Crying Out for an End to Overdraft Fees? Meet Grain Technology

Probably the single most despised charge at financial institutions is the overdraft fee – and a NerdWallet survey of the exact charges imposed by a selection of mid-sized (Navy Federal) through mammoth (Chase) institutions found fees at $20 (Navy Federal) and as high as $39 (KeyBank).

$35 is a particularly common charge in the survey.

Rapacious greed.

Ask yourself this. You present a Visa card at WalMart and the card is declined (and you know it’s because the balance is overextended and a payment is late).  Does the cashier say, “Sorry, bud, card declined and now you owe us another $35 for being a nuisance.”

That does not happen.

You walk out without your purchase, but you aren’t dinged for a nuisance charge.

Overdrafts are different. Charges are the norm, even though at the financial institution, all that happens is that bits and bytes shuffle around on a computer screen.

Continue reading “Crying Out for an End to Overdraft Fees? Meet Grain Technology”

Ready to partner with a fintech? Here’s what you need to know

With the shared goal to redefine what a multifaceted financial services model looks like to members, more credit unions are looking to partner with forward-leaning fintechs. But does this approach make sense for all credit unions?

“The biggest challenge I have seen between fintechs and credit unions is the culture shock,” said John Best, CEO of Best Innovation Group. “Fintechs are used to being lean and moving fast. They expect to have technology in place that will allow them to do this. Credit unions are a bit more slow-moving and sometimes don’t have the technology that a fintech would expect.”

During a recent web seminar exploring this topic, Capstone Managing Director John Dearing noted that over the last five years, 20 fintech companies — incuding TradeKing and Openpay — have been acquired by banks, and 40 percent of these acquisitions occurred in the last eight months. In April 2018, for example, Goldman Sachs acquired Claritymoney, a PRM app.

“We would love to have a slide next year that has credit unions on the left hand side and show all the investments that have been done through CUSOs or other partnerships,” said Dearing.

Joining Dearing was CU 2.0 founder Kirk Drake, who noted that one of the leading reasons fintechs want to partner with credit unions is because CUs have a loyal member base.

“It’s hard for a fintech to get 30,000 or 40,000 users, so there is a lot of interest partnering with credit unions,” he said.

Among barriers credit union executives face is that many fintech companies come to the table with “half-baked” concepts that “lack proof-of-concept” or a proven business model, said Drake. But he views this as an opportunity — getting in on the ground floor.

“Credit unions are risk-averse and they don’t know how to structure [fintech] deals to minimize the risk,” said Drake. And with so many new fintechs popping up, he said, it becomes difficult to pick the “winning” partner.

Whereas vendors traditionally came to credit unions with solutions designed to last five years or more, he said, fintech models are constantly evolving and may only have a shelf life of 12 to 24 months.

“Oftentimes it’s not the best tech or user interface that wins, but the business model and the market,” said Drake. “This challenges the traditional credit union vendor-management program.”

Fintech and CU success stories

Big banks are not the only FIs in the fintech game. Credit unions have thrown the proverbial hat in the ring as well, including the Boston-based Digital Federal Credit Union (DCU) and its Fintech Innovation Center.

“First and foremost, we are looking for opportunities to partner and learn from fintechs,” said David Arauno, DCU’s SVP of technology and innovation. “We are currently hosting 20 different fintech companies in our space. Some of them have alignment with our initiatives and some don’t, but regardless of alignment, it is a tremendous opportunity to learn from these entrepreneurs.”

Araujo further explained that there is “no set path for success” at the center or how best to work with fintech startups.

“We simply learn about their product, what their needs are to gain traction in financial services, educate them on our industry, and where it goes from there can vary,” he said. “We have run pilots, done proof of concepts and signed contracts with these companies.” One successful partnership born from the Center is Digital Onboarding (, he added.

When working with a fintech company, Araujo said credit unions must keep in mind the age of company — especially when interfacing with a management team tasked with reviewing proposals.

“The companies we work with are early stage and are looking for guidance as they figure out their path to market. The CU management team has to look at the possibilities of what they are working on and be patient to help them down that path,” he said. “It doesn’t always mean a longer delivery expectation, but simply a different conversation from buying something off the shelf.”

