Today, the script has completely flipped. Fintech is now the best tool to make your credit union stronger and more member-focused.

Now, it’s clear there’s no need to worry. If anything, there’s reason to celebrate.

Partnering with and investing in fintechs is the right play. And every credit union executive must know how to navigate this new ecosystem.

The choice is simple: invest in the tools that help your members, or get left behind. Luckily, credit unions have a unique history and structure that makes them ideal partners and investors in this space.

How Do Credit Unions Use Fintech?

If you’re a credit union executive, you already know. But if you’re not, this one’s for you:

Credit unions mainly use fintech to improve their operations and member experience. The right fintech solutions are the digital engines that keep banking systems running smoothly. They handle things like remote check deposits and faster loan applications. This makes life easier for both staff and members.

Many CUs rely on fintech for basic survival in the modern digital age. Think about your mobile app and online banking platform. A fintech company likely powers the best parts of that experience. Fintech is how credit unions compete with giant national banks and fast-moving startups.

Executive takeaway: The right partners help credit unions scale services quickly and efficiently.

Top partnerships: Lending fintechs like Splash Financial, digital account opening fintechs like Valiify and Glide, and onboarding fintechs like SwayStack.

How Can Credit Unions Learn to Love Fintech?

The first step is admitting that the old way of thinking is done. Fintech companies are not trying to shut down credit unions. They are simply trying to solve problems using better technology.

The second step is to look at fintechs as potential partners. Your goal should be to find a great problem-solver who shares your strong, member-centric values.

Credit unions have actually been innovators for a long time. For example, the CUSO model was designed exactly for this kind of collaboration. (You can read more about this history of CUSO innovation.)

But the best way to learn to love fintechs is to find the ones that share your mission and values. The ones that focus on a single problem and solve it for your members make great allies.

Executive takeaway: It’s easy to love fintechs if you partner with ones that believe in people helping people.

Top partnerships: Ribbon, Starlight, and Cache are driven by passion and a mission.

How Can Credit Unions Invest in Fintech?

Once you love the power of fintech, the next step is to fund it. There are a few main ways a credit union can get involved with investment. The first is to invest directly in a company that you use as a core vendor. This gives you a seat at the table and influences their product roadmap.

A more strategic method is to use a dedicated CU fintech investment fund. These funds pool capital from multiple credit unions. This diversifies your risk and gives you access to professional due diligence.

Developing a clear fintech investment strategy is key before you spend any money. Investing smartly means choosing partners who will help you serve your members better, not just chase the next big market trend.

Finally, the CUSO structure allows credit unions to partner and invest together without major legal headaches. Using a CUSO, you can turn a simple vendor partnership into a valuable, revenue-generating investment.

Executive takeaway: Not only can you invest in fintech, but you should.

Top investments: Fintech investment funds like Black Dragon, scaling companies looking for partnerships like Senso and Painted Hills CUSO.

The Future of Fintech Credit Union

The time for hesitation is over. Fintech is no longer a luxury for big banks. Fintech partnerships are necessary for any credit union that wants to grow.

By partnering, investing, and innovating, you ensure your relevance for the next generation of members. The only thing worse than investing in the wrong startup is not investing at all.

We have created extensive resources on this topic. You can find more details on our CUSO investment models and strategy on our site, including our deeper dive on CUSO Investment. Our mission is to help credit union executives like you make smart, informed decisions about technology.

Ready to move from reading to action?

Connect with CU 2.0 through our Fintech Call Program to learn more about early fintech partnership and investment opportunities.

The post Fintech, Credit Union, and the Future appeared first on CU 2.0.

If you’re a credit union executive, you know the drill. The industry is always shifting, and the list of priorities can feel a mile long. You’ve got to manage risk, attract new members, keep the lights on, and somehow find time to plan for the future.

We know it’s a lot. That’s why we recently polled a bunch of credit union executives to see what’s really at the top of their minds for 2026. We gave them a long list of choices and watched what got the most attention.

What we found was pretty interesting. It tells us a lot about where the industry is heading.

Here are the top four strategic priorities for credit union executives heading into 2026.

Top Credit Union Priorities for 2026

1. Member Engagement

This was the top answer by a significant margin, and it’s no surprise. Credit unions are built on relationships.

