Generally speaking, fintechs are friends, not threats. Most fintechs just want to make people’s financial lives a little easier. Fortunately, they often hit the market with help from community financial institutions like credit unions.
But sometimes fintechs aren’t so friendly. Sometimes they see an opportunity and they go for it. And there are two fintechs that are shoehorning themselves into the traditional banking space:
Are you ready to see what happens when fintechs attack?
Are Fintechs a Threat to Credit Unions?
If you keep up with our blog, you’ve probably seen our Fintech Friday series. Each week, we highlight a new or established fintech. Sometimes we spotlight a technology company that supports credit unions and community banks.
One thing in common among all our Fintech Friday features is their market strategy. All of them are looking to partner with—rather than compete with—traditional financial institutions.
But not all fintechs are like the ones we feature. Some of the big ones are moving directly into the credit union and community banking space.
So, to answer the question:
No, fintechs are not a threat.
Except for these two.
Introducing Acorns and Robinhood
It kinda pains me to write that Acorns and Robinhood are threats to credit unions. Frankly, I think they’re fantastic fintechs. I have accounts with both.
For the uninitiated, Acorns started as a robo-advisor. Basically, they round up the spare change from any card or electronic purchase and deposit it into an investment account. Acorns has gradually added services, and they now offer checking and retirement accounts through partner banks.
Robinhood is a no-fee stock trading platform. About a year ago, they started supporting cryptocurrency trade as well. They are currently partnering with five banks to offer a checking account.
Acorns has a little under four million users. Robinhood has over four million users.
Should credit unions and banks be worried? Are these fintechs threats?
Why These Fintechs Are Attractive
There are several reasons why these fintechs grew to be so big, so fast.
Let’s talk about Acorns first. Acorns is remarkably easy to set up and configure. Adding new account types is a breeze. Its mobile platform ensures you can track and manage your money anywhere you go.
Not only that, but they provide perks. Partnering with certain vendors gets you bonuses. For example, becoming an Airbnb host, driving for Uber, or working with Sniffspot will put money directly in your account.
There are even more regular purchases. I got about $12 after buying a Vitamix, and I’ve also gotten contributions from Shell gas stations, Holiday Inn, Enterprise car rentals, and Expedia.
Those bonuses are easier to find if you open a checking account with them. Their very weighty and attractive tungsten Visa debit card is a little cash back machine—and all the cash back goes into your investment account.
Robinhood is taking a different tack. They recently partnered with five banks to provide a checking account federally insured for $1.25m. That’s kind of a lot, and that doesn’t include the $250k the Robinhood investment platform supports. All uninvested money in the Robinhood app is automatically stashed across these accounts.
To spend from those accounts, they offer a debit card from Mastercard. But if you don’t spend—and don’t invest—that’s okay, too. Their checking account option provides around 2% APY interest.
Fintechs and the Future of Banking
I’m one of the only Millennials I know who still walks into my local branch when I need banking services. They people there know me. I like talking through credit card and account options with people. Phone screens just don’t do it for me the same way.
But maybe that’s because I’m an older Millennial. Most younger Millennials and Gen Z folks I know haven’t been in a branch in the last couple years.
I’m not kidding.
So, what can be done? How can we, as an industry, compete with fintechs like these? How can we stave off the fintech threat to credit unions?
An Explanation… Maybe
To be honest, I can’t offer the kind of answer to these threats that I wish I could. There’s no surefire way to fend off the threat of fintechs moving into the credit union and banking space.
However, I would suggest that friction is part of the problem. These fintechs have made banking with them remarkably easy:
Online account opening is fast. Mobile banking is easy. Getting a snapshot of your finances is immediate.
There are little to no rabbit holes to go down. There aren’t several account type options to choose from. They don’t offer multiple cards. The simplicity and convenience are key.
They require very little customer effort, which is proven to increase loyalty and satisfaction.
Some Potential Solutions
At CU 2.0, I write a lot about the intersections of finance and technology. So, I’ve come across a few fintechs that partner with credit unions to improve service and increase convenience.
Here’s a potential solution:
If you can’t beat ‘em, join ‘em.
WalletFI: Have you heard of Wells Fargo’s Control Tower app? WalletFI white labels the same service—plus a few bells and whistles—for credit unions.
Vetter: These folks literally showed us how fast they can open online accounts for credit unions. It took like, a minute. Seriously.
SMA Technologies: Automation cuts down on tedious labor, freeing up time for member-facing development. These folks know the credit union industry better than any other automation providers we’ve researched.
Fighting the Fintech Threat to Community Banks and Credit Unions
Honestly, we love fintechs here at CU 2.0. They’re pushing into the wild frontiers of financial convenience. They’re taking on the risks so that credit unions can reap the rewards.
Except for a few of them who want all the rewards themselves.
The fintech threat isn’t a myth (although it may often be overblown). But here’s the thing:
I’m not going to cancel my Acorns or Robinhood accounts. In my estimation, they’re great services.
I just want credit unions to be able to compete.
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