While a guestimate, Best Innovation Group’s Best said perhaps 5 to 10 percent of all credit unions may be presently working with fintech companies. And while it would seem logical that larger credit unions are leading the charge, it’s not always the case.

“I have started seeing $200 and $300 million dollar credit unions engaging. The trend is that the current CEO is retiring and the new CEO inherits the capital that the CU was sitting on and needs a place to invest,” said Best. “Because they are smaller, they can move a bit faster as there aren’t as many services to overhaul in order to move toward a digital investment.”

Finding the best partner

During Drake and Dearing’s webinar, the pair suggested credit unions develop a strategy, be proactive, define ideal outcomes and select a market/sector to focus on, all the while remaining objective.

But for fintech companies, getting used to regulatory compliance measures that credit unions face remains a hurdle.

“Finding the right partner can be tough and time consuming you may have to go through a lot and might need to try a few to see what is the best fit over time,” said Dearing. “Being proactive and defining your ideal outcome and staying objective [is important]. Look at the passion of the entrepreneur, their background and geographic scope and technology development cycles. There are ways to prioritize and vet potential partners.”

In most cases, there are three possible partnership models: joint venture, CUSO investment and working with a vendor. While Best said one option isn’t necessarily better than another, he prefers either the CUSO or vendor approach as opposed to the “scarier” joint-venture model that is often not as organized.

Since a CUSO is formed around the fintech, Best said this generally is a good approach because the fintech depends on scale to be successful. Examples would be a payments platform or a messaging platform.

“There is a built-in customer base, ability to control some of the roadmap or direction of the organization,” said Best. “There is reduced cost due to scale and better support and there could be a revenue opportunity.”

The downside to a CUSO model is if the fintech has banking customers or other pursuits, which may result in the CUSO getting lost in the shuffle, noted Best.

“The diversity of CUs can sometimes cause issues for the fintech, such as different cores or different regulatory issues, as they are used to a one size fits all approach,” said Best. “The CUSO will be regulated as though it is a credit union and this can also cause issues for the fintech.”

Credit unions that partner with vendors such as PSCU, CO-OP and CUDirect, added Best, have the opportunity to leverage existing frameworks to work with a fintech.

“They have resources to vet the business opportunity as well as the technology and staff to support a fintech, so the credit union’s risk is reduced,” said Best. “The cons are that the vendor may not see the value in the fintech that the credit union does or may be interested, but cannot move as fast as the credit union that desires the fintech services would like.”

The Non-Bank Threat to the Mortgage Business: What Credit Unions Must Do

By Robert McGarvey 

For Credit Union 2.0


There was a time when traditional financial institutions owned the home mortgage business. No more.  The changes are massive and stark and the bottomline is that non-banks are eating up this business. Their share is now 45% of home mortgages, according to the Federal Reserve. 

Just about all experts expect it to climb above 50% pronto. 

In 2011, just three big banks – Chase, B of A, and Wells Fargo – lent a staggering 50% of mortgage money.  By 2016 their share had dropped to 21 percent, according to calculations by the Washington Post.   

By 2016, six of the top mortgage lenders were non banks, with Quicken Loans leading that pack with 4.9% of the mortgage market, more than Bank of America with 4.07%. 

Also among the nation’s top 2016 mortgage lenders were PHH Mortgage, loanDepot, and Freedom Mortgage. 

Credit unions so far are holding their own.  In 2015, they lent 8% of US mortgages, up from about half that in 2010.   

Before applauding, though, recognize that credit unions face big challenges when it comes to just maintaining the current market share as mortgages become more digital and much, much faster. More on this below. 

So, why have non banks grabbed so much market share, so quickly? Mainly because money center banks have largely pulled out of the mortgage market and it’s the non-banks that have nimbly moved to fill the void. 

Many money center banks pulled out for two reasons.  They were blindsided by the tidal wave of defaults on home mortgages in Great Recession.  Maybe five million homes were foreclosed on. Big banks lost a lot of money – and a lot of positive reputation – in the meltdown.  Many bankers accordingly resolved to get out of issuing home mortgages. 

Enter the Consumer Financial Protection Bureau which sent more big banks running away.  In their minds, the CFPB was anti bank, hostile, capricious and just bad news for mortgage lenders – so why make home loans? 

That set the stage for the rise of non banks which plainly saw there are many, many consumers who have gained more confidence shopping online, they also became more comfortable applying for credit cards, car loans, and, eventually, yes, home mortgages online. 