Today’s, that means more than a friendly face at the teller line. It includes having a great digital experience, a user-friendly app, and a website that actually works.

We also found that many executives see technology like CRMs, sales software, and new account onboarding tools all as part of this bigger picture. The goal is to make every interaction, no matter where it happens, simple and valuable.

This focus shows that credit unions are ready to compete not just on rates, but on a top-notch member experience.

Fintechs to watch: Valiify, Glide, Cache, Swaystack

2. AI for Professional Use

AI is no longer just a buzzword for the IT department. Executives and managers are planning to use it in their own jobs.

Think of it as a super-powered assistant. People are using AI tools to write better emails, analyze reports faster, and automate tedious tasks. The idea isn’t to replace humans, but to free up valuable time.

This trend suggests that credit unions are embracing a more efficient, future-forward way of working. It’s an admission that sometimes, the best way to get things done is to let the robots handle the grunt work, so we can focus on the big-picture stuff.

Tools to watch (CU focus): Senso, ScreenSteps

Tools to watch (general): Gemini (Google), ChatGPT (OpenAI), Claude (Anthropic), Fyxer AI

3. Deposits and Liquidity

This one is a familiar face, but it’s still getting a lot of attention. With rising rates and economic uncertainty, leaders are keeping an eye on their balance sheets.

A steady flow of deposits is crucial for a credit union’s ability to lend and stay stable. This priority is all about a strong, reliable foundation so you can serve your members without worry.

Credit unions are looking for creative strategies to attract deposits and manage cash flow. And it all starts here.

Fintechs to watch: Avibra, Delfi

4. Data Analytics

It’s one thing to have a lot of data; it’s another to actually use it. It’s time to get serious about turning raw data into actionable insights.

Poll respondents want to know things like which members are most likely to take out a loan, which services are under-used, and how to spot fraud faster. The goal is to make smarter decisions about everything from marketing to staffing.

This priority shows a clear move away from guesswork and toward data-driven strategy. It’s about leveraging the information you already have to gain a real competitive edge.

Fintechs to watch: dotData, Overwatch Data, Anne Legg’s THRIVE Strategic Services

How to Keep Your Priorities Straight

While these four were the clear winners, we also saw a good amount of interest in other areas, like fintech partnerships and member services. These all tie back to the same central theme: credit unions are shifting from just offering products to providing real value and seamless experiences.

More than just a list of priorities, this is a snapshot of the industry’s mindset. It tells us that credit unions are ready to be proactive and agile. It shows a mind toward growth, backed by closer attention to member needs and financial health.

Ready to get a head start on 2026? We make it easy.

Join our Fintech Call Program for easy, low-stakes tech scouting and fintech education. We’ll get on a quick 30-minute call each quarter to help you stay ahead of the curve.

Learn more here, or sign up here:

The post Credit Union Technology Trends in 2026 appeared first on CU 2.0.

Standard data reports are useful, that’s hardly enough these days. Credit unions need clear, actionable strategies to help them connect with members and build loyalty.

That’s where Vertice AI comes in. Through its new partnership with Vizo Financial Corporate Credit Union, Vertice AI provides credit unions with an AI-driven approach to turning data into action.

Read on to see how it works (and why this partnership is a big deal).

Making Member Data Work for Credit Unions

Data alone doesn’t create member engagement; it’s what you do with that data that makes a difference. Vertice AI takes data, crunches it, and helps credit unions predict member needs, segment their audiences, and offer products at just the right time.

So, although we keep saying “data,” you can pretend we’re saying “marketing” and “sales.”

Vertice AI makes credit unions more proactive in their member relationships. In turn, members feel more supported, valued, and most importantly, understood.

Why? Because it’s an end to poorly targeted, blanket marketing offers that members are so quick to ignore.

With Vertice AI, credit unions can turn data into clear, personalized strategies for outreach and engagement, which is especially important as credit unions face growing competition from digital banks and fintechs. When a member receives a timely loan offer that meets their needs, or a personalized savings recommendation, they see that their credit union understands them—and that connection is hard to beat.

