Credit Union & Fintech Leaders Moving Critical Partnerships Forward: Part One

Brian Kaas speaks at the Fintech Summit. (Photo: CUNA Mutual Group)

In recent years, credit unions have moved beyond a phase of merely being curious about fintech companies and into a full-fledged partnership, according to Brian Kaas, president and CEO of CMFG Ventures, the venture capital arm of CUNA Mutual Group in Madison, Wis. . CMFG Ventures, which recently launched an online community and webinar series focused on credit union-fintech partnerships, hosted its first-ever in-person Fintech Summit in September, bringing together credit union and fintech leaders to network and discuss ways they can join forces with the goal of innovating and strengthening its offerings.

For part one of this two-part Q&A with CU Times, Kaas explained why fintech partnerships are critical to the credit union industry’s survival, how embedded finance poses both an opportunity and a threat for credit unions, and more. Answers have been lightly edited for length and clarity.

CU Times: Who attended the Fintech Summit and what did they hope to achieve overall by attending?

Kaas: One of the goals of CMFG Ventures is to create opportunities for fintechs and credit unions to actually come together, and so the Fintech Summit really reflected this ecosystem that we’re building. We had about 125 credit union executives—many CEOs from large credit unions—30 fintech companies, and 70 to 80 executives from those fintech companies. We had some other industry leaders in the fintech space – Rodney Hood from NCUA, who has been a big advocate for supporting credit union fintech partnerships; Lamont Black who is a professor and has been very involved in educating the credit union system about blockchain and cryptocurrency; and iHeartMedia, which is very interested in how it might work with credit unions, fintechs and all of this [idea of] economic well-being and financial inclusion, and how it can leverage its broad reach across various multimedia platforms. They really wanted to use this [event] to share ideas, highlight partnership opportunities and illustrate some fintech partnerships that credit unions have had. And a big part of that was networking. We had almost the same thing as a one-session speed dating segment where we rotated credit union executives to different fintech companies. We wanted to do it as a way to expose credit unions to fintechs that they might never have considered talking to. We also had a sort of ‘Shark Tank’ demo session which was very popular. So the goal was to really get a conversation going that would hopefully continue long after the summit ended.

CU Times: What are some of the bigger problems credit unions want to solve by partnering with fintechs?

Kaas: In my view, fintech partnerships are going to be a critical key to the long-term survival of the credit union industry as a whole. The level of sophistication around digital banking and digital solutions has really changed the way the industry operates, and [fintech partnerships allow] credit unions to be able to offer best-in-class experiences to their members. And these are experiences that are not only shaped by the bank down the street, but it is the “Amazon effect”. People have higher expectations across all businesses, and fintechs really make it possible for credit unions to level the playing field and compete with the big banks. JPMorgan Chase has a technology budget almost twice the size of the credit union industry as a whole, so it has really become virtually impossible for even the largest credit unions to address all of these challenges through homegrown solutions, which is why these fintech partnerships are essential for long-term survival.

CU Times: One session focused on “how the credit union system should transform their approach to embedded finance” – what were some of the key takeaways from this presentation?

Kaas: Embedded Finance creates both a huge opportunity for credit unions and the biggest threat to disintermediate credit unions from the lending event. What the built-in economy can be translated into is financing that happens at the time of purchase, regardless of what you want to buy. It used to be, “I’m going to buy a car, and I can either get financing up front from my credit union or get a loan from the car dealership.” But as car sales move online, financing is built in as a function of what the digital experience offers, so credit unions that aren’t built into that platform are going to lose out on that lending opportunity.

Any bigger ticket purchases – say you need to get your furnace fixed and it’s going to cost $5,000 – now these merchants can provide financing on their iPad at home, and again if your credit union isn’t there as one of the options that appears, you will lose out on that loan opportunity. That’s why it’s so important since the lending event now happens at the point of purchase that we find ways to bring credit unions into the homes of those consumers where those purchases and financing events take place. Fintechs create the opportunity for credit unions to play in that area.

CU Times: Are there any fintechs currently helping credit unions play in the embedded finance space?

Kaas: Yes, it’s already happening. We have a company called Moment that was at the Fintech Summit, which is a point-of-sale financing platform that works with different merchants to provide point-of-sale financing. It could be where I have an elective medical procedure and need a loan for that, or I’m at the vet and have a $5,000 bill, and Moment will provide the technology for the merchant to use. It enables credit unions to connect through Moment to provide the loan for that event.

CarSaver would be another good example, and they actually run Walmart’s car buying program. Walmart will be rolling out a car purchase program similar to Costco’s…so are there opportunities where we can place credit unions to finance loans for vehicles purchased through the Walmart program? That’s the power of how embedded finance at scale can present enormous opportunities for the credit union system.

CU Times: How does Buy Now Pay Later (BNPL) fit into this trend?

Kaas: It’s a little different, so Moment would be more of a traditional fixed loan, an unsecured personal loan in most cases, versus a Buy Now Pay Later structure where you might split the purchase into four installments. We [CMFG Ventures] is an investor in an Affirm, which is probably the largest Buy Now, Pay Later company in the US market and was at the Fintech Summit. We looked at what opportunities there are for Affirm and credit unions to work together, so we are creating sandbox sessions for that. And similar to how CarSaver has that relationship with Walmart, Affirm has a partnership with Amazon, so are there opportunities to leverage the power of the credit union system as a whole to work with some of the biggest companies in the US? Because we also want to create opportunities not only for the larger credit unions, which have greater access to many of the partnership opportunities presented by fintechs, but for the medium-sized and small credit unions to also participate in some of these opportunities. So that’s a big area of ​​focus as we start to do more and more work to build out that ecosystem—to make sure that we’re providing opportunities for credit unions of all sizes.