Fintechs and Your Credit Union

By Robert McGarvey

Ignore fintechs at your peril.

And know that many, many credit union execs do ignore fitechs.

They wrap themselves in a security blanket where they believe they are safe because their deposit accounts come with NCUA insurance and smart consumers always go for insured accounts.

Or maybe not. Fintechs are making a big move that just may put many credit unions in the crosshairs.

In 2018 Quicken Loans overtook Wells Fargo as the biggest home mortgage originator and there is a classic for instance of a non bank triumphing.

Meantime, at Venmo over 40 million of us have used it to move money and that’s a prime example of a fintech gobbling up what would have been checks in decades past. Now it’s bits and bytes and a mobile app. A growing number of consumers simply do not make use of a traditional FI account except as a parking spot for deposits and a landing place for a Venmo account.  Millennials tell me they are paying their rent and many of them are continually hunting for still more places that accept Venmo. That has to scare a traditional banker.

Apple meantime has circled back into the fintech arena with Apple Card and know you will lose some members’ patronage of your credit card as they shift their loyalties to Apple’s.  They may continue to carry your card in their wallets but if it goes unused, what good is that?

Fintechs increasingly are biting off parts of the traditional FI pie that they deem especially tasty and lucrative.

And they may be leaving behind the tasks they deem labor intensive and low profit for traditional FIs to do.

What good is that kind of future especially when it is a future written for credit unions, not by them?

New Pymnts research enters to slap us in our faces: “just 6.5 percent of FIs in the study said they considered FinTech firms to be their competitors, far fewer than in 2017 (19.7 percent).”

How can that be? Financial institutions are losing the mortgage market – a traditional backbone of many community banks and credit unions – and they are losing it to non banks, which, incidentally, offer substantially better and faster technology and decision making.  Why wait a week for a credit union’s yea or nay on a mortgage app when a fintech will give its verdict in a matter of minutes.

There are more puzzlements in the Pymnts research.  For instance: “In 2018, it took longer to bring new features to market than in prior years. For 46.7 percent of those surveyed, it took seven to 12 months to launch innovations in 2018, compared to 33.3 percent only taking one month in 2017.”

We – clearly – are in a culture of now. That is why in the Apple Apps store there are continuous improvements in apps.  It’s ongoing. Except at financial institutions where “not broken” seems to equate to “good enough.”

FIs point to infrastructure issues as the culprit behind the delays: “In 2018, IT infrastructure was cited as the biggest barrier to innovation (37.8 percent). Community banks (45.6 percent) were far likelier to claim IT infrastructure as a hindrance than credit unions (CUs) at 35.1 percent or commercial banks at 32.4 percent.”

But that honestly is not good enough.  Fintechs aren’t burdened by infrastructure barriers and neither – in many cases – are money center banks with huge IT budgets.  Shrugging off infrastructure as an acceptable excuse for delays just may be pushing consumers to more fleet footed competitors.

A still more worrying observation about the future is here: “A report from Capgemini has found satisfaction is low in customers and banks need to up their levels of personalisation if they want to keep customers from turning to tech giants and fintechs.”

It gets worse: “According to Capgemini, 32.3 percent of customers would consider turning to large technology firms for financial products and services, especially as younger, more tech-savvy customers are looking for options that suit them most.”

So, how’s that ignoring fintechs working for you now?