How Vertice AI Helps Credit Unions Grow

Through its partnership with Vizo Financial, Vertice AI offers a practical way for credit unions to uplevel their marketing strategies with AI. Here’s how it works:

1. Targeted Member Segmentation
   Vertice AI’s platform helps credit unions understand not just who their members are, but how they behave. This means credit unions can move beyond demographic data to target members based on behavior and financial goals.
   
2. Predictive Member Insights
   Knowing what members might need next is a powerful advantage. Vertice AI identifies which members are likely to be interested in products like refinancing, savings accounts, or investment options, giving credit unions the chance to reach out proactively.
   
3. Customized Member Journeys
   Vertice AI enables credit unions to create unique member journeys based on real data. Whether it’s a personalized email series or targeted product recommendations, members get a customized experience that makes sense for them.
   
4. Real-Time Analytics
   Credit unions can monitor the impact of their strategies with Vertice AI’s real-time data feedback, making it easy to adjust campaigns and improve results on the go.

The real key here is the use of AI. It makes things faster, more efficient, more scalable, and most of all, more accessible. It allows people to work with data without needing any data expertise.

AI lets credit unions personalize at scale… and scale through personalization.

What this partnership with Vizo Financial really means is that credit unions, regardless of their size or resources, can access powerful AI tools to strengthen member relationships. It’s a way to modernize member engagement without losing the personal touch that credit unions are known for.

That’s pretty exciting stuff.

You can read more about Vertice AI’s partnership with Vizo Financial Corporate Credit Union here and here.

Learn more about Vertice AI here:

The post Thoughts on Vertice AI’s Partnership with Vizo Financial appeared first on CU 2.0.

Here, we’re talking about making sure that your members have adequate home and auto insurance. Many don’t. And that can cause problems.

But, if you do offer insurance verification, you can expect:

• Increased member engagement,
• Reduced complaints around CPI/force-placed insurance
• Lower risk on your loan portfolio.

If any of this sounds good—and we assume it does—then read on to learn about what Woop Insurance is doing.

What Is the “Use Case” for Insurance Verification?

When a member drives off the lot or closes on a home loan, it’s easy for things to slip through the cracks—like insurance coverage. Every loan backed by collateral, from auto loans to mortgages, requires insurance protection.

But here’s the problem: nearly 30% of borrowers leave the dealership or the closing table without enough insurance to meet the loan requirements.

When insurance gaps happen, credit unions are left with a tricky situation. To protect themselves, they often have to issue force-placed insurance  or collateral protection insurance (CPI) on the loan.

The issue? Members hate it.

Much like overdraft fees, CPI  frustrates members and strain their relationship with the credit union. No one wants to be told they have to pay more—especially when they didn’t even realize they were underinsured in the first place.

Credit unions need a way to ensure their members are adequately insured from the start—without complicating the loan process or damaging relationships. That’s where Woop Insurance steps in.

How Woop Insurance Does It

Woop Insurance helps credit unions eliminate the headache of post-loan insurance verification by making the process seamless for both members and lenders. Through its automated platform, Woop ensures that members know exactly what kind of insurance they need for their loan and helps them get it before the CPI process starts—all through the credit union.

By guiding members to secure the right coverage upfront, Woop reduces the number of members who are unnecessarily put into the CPI process, saving members from unexpected expenses and frustration.

On average, Woop’s service saves members $683 per year and helps avoid unnecessary CPI policies. More importantly, it preserves the trust between members and the credit union, ensuring that their small oversights don’t become major relationship-breakers down the line.

For credit unions, Woop’s solution not only protects against loan risk but also minimizes reputational damage. Members who avoid CPI are far more likely to remain loyal and satisfied for the long haul.

Woop Insurance takes a traditional punitive insurance verification process and turns it into a value-added experience for your members.

The Nitty Gritty Product Details

Verification is an easy place to start, but Woop Insurance offers a lot more than insurance verification. They also offer members an insurance dashboard, a marketplace, and education about their options.

What they’ve found is that they can significantly improve member engagement while also improving member finances. Plus, when members follow through with insurance verification (or shopping), they reduce risk on the credit union loan portfolio.

