges that fintechs pose to traditional financial institutions.

88% of surveyed FIs believe that a significant portion of their business will be lost to fintechs.

Lauer says: partner or die.

The problem is that regulators and the credit unions themselves are standing in the way of these partnerships. What credit unions must do is push on regulators to change the regulations around investing in fintech and also in making it easier for credit unions to lend.

 

Credit Union Growth and Challenges

Kirk Kordeleski of OM Financial Group believes that credit unions have the foundation to grow substantially in the future. In fact, there’s been a trend away from staying small and local, and toward growth and expansion. The number of net new billion-dollar-plus credit unions suggests as much.

The advantages driving credit unions forward are:

  • Greater long-term growth potential—no stock or shareholders to pay.
  • Inexpensive capital (insured deposits, no taxes, etc.)
  • Dedication to the member experience

Kordeleski also noted the roadblocks to credit union success, which include:

  • “Old school” thinking
  • Weaker executive compensation models
  • Difficulties in choosing fintech partnerships

Overall, the challenges to credit union growth are solvable. Kordeleski and OM Financial Group have experience overcoming all three issues.

 

Fintech Go-to-Market Distribution Model

Barb Lowman, President of CUNA Strategic Services (CSS), highlights how hard it can be to connect credit unions and fintechs.

Fintechs, she says, struggle to find the right message… and get that message to the right credit unions and executive segments.

One of the complications to finding the right message and distribution channel is that there are so many competing channels. National trade associations, business organizations, investment firms, consultants, credit union leagues, and more all say they can do it.

But many can’t.

CSS is trying to streamline the current distribution model to make it easier for credit unions and fintechs to connect. There’s too much chaos trying to navigate between fintechs, companies like CSS, credit unions, and leagues. CUNA’s strategic model will allow for a more concise understanding of how these interconnected relationships can and should work.

She predicts that once the model is finalized, credit unions will be provided with solutions quickly and more efficiently, allowing them to scale at a faster rate than ever before. She states that this will help CUs of all sizes maintain relevancy and their competitive edge.

 

Additional Conversations

Starting around the 27:00 mark in the video, facilitator Anne Legg of THRIVE Strategic Services opened the floor for popcorn-style questions from the audience. Discussions included:

  • Which fintechs should combine or work together to serve credit unions?
  • How can credit unions connect with fintechs at scale?
  • What’s the best way for a fintech to find a credit union partner?

We highly recommend tuning into the discussion, especially if you’re exploring credit union–fintech partnerships at your organization.

 

Join the Conversation

CU 2.0 hosts biannual Brainstorm Events featuring expert panels of credit union and fintech leaders. Topics range from marketing challenges, leadership strategy, and data analytics insights, to emerging technologies such as artificial intelligence (AI) and blockchain/DeFi.

Each session features ample discussion and networking time. Save your spot at our next one here.