Non banks also have higher tolerance for consumers with less than perfect credit than do big banks and many credit unions. Most non banks also have found ways to live with, or avoid, the CFPB.  And – crucially – they are pioneering and perfecting home mortgage processes that are essentially totally digital. 

That means much lower loan origination costs. 

It also means much, much faster processing, Quicken, for instance, has a “Rocket Mortgage” — where approval can be had in minutes. Not weeks. Not days. Minutes. 

How many credit unions can match that – and know that this kind of speed is becoming crucial to holding onto a chunk of the mortgage market. 

BMW and Mercedes can finance and roll a new car with $50,000 in paper in a matter of minutes and that car loses 20% of its value in the first year. 

A house, in most markets, is very unlikely to depreciate. 

Can credit unions match what the car companies and non banks can do in terms of speed? 

survey of banks and credit unions by Fairfax VA consulting firm CC Pace offered worrisome news. Some 80% of respondents said they were not even halfway there to being able to offer a fully digital mortgage experience. Said CC Pace: “Everyone recognized that this is where the future lies, but many owned up to the fact that they have barely begun the process.” 

Keith Kemph, a CC Pace consultant, noted that credit unions have particular – and particularly troubling – challenges and may in fact now be falling behind even community banks in the battle to stay relevant against non banks.  Kemph said credit unions “have not been as agile in the marketplace,” especially as the marketplace changes.   

And he said “they are still plagued with technology challenges that limit their ability to grow without increasing their overall operating costs.” 

Bottomline: there are big opportunities in the home mortgage market especially for credit unions.  But credit unions may also lose this market unless they adapt to the changes that are transforming it – especially the push into digital mortgages.

“Small Entity” Credit Unions Must Think FinTech

By Homer Fager 

During the twenty year span, from 1950 to the 70s, the US credit union movement experienced an expansive growth period. The 60s saw the movement pass the 20,000 number of credit unions, including state and federal institutions. US’s original credit union movement was founded to provide the middle class families a source of affordable credit to purchase items using installment payments from used automobiles to washing machines. The credit unions of the 60s was the first choice of financial assistance by post war Americans because commercial banks and savings institutions had limited interested in offering small installment loans.

The local community-employee based credit unions continued to grow until the institutional
changes of the 1980s. The 80s brought new technology to the industry from IBMs personal
computer to the introduction of the first credit union sponsored ATM. Another defining change of the period was when the National Credit Union Administration (NCUA) allowed the merging of “select employee groups” into existing credit unions thereby creating the model of the mega-credit unions, a defining moment to the “small entity” credit unions survival. These structural changes to the industry were the beginning of the decline of the “small entity” credit union.

Today, 30 plus years later, the “small entity” credit union segment of the industry still represent its largest segment at 80%, but its number has been reduced by over 60 percent since the 80s. The local community-employee based credit union, the “small entity” credit union, is definitely not a growth market segment. How should the local community-employee based credit unions address their declining status? One answer is do what they did in the 80s, accept current technology options. The “small entity” credit unions need to incorporate today’s financial technology in their business model.

“FinTech”, an aberration for financial technologies, is a 21st century disrupting technology model. Originally it represented technologies used on the back-end of traditional consumer and financial institutions. In the consumer digital engaged age “FinTech” has become a disruptive technology to the traditional financial services industry. “FinTech” is altering the financial services traditional workflow processes for banks and money management alike. The effect of “FinTech” disruption on the financial services is noted by the results of a recent survey published in January focused on “Big Data Business Impact: Achieving Business Results Through Innovation And Disruption”; when industry participants expressed the viewpoints “it’s transform or die”.

The “small entity” credit unions are facing a similar disruptive environment as that of traditional financial businesses, they must adapt to the needs of their digitally engaged members, meaning “transform or die”. However “small entity” credit unions cannot achieve this smart technology transformation without assistance. Individually they do not represent the “Economies of Scale” (market mass) required to afford the expense of going “FinTech”. “Economies of Scale” is generally defined as $300,000,000 and above for affordability of basic smart technologies.