The whole thing integrates directly into the credit union’s loan process, providing a simple path for members to get the coverage they need, exactly when they need it. All before the traditional CPI process starts.

Here’s how it works:

1. Loan origination: Once a loan is originated,, Woop’s platform verifies the required insurance coverage and walks the member through any gaps. This happens prior to CPI process, so your current Collateral Protection program remains intact without any changes or disruption (except fewer members receive those pesky notifications).
   
2. Additional insurance verification: If a member needs to secure additional coverage, Woop helps them find the right insurance product (within the credit union’s ecosystem).
   
3. Continuous monitoring: Woop’s system keeps tabs on insurance coverage throughout the life of the loan, ensuring that a member gets the coverage they need and helps to avoid any costly post-loan corrections and protects the credit union from unnecessary risk.

Woop saves time for credit union teams and simplifies what can be a complicated process for members. There’s no need to track down missing coverage or resort to CPI later.

Want to learn more about Woop Insurance? Check this out:

The post A Look into Woop’s Insurance Verification for Credit Unions appeared first on CU 2.0.

Young people say that financial literacy will alleviate some of their money problems.

But let’s not pretend that financial education is going to somehow fix everything. Read on to learn how credit unions can make a more meaningful difference…  

How Much Can Financial Education Really Help?

It may certainly be true that younger generations aren’t entirely financially literate. And it may be true that a lack of financial education is hindering people’s long-term financial health and wellbeing.

But relatively few people are poor because they lack a solid understanding of budgeting.

Simply put, most people are poor because they don’t make very much money.

On top of that, the cost of housing, food, gas, car ownership, healthcare, education, and everything else has risen. In fact, the cost of all the above rose more than the minimum wage for decades.

Nobody can educate themselves out of a rising cost of living coupled with stagnating wages.

Offering financial education is good. But it’s not enough. People need an actual, tangible leg up. With dollar signs attached.

Helping Members and Communities

We could have talked about Starlight in our roundup of deposit generating fintechs. But Starlight isn’t exactly designed to drive deposits—though it’s certainly a potential side effect.

But what Starlight actually does is help credit unions proactively identify resources and ways to save for their members. Typically, they find more resources for financially vulnerable members.

Here’s how they do it:

More than $140B in local and government assistance goes to qualified people each year. This assistance comes in many forms:

• Earned Income Tax Credit
• Utilities payment support
• Assistance paying for childcare
• Supplemental Nutrition Assistance Program (SNAP)

There are a lot of these programs if you know where to find them. The issue is that a lot of people don’t know where to find them. Or, if they do find them, it’s not always easy to apply.

Starlight eases the search and application burden for members through its technology solution white-labeled for credit unions. Automatically, Starlight does the following:

1. Check eligibility

They identify local, state, and federal benefits that would make a financial difference for each household. They do this based on the member’s income and everyday expenses.

2. Deliver proactively

They proactively let members know about the benefits at the right time and place, and guide them through the benefit application process. This takes a lot of time and guesswork out of the process.

3. Ongoing support

Starlight continuously monitors credit union member data to uncover new opportunities to provide financial support to members.

Real-World Financial Benefits

All in all, Starlight is able to uncover more than $1,000 per year in each qualifying household. For most people, that’s far more meaningful than learning about CDs, compound interest, and budgeting habits.

The extra money each month helps with bills, groceries, utilities, and other necessities and unavoidable costs of life. It immediately contributes to member financial health and wellness in a way that education can’t.

But it also contributes to the credit union. That’s more interchange income and more opportunities to help members save. Additionally, thanks to being a white-label platform, it allows credit unions a chance to deepen relationships with at-risk members.

You could couple Starlight with financial education to create a killer support system for members. But don’t stop at education—Starlight is the real safety net that members need.

Learn more about Starlight here:

The post Dear Credit Unions: Financial Education Isn’t Enough appeared first on CU 2.0.

So, what can credit unions do?

For starters, they can provide members with the tools they need to achieve their own financial goals. By helping members save, credit unions can guarantee themselves deposits.

It’s a real win-win.

Read on to see fintechs that can help you start winning. One of them generates an average of $300 per member per month!

