Highlights
- Partnering with fintechs may help credit unions appeal to younger, digital-native members.
- Fintech can help credit unions accelerate their digital-first initiatives.
- Performing due diligence and risk assessment before collaborating with fintechs is key.
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The role of fintech in the financial services sector is growing exponentially. Consumers are increasingly comfortable with virtual banking, embedded finance, and other digital-based finance options. Fintech fills gaps for some traditional financial services providers to help them ramp up their digitization initiatives.
Credit unions looking to increase volume and expand into new markets need to embrace fintech opportunities or risk losing ground to those that do. The following is a look at how the right fintech partnerships can help your credit union grow by expanding into new markets.
The role of shadow banking
Increased digitization in business and finance has created convergence between activities across sectors. Traditionally, banks offered financing to consumers who used it for various purposes. Now, many non-banking providers in real estate, retail, and other sectors embed financing options into their solutions via fintech partnerships. This integration makes it more seamless for buyers in select markets to purchase and receive financing quickly and conveniently.
The provision of financing by non-bank providers is sometimes referred to as “shadow banking.” According to FICO, 34 percent (over one-third) of consumers have at least one account or have conducted activity through at least one non-bank financial services provider. This number speaks to the prevalence of nontraditional financing options available and consumer acceptance of shadow opportunities.
Appealing to younger demographics
Embracing fintech partnerships is especially important if credit unions have any hope of attracting younger Millennial and Gen Z consumers as members. The majority of people in these generations are digital natives. Digital banking is as natural to them as social media and other activities they have long conducted on a mobile device or tablet.
The FICO survey noted that the percentage of Millennials engaging with shadow banking was much higher (47%) than the overall consumer market. Younger generations aren’t as familiar with the role of credit unions, and likely have never considered them for banking relationships.
The challenge for credit unions is twofold:
- To get more digital-centric, including via fintech partnerships
- To communicate effectively with younger audiences so they can understand the products, benefits, and digital connections
Fintech for faster transformation
Understanding the need to transform into a digital-first culture is only part of the battle for credit unions. It takes money, time, and resources to develop a strategy, identify the right tech solutions, implement them, train employees on how to use them, and communicate with customers about their availability.
The problem for legacy credit unions with established ways of doing things is that it takes time to transform your infrastructure and culture. That’s why fintech partnerships are so appealing. Fintech is grounded in fast, nimble tech development that meshes effectively with existing partner platforms and tools. In essence, it offers a shortcut for credit unions to offer consumers the digital functionality they expect in a limited amount of time.
Developing partnerships
If you recognize the advantages of digitizing through fintech, the next step is to evaluate potential partners and strategies. In the evolving area of embedded finance, credit unions have many innovative ways to enter select markets.
Some fintech solutions are industry-specific. They are designed to infuse seamless banking into non-banking processes. The following are examples of ways fintech currently fits into the finance sector:
- Real estate brokers embedding direct financing options into the home-buying process
- Embedded loan options available with purchases of expensive equipment or machinery
- Smaller-scale financing plans offered to retail buyers at the time of purchase
There are several ways to explore possible partnerships that make sense for your credit union. One is to identify consumer or commercial sectors you consider opportune for garnering market share, then research fintech developers that could help you enter that space. Another is to buy loans from digital lenders that don’t want to carry the loans to term. Instead, they provide direct financing access to the market and then sell the loans off for long-term management.
Due diligence and risk evaluation
Fintech’s rise has led to some new players in this space in the last several years. Thus, to find the right partnerships, credit unions must carefully vet developers and conduct thorough due diligence.
Quality, experienced fintech developers should have proofs of concept to demonstrate to you. Look at other partnerships or solutions they have in place. Consider user reviews of their solutions, as well as any industry articles, feedback, or other insights on the merits of their work. Talk with industry peers to get additional perspective.
The background and history of the founders and leaders of fintech companies are also important to scrutinize. Often, tech developers shift from one company or project to the next. Ideally, you will see a long history of successful product development and implementation.
Think about any existing partnerships or collaborations the fintech developer has in place. Beyond the technological capabilities, it is important to partner with a provider that gives you access to new markets and has similar values and company philosophies.
Why unified communications are key to credit union growth with fintech
In addition to finding the fintech partnerships that make sense for your credit union, you must also ensure that your communications systems are equipped to handle integration with the fintech partner as well as any member outreach you will do to make your members aware of new products or services enabled by those partnerships.
Cloud-based unified communications (UCaaS) systems can help you bridge any communications gaps as you introduce new partnerships into your product mix. Look for a UCaaS solution with API integration capabilities to streamline your implementation.
Let RingCentral help your credit union grow
Credit unions face stiff competition in the financial services sector. Virtual banks have expanded, and many unconventional digital products appeal to younger consumers. To grow, credit unions must explore partnership avenues with fintech that allow for access to new markets.
A cloud-based communications platform is a key foundational technology that equips your team with the necessary tools to meet market demands. Consumers want convenient, fast, secure, omnichannel access. Your agents also benefit from seamless platform transitions and improved collaboration. Finally, any fintech partnerships you pursue can be facilitated by a UCaaS solution with API integration capabilities.
RingCentral is a market-leading UCaaS solution that integrates seamlessly with hundreds of business systems via APIs. Leveraging RingCentral enables credit unions to streamline communications for internal and external stakeholders, giving them a distinct competitive advantage over their less agile counterparts.
Why not let RingCentral show your credit union what it can do? See how it works with a free demo!
Originally published Jun 16, 2022