Why Should Credit Unions Collaborate with Fintechs? Discovering Ways to Modernization
Armada Labs sees into the nature of the partnership between credit unions and fintechs and defines the action plan on how to collaborate.
In the search for innovation, credit unions enlist the help of fintechs to update or reinvent traditional financial instruments. The trend seems to be huge; just to highlight the most vivid recent events:
- Goldman Sachs enhances its BaaS services with technology-first tools and solutions such as an SME lending program developed in collaboration with Amazon and Apple Card.
- Thunes, a cross-border payment solution provider, made an agreement with the UN Federal Credit Union to connect the union’s members with its advanced payment capabilities.
- The Australia-based Tyro bank plans to launch an innovative deposit product with the help of the Mambu startup’s cloud solutions.
- The banking tech startup Fiserv broadens its customer portfolio with credit unions, with the latest addition of the American Eagle Financial Credit Union.
- Regal Software has recently introduced its RegalPay solution for banks and credit unions to automate payments within their ERPs.
All these facts prove that the future of credit unions is in digital solutions. And this collaboration between them and fintechs may bring a lot more than it seems on the surface. Let’s see what these unlikely benefits are for you as a credit union.
Top Reasons to Partner with Fintechs
Expanding Business Models
The banking domain is under disruption now, which gives financial providers a serious incentive to innovate. However, often, they fail to keep up with fintechs, since they have to rebuild their legacy systems in most cases, which takes time.
At this point, a better solution will be to partner with fintechs and “branch off” your service with a stand-alone digital banking model like the one launched by Chase. A separate digital banking model with services like online accounts, low interest rates, and more will give you access to the markets that were previously unattainable with your core expertise.
However, if you still want to update your current legacy system, you can do it with many benefits — again, with the help of fintechs. We already defined that rebuilding the old system takes time, yet some fintechs offer cloud-based package solutions that accelerate the whole process. Thus, what might take years in the case of a legacy system takes several weeks with new cores.
Operational Gains and Better ROI
By automating your operation with fintech solutions, you can minimize costs and eventually demonstrate better ROI. Moreover, it will allow you to attract clients and earn revenue from them without hiring additional staff or spending more money.
A More Insightful Look
In traditional practice, you have no precise idea what your clients do with their money, you may only guess. However, with the right fintech solution at hand, you gain better insights into your clients’ spending behavior and thus develop more targeted offers.
Finally, the partnership with fintechs can contribute to your cultural diversity. At the beginning of this section, we mentioned market diversification as one of the benefits, primarily indicating the geographical perspective. At the same time, technological advancements establish a new mindset within your credit union, helping to attract younger audience segments like Gen Z to your credit union. And here we are talking not only about the clients themselves but also potential employees; innovation is what should bring cultural diversity to your organization.
What Questions to Focus on Beforehand?
Fintechs may offer a solid technology solution for your credit union, but it’s not always the right one to give you the boost. Or a potential partner may not be the right vendor for you. To avoid these pitfalls, here’s a checklist of questions you should ask yourself before choosing a vendor.
Do you really need their services?
They may offer you a good deal but actually give you something that you — or your clients — don’t actually need. So make sure their offer presents a real value for your business.
What industry are they targeting?
Consider the practice area of the fintech you’re considering partnering with. In fact, the provider may be open to credit unions, but they may not necessarily be its real target. In that case, they are not a good fit.
Is it financially reasonable?
The provider seems perfect, but its price or ROI somehow confuses you? If the offer doesn’t align with your budget, you need to look for other options.
Do your cultures match?
The cultural factor is particularly important for credit unions as they attach much personality and culture to their service. And if the provider doesn’t share the same values as you do, your partnership may be challenging from the start.
What about scalability?
In this competitive environment, you need to grow quickly, so make sure the provider has a scalable and flexible solution adjusted to ever-changing game rules. Or otherwise, your clients may plan to expand, and you should adjust to them, too.
Answering these questions will help you have a good start. Otherwise, you risk wasting time and money on the wrong solution.
A Match Made in the Digital Age
Of course, a potential partnership with fintechs presents certain risks, in particular regulatory compliance. In this regard, fintechs are likely to adhere to strict rules, yet this should not be treated as common anyway, so make sure your legal and compliance teams closely monitor this issue.
In any case, if you are still not sure if the selected fintech provider is a good fit for your credit union, don’t hesitate to apply for our assistance. We will select the right partner for you to collaborate with and issue loans collectively.