A Quick Note about Members

Post-pandemic personal finances are pretty different from mid-pandemic numbers. Nobody’s giving out stimulus money anymore. And, if you shop for your own groceries, you’ve seen the effects of high inflation.

Unfortunately, this his young, low-, and middle-income members the hardest. Instead of contributing to savings, these members are watching their accounts dwindle.

The real credit union liquidity crisis is that many members can’t save money. Here are some fintechs that partner well with credit unions:

Credit Union Liquidity Partners (for Deposit Generation)

Rather than look at other creative ways of managing liquidity (like loan syndication, participation, and sales), let’s just dive into deposit generation.

Here are 4 fintechs we like that partner with credit unions:

Note: these fintechs are presented in alphabetical order.

1. Changed

Changed was originally created as a nifty app to help people pay off student loans. It grew naturally from there.

Changed helps borrowers reduce and pay off their debt a little bit at a time. Users “round up” the spare change from their purchases, and that spare change goes toward their current financial goal.

Today, Changed helps users pay off student loans, credit cards, mortgages, cars, and more. Plus, they introduced a “Stash My Cash” feature to help people automate their savings.

2. Debbie

Debbie helps members with savings and debt as well, but they take a different approach. Debbie helps users identify financial goals (such as paying off debt or creating a savings fund); then Debbie offers users cash incentives when they make progress toward their goals.

To help users meet their goals, Debbie works with credit union partners to find high interest rates for their savings and refinance options for their outstanding loans.

3. Guac

Guac also helps members with savings and debt by making “saving as easy as spending.” The way they do it is both unique and highly flexible.

First, users can choose a “saving percentage” of every purchase that goes toward savings or debt. For example, a 10% savings on a $10 purchase puts $1 toward the user’s financial goal. It’s like tipping yourself for each purchase.

Second, Guac offers cash back and other rewards while shopping with its extensive partners list.

What we like best about Guac is their rate of savings. They average ~$300 per member per month, generating deposits much faster than competitors.

4. Plinqit

Plinqit works with credit unions to provide gamified savings and financial education for their members. Users set savings goals and then get paid to save and learn about money.

Plinqit helps members by automating savings, so like the other apps listed here, members can “set it and forget it” until they reach their goal. (Or goals—Plinqit supports up to 5 concurrent financial goals per member.)

Getting Started with a Fintech Liquidity Partner for Deposits

All the fintechs above have great platforms. We believe that each of them will improve member finances while also driving and retaining credit union deposits.

It’s interesting to see that each fintech does things just a little bit differently. You’ll have to see them for yourself to determine which is right for your credit union and members.

One thing we’ve learned about Guac is that their average yield generally exceeds that of most of their competitors. Their customizable, percentage-based contribution to savings (based on spending) helps members save 3–10X more per month than similar options.

In practice, that means that on average, Guac generates more savings for users—and more deposits for credit unions—than the competition.

Additionally, their AI-powered financial guidance works a lot like self-driving finance. It takes a lot of legwork and fear out of savings. Plus, all the saved money is available instantly, ensuring that users don’t also run into a liquidity crisis!

Learn more about them here:

The post The Best Credit Union Liquidity Tools (to Generate Deposits) appeared first on CU 2.0.

Founded in 2022, Painted Hills CUSO is dedicated to simplifying the process for fintechs to work effectively with credit unions. By navigating the intricate memberization rules within the credit union industry and leveraging the National Credit Union Administration’s (NCUA) Fintech lending rules regarding participations, Painted Hills CUSO is set to become a linchpin in fostering symbiotic relationships between these two sectors.

“This investment is a testament to the faith these six credit unions have in our vision and capabilities,” said Kirk Drake, President and CEO, Painted Hills CUSO, LLC. “Our goal is to create a set of tools where credit unions and fintechs can collaborate efficiently for mutual benefit and, ultimately, for the benefit of credit union members.”

A significant aspect of this collaboration involves partnering with Quilo to utilize their cutting-edge real-time balance sheet management platform, GLASS, and their Loan fully digital Participation and Syndication platform. This partnership enhances decision-making processes, improves risk management, and unlocks new opportunities for growth and innovation.