The digital revolution is transforming the consumer and their use of the cell phone, today making a call is no longer the primary use of cell phones. An example of the “FinTech” revolution can be seen in the $13 trillion ATM market now being challenged by P-to-P and cell phone pay apps. Credit union members are no different than other consumers of banking services they expect banking to be as convenient as getting a rental car or having groceries delivered to their home by their local supermarket.

“Small entity” credit unions must join the global trend among financial institutions and deploy
technologies that allow them to provide cloud base financial services for their members. The
general consumer and credit union member’s behaviors have change radically since the 80s. The finance channels of yesterday are no longer accepted; instead the members want their banking services to be a part of their “now lifestyle”.

How does the “small entity” credit union respond to this shift in their members desire to be at the center of the process?

They need to employ new digital financial technologies compatible with digital tools such as mobile internet, smart devices, and machine interaction. When these technologies are integrated into the credit union’s core data system their operation will become intuitive and attractive to their digitally native members. Credit unions in partnership with their core date provider must address the 21st century emerging digital trends and implement technologies that optimize their existing investments, improve member information, provide security assurance, empower collaboration, and ensure regulatory compliance.

How can the “small entity” credit unions benefit from the “FinTech” revolution?

As noted previously core data providers need to integrate 21st century financial technologies within their core systems. The core must become the platform by which “small entity” credit unions gain access to the “FinTech” digital revolution. One option is for core data processors, those serving at least $300 million in aggregate credit union assets, to negotiate service partnerships with 3rd party financial service companies for the benefit of their client credit unions. Adoption of this roll as contractor of 3rd party financial service is in the best interest of the core data processors, without the “small entity” credit unions many core data processors would no longer exist today.

When core data processor integrates these 3rd party financial services into their proprietary core data system they open a cost-effective avenue for their clients to link into the digital age without the typical upfront expense. A further development of these 3rd party financial services would be for the core data processors to create a technology service ladder within their core data programs. One option for the suggested ladder concept could be the following 6 level structure.

Service Ladder Level 1 – Data Warehousing
Service Ladder Level 2 – Hosting w/ Regulatory Compliance
Service Ladder Level 3 – Mobile eBanking
Service Ladder Level 4 – Member Mobility Network
Service Ladder Level 5 – Customer Relationship Management
Service Ladder Level 6 – Business Banking

When a core data processor creates a technology service ladder its integration can be structured to be affordable to the smallest credit unions, those $100,000 in assets or less, thereby allowing to access to cloud data storage and regulatory compliance documentation as a minimum. Service ladders are an excellent process for allowing all credit unions, whether $100,000 or $100 million in assets, to elect a program of digital services to match their individual members needs.

In essence, both credit unions and core data provider’s survival is dependent on them
revolutionizing their processes, management functions, and member services through the
acceptance of innovative digital technologies. “Small entity” credit unions must improve their
member’s experience, create win-win products, and be competitive in the digital era such as
replacing brick and motor branches with eBanking systems. Core data providers must become a partner with their credit union clients in providing solutions in three key areas: core data platform digitalization, data security, and member services. The application of “FinTech” by the “small entity” credit unions must cover all phases of their business (front-end, middle, and back-end).

The consolidation trend which has been played out nationally over the last decade does not support the survival of the “small entity” credit unions. Survival of the “small entity” credit unions will only be possible when they can have access to the same 21st century financial technologies that allow the mega-credit unions to make it simple and easy for their members to conduct their daily business using smart devises. “Small entity” credit unions survival requires an “Economies of Scale” avenue, similar to that of mega-credit unions, to permit them to implementation of 21st century disrupting “FinTech” technology.

More About the Author:

Homer Fager, former president of core data processor FedComp Inc., small business owner and adviser, multi-million dollar Project Manager, providing him an extensive resume of experience in governance, risk and consulting work. He began his 40 year career as a Degreed Aerospace Engineer within major US Industrial companies. In his 30 plus years as a manager with listed and multinational Fortune companies he severed in various positions in industries including: automotive aftermarket, software systems, aircraft manufacturing, energy (including oil and gas), and electrical power production including co-generation.

During the last 10 years of his tender as a small business adviser, he handled over 100 individual assignments in North America. As an adviser he conducted and led many financial, operational and compliance audits in multinational companies in various industries including industrial services, precision engineering, property management, printing and publishing, retail, industrial manufacturing, trading, distribution, financial industry, software technology and marine businesses.

Email Address: [email protected]