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Fintech, credit union similarities could encourage partnerships

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Fintech, credit union similarities could encourage partnerships

The similar histories and banking-alternative roles of financial technology companies and credit unions may make partnerships between them attractive.

Sam Das, principal at CMFG Ventures, said there is more that binds fintechs and credit unions than separates them. CMFG Ventures is the venture capital arm of CUNA Mutual Group, an insurance company that serves U.S. credit unions.

Speaking during the Reality Check conference in Valley Forge, Pa., this week, Das said fintechs formed as a result of a "perfect storm" that occurred after the financial crisis. That was when consumers' trust of the banking system plummeted and their comfort with mobile technology climbed. The story of fintechs is not much different than the one that led to credit unions emerging in the early 1900s. The popularity of credit unions grew particularly during the Great Depression as banks began to fail and consumers searched for alternative safe-havens.

Ronaldo Hardy, president and CEO of Southwest Louisiana CU, said in an interview the Lake Charles, La.-based credit union has sought to build a culture of innovation, and he views the fintech boom as an opportunity. Southwest Louisiana CU has seen the rapid technological evolution taking place — impacting not only financial institutions but all businesses — and realized that if it is not keeping up and adapting then it is not able to respond to its members' expectations.

Part of the credit union's strategic plan is centered on making sure it has the most robust technology available. "Because that no longer gives you a competitive advantage," he said. "It only helps you to meet the expectations."

Hardy said credit unions have traditionally lagged banks in terms of technology to begin with, but he believes organizations are now seeing a stronger need to make it a priority.

Bret Krevolin, president and CEO of Wyomissing, Pa.-based Utilities Employees CU, said in an interview that because the institution is "virtual" and has no branches to serve its nationwide membership, it needs to be at the forefront of mobile and online technology. Krevolin said he envisions the credit union forming partnerships with fintechs by using their products and services or maybe by investing in them.

He said the credit union is only in the exploratory stage of any such agreement, but a recent turnover at the top has made the company's management younger and perhaps more willing. "Culturally it's a change, and it's going to take a little bit of time," he said.

Implementing a new mobile and online banking platform is a top priority for the credit union in 2018, Krevolin said. That's important for Utilities Employees CU because it has an older membership and would like to see its average age come down. "Fintech and technology is going to be the key to our success going forward," he said.

Das said a recent study revealed that 94% of consumers that received credit from a nonbank said that they would do business with those firms again. And the largest banks in the country took notice and began forming fintech partnerships. JPMorgan Chase & Co., for example, last year announced a partnership with On Deck Capital Inc. for small business lending.

Credit unions, like banks, are not built to innovate at the pace fintechs are.

"It makes more sense to partner with them and take advantage of that agility," Das said.