The investments from Rogue, MAPS, Carter, Community Financial, Skyla, and Central Willamette Credit Unions will enable Painted Hills CUSO to expand its services, invest in technology, and strengthen its position as a leader in credit union-fintech partnerships.

“We are excited about the potential that Painted Hills CUSO brings to the table,” said Matt Stephenson, President and CEO, Rogue Credit Union. “Their approach not only aligns with our commitment to innovation but also opens up new avenues for us to serve our members more effectively.”

As Painted Hills CUSO embarks on this journey, it is poised to redefine how credit unions and fintechs interact, creating a more dynamic, efficient, and member-focused financial ecosystem.

About Painted Hills CUSO, LLC:
Painted Hills CUSO, LLC is a balance sheet management CUSO formed in 2022 via a partnership with Credit Union 2.0. It specializes in facilitating effective collaborations between credit unions and fintech companies, adhering to industry regulations and leveraging advanced technological solutions.

Contact Information:
Kirk Drake
President and CEO
Painted Hills CUSO, LLC
kdrake@cu-2.com
(301) 461-3120

About Quilo
Quilo is a New York based financial technology company delivering cutting-edge technology that empowers community financial institutions to digitize balance sheet optimization and trade, settle and service loan syndication and participations in a fully compliant manner with minimal operational impact.

Contact Information:
info@quiloit.com

The post Painted Hills CUSO, LLC Secures Investments from Six Leading Credit Unions, Invests in Quilo, a New York-Based Fintech, and Collectively Partners to Revolutionize Fintech Collaboration for Balance Sheet Optimization appeared first on CU 2.0.

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If you answered “yes” to either of those questions, you should keep reading.

If you answered “no,” then you should read this guide, change your mind, and then come back here and continue reading.

Now, it’s time to dive into LifeTidy and how credit unions can improve members’ financial (and organizational) health.

The Link Between Organization and Financial Health

Life can be messy and complicated and there’s always a lot of paperwork. Take my last month, for example:

• My grandmother recently passed and it’s taking my father months to settle her estate;
• My wife has a growing stack of medical bills and paperwork from an as-yet unidentified issue; and
• Last week, I found out I was paying more than $300/month in subscriptions I no longer used.

You can probably think of similar issues in your own life. The average member could, too.

The issue is this: people receive an incredible amount of bills, critical financial documents, medical documents, policy change documents… this list could continue ad nauseam. Most members:

• Live without a robust document organization and storage strategy;
• Don’t know how much they pay per month on subscriptions; and
• Don’t have backups of their property docs, legal docs, employment contracts; insurance docs… you get the idea.

Fortunately, credit unions can actually help members organize their money, bills, medical paperwork, documents, and more. Here’s what that looks like:

Introducing LifeTidy

LifeTidy bills themselves as a platform that stores all of life’s key information. Financial, medical, legal, utility, and more, all in one place. They incorporate open banking, so users can actually connect and consolidate everything.

The result? One app that connects a dozen others, plus a digital vault so users can securely scan, store, monitor, and share all their important paperwork.

A few basic bullet points you might care about:

• It’s ultra-secure and equipped with bank-level encryption;
• Can be a value-add or additional revenue stream;
• Increases loyalty and lifetime value.

Imagine one app that tells you when a subscription is about to renew—and allows you to cancel it. The app also houses digital copies of your will, your car title, your ID and passport, all of your insurance information, property deeds, employment or contract information, utilities, investments…

And it’s all connected to your credit union.

Basically, LifeTidy digitizes life admin. Open banking makes it more useful than a simple digital vault, too. Learn a bit more about how it works here:

Additional Resources

LifeTidy is exploring a product market fit with credit unions at this time. Their goal is to improve quality of life and financial health through digital life organization.

LifeTidy simplifies life admin by keeping track of polidcy renewals, IDs, financial statements and more, storing it all in one place, easily accessible anytime, anywhere. We think this has legs for credit unions that want to offer a financial health solution to their members.

Like what you’ve seen so far? Sign up for our Fintech Call Program and get a personalized, 30-minute call each quarter. We’ll discuss the latest technologies and solutions, make key introductions, and offer early access to events, giveaways, and more!

And of course, please subscribe to our blog (if you haven’t already)!

