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

by James · October 24, 2022

CUNA Mutual Group Chief Economist Steve Rick speaks at the Fintech Summit

For part two of this two-part Q&A with CU Times, Brian Kaas, president and CEO of CMFG Ventures, the venture capital arm of CUNA Mutual Group in Madison, Wis., shares more insights from the company’s first-ever Fintech Summit, including why it’s important to have NCUA on board with credit union fintech partnerships, how fintech can help credit unions face economic changes and where the credit union industry currently stands on its journey with fintech companies. Read part one here.

Answers have been lightly edited for length and clarity.

CU Times: As you mentioned, NCUA Board Member Rodney Hood was on hand to discuss NCUA’s support and encouragement of fintech partnerships. What is the significance of NCUA’s support for credit union fintech partnerships, and why is it important for credit unions to have the agency in their corner?

Kaas: There have certainly been concerns expressed by credit unions because this is new territory in many respects when it comes to these types of partnerships, and it has created a reluctance on the part of the industry to pursue them as aggressively as they otherwise would have. The NCUA obviously wants credit unions to be accountable for this, and they expect credit unions and fintech to comply with all applicable laws and regulations. But at the same time, NCUA sees this major shift in power that is happening when it comes to fintechs and large banks gaining more market share, and that market share is at the expense of credit unions and smaller banks. They want to ensure that credit unions have the tools needed to stay competitive, and that really speaks to the industry’s long-term strength and soundness. They see fintechs as a tool that will help ensure the long-term strength of the credit union system, and they do not want to create barriers to this type of partnership. I think NCUA has taken a very healthy approach to these partnerships, and in working with field examiners to provide training on how to evaluate these partnerships that don’t necessarily fit what partnerships looked like for credit unions 20 years ago.

CU Times: What were some of the top takeaways from the Fintech Summit presentation focused on cryptocurrency, blockchain and fintech?

Kaas: It was a really educational session, I think many of us in the financial industry are still learning what blockchain is and isn’t and what cryptocurrencies are. You need to have a basic level of knowledge to determine, what, if anything, should our credit union do with regards to cryptocurrencies? We have a few credit unions that are starting to dip their toe in the water by allowing their members to engage in certain types of cryptocurrency trades, and we are starting to see use cases emerging around blockchain that could have a significant impact on the financial services industry. We want to ensure that credit unions understand what is happening, the potential implications of this and that they have access to real-time information regarding the opportunities that are out there.

At one of our midsummer events with about 30 credit unions, we asked if they tracked the amount of deposits leaving the credit union for Coinbase or one of the