The post Financial Health, Organization, and LifeTidy: A Credit Union Opportunity appeared first on CU 2.0.

In today’s rapidly evolving financial landscape, fintech stands as a transformative force, offering a myriad of opportunities for credit unions to modernize operations, diversify portfolios, and drive groundbreaking innovation. Yet, as we navigate this burgeoning field, a pivotal question arises: should credit unions invest directly in fintech startups or opt for fintech funds?

This comprehensive guide aims to dissect both avenues, meticulously unpacking the financial, operational, and strategic pros and cons to facilitate informed decision-making for credit union executives.

Over the years I have seen countless problems caused by credit unions, external auditors, or examiners asking questions. Well-meaning board, management, CPAs, all attempting to do the right thing for the credit union but based on the industry collective limited understanding of venture capital, fintech investing, multi-owned CUSOs, tax issues or valuation methods, these well-meaning folks sometimes cause more harm than good.

Ultimately, nothing is more problematic for your investment or the success of the CUSO you are investing in, than investor misalignment. Below is a summary of key things to consider when making your Fintech investments.

Direct Investment in Fintech Companies

There are advantages and disadvantages to direct investment in fintech companies. They include:

Direct Investment Advantages

Control and Influence

Direct investment is not merely a financial endeavor; it’s a strategic partnership. By investing directly, credit unions can wield significant influence over a fintech startup’s strategic direction, thereby ensuring alignment with their own long-term objectives. This influence often extends to the product roadmap, allowing for customizations that can be seamlessly integrated into the credit union’s existing operational framework.

Financial Upside

Direct investments have the potential to yield higher returns, especially if the fintech startup experiences exponential growth. These gains can far outstrip the returns from more diversified but less focused investment avenues like fintech funds.

Customization

The close collaboration that comes with direct investment often results in tailored fintech solutions. Such custom-built solutions can offer unique competitive advantages, differentiating the credit union in an increasingly crowded marketplace.

Tax Flexibility

The direct control over the timing of buy and sell decisions can be a significant boon for tax planning, allowing the credit union to optimize its tax liabilities effectively.

Direct Investment Disadvantages

Risk Exposure

One of the most glaring downsides of direct investment is concentration risk. By putting a substantial amount of capital into a single entity, the credit union becomes exposed to the specific risks that entity faces, be it regulatory hurdles, market competition, or operational challenges.

Resource Intensive

Direct investment is not for the faint-hearted or resource-strapped. It requires a rigorous due diligence process, ongoing governance, and a hands-on approach for monitoring the investment. This can be both time-consuming and costly. There is a high startup failure rate, although failures in credit union land are swept under the way less violently normally. Either way, startups almost always need more funding than expected. Credit Union boards tend to see additional capital (whether for growth or failed concepts) the same way, poorly. If new investors or brought in, they will expect existing investors to yield significant power, control and economics.

Also, Credit Unions have unique investing attributes where they can be quite helpful on collaboration and understanding market needs, they rarely have the skills to help with the operational issues of a for profit early-stage company.

Regulatory and Compliance Burdens

Direct investment in fintech startups involves navigating a complex regulatory landscape. Ensuring compliance with a myriad of financial regulations and standards adds another layer of complexity to an already intricate process. Regulations in this case could include NCUA, CFPB, FDIC, FFIEC, FASB, GAAP, and sometimes even the SEC.

Accounting Complications

The accounting practices involved in direct investment are far from straightforward. They often require annual valuations, which are not only resource-intensive but also carry the potential for valuation disputes, thereby complicating the financial reporting process. Depending on the level of direct ownership, consolidation may be required. Considering the profitability profile of startups, this will likely result in negative impacts on the Credit Union P&L and force its management to provide further reporting of pro-forma earnings. In a fintech fund, the arms-length nature of the investment avoids many of these issues.

Investing Through a Fintech Fund

There are advantages and disadvantages to investing in fintechs through a fintech fund. They include:

Investment Fund Advantages

Risk Mitigation

A fintech fund typically invests in a diversified portfolio of fintech companies, thereby substantially reducing the risk associated with the failure of any individual venture. This is particularly beneficial for credit unions that want to mitigate risk while still participating in the fintech ecosystem. If more capital is needed, it is not the sole burden of a few credit unions. The fund manager is motivated to limit capital calls to those that provide returns.

Expert Management

Fintech funds are usually managed by seasoned professionals with deep industry insights and a solid track record. This layer of professional oversight can add an additional level of security and potential for returns. This can allow you to pick a type of fund manager that aligns with your interests. Some are very operationally oriented and have started or managed Fintechs themselves, Others are more traditional passive investors with strong investment knowledge but little operational expertise.

Simplified Accounting and Valuation

The accounting process for fintech fund investments is the responsibility of the fund and is generally simpler than that for direct investments. Funds provide reporting and portfolio companies valuation to its limited partners/investors. While Credit unions may opt for their own DCF or Comparable Company Analysis (CCA), they often rely on more suitable methodology provided by the fund itself, typically the Net Asset Value (NAV) of the fund, which serves as a straightforward valuation metric. Consequently, accounting for Credit Unions investing in a FinTech fund is much less of a burden and is limited to asset re/devaluation entries.

Regulatory Ease

The onus of regulatory compliance generally falls on the fund itself, significantly reducing the burden on the investing credit union.

Investment Fund Disadvantages

Lower Returns

Diversification, while reducing risk, can also result in diluted returns, especially if some of the fintech companies in the fund’s portfolio underperform. However, because it is a fund, the funds’ performance will be a function of the managers success in selecting the best companies and helping them succeed. Overall, a fund will likely have a more predictable return, but successes will be moderated by disappointments. As an asset class, venture and private equity funds are high performance vehicles.

Limited Control

When you invest in a fund, you cede control over which fintech companies become part of your portfolio. This lack of control can sometimes lead to strategic misalignment. Some Credit Union specific Fintech funds do allow for a louder and more collaborative voice from financial institutions.

Cost Factor

Fintech funds usually charge management fees, which can erode the net returns on investment. These fees are fairly standard, and can be lower than average returns, and lower for unproven managers. For proven managers, they tend to be higher and deliver higher net returns.

Valuation Methodologies and Their Impacts Over Time

When it comes to fintech investments, the choice of valuation methodology is not merely an academic exercise. It’s a critical decision that impacts not only the perceived value of the investment but also its actual returns over time. Whether you’re considering a Discounted Cash Flow (DCF) for its long-term perspective or a Comparable Company Analysis (CCA) for its market-driven insights, each methodology comes with its own set of implications over time.

For instance, direct investments often require annual valuations, which can fluctuate wildly based on market conditions, technological advancements, or regulatory changes. On the other hand, fintech funds, with their diversified portfolios, generally offer more stable valuations, although they are still subject to market risks and the fund manager’s expertise.

Choosing the right valuation methodology is critical for aligning the investment with the credit union’s broader financial objectives, risk tolerance, and investment strategy. For direct investments, methodologies like DCF or CCA may be more suitable, while fintech funds often rely on Net Asset Value (NAV) and Price-to-Earnings Ratios (P/E) as key valuation metrics.

Conclusion and Recommendations 

The decision between direct investment and fintech funds hinges on a multitude of factors, including risk tolerance, resource availability, and strategic objectives. Credit unions with ample resources and a need for strategic alignment may find direct investments more suitable. Those looking to mitigate risk and simplify the investment process may prefer fintech funds.

In a landscape as dynamic as fintech, there’s also a compelling argument for adopting a hybrid approach, blending direct investments for strategic partnerships with fintech fund investments for diversification.

By understanding the intricate nuances, pros, and cons of each investment avenue, credit union executives can make informed decisions that not only align with their immediate needs but also stand the test of time, thereby ensuring a future-proof investment strategy. It is clear that collaboration between technology and financial institutions is increasingly important and is a unique market opportunity.

By delving deeply into each aspect of fintech investment, from financial implications to strategic alignments and from immediate gains to long-term impacts, this guide aims to serve as a comprehensive resource for credit union executives. It’s a complex journey, but one that holds the promise of transformative rewards.

Choose wisely.

** this article is for informational purposes only and is not intended as investment advice. Consult your financial advisor and legal counsel before making any investment decisions, as I am not a registered broker or investment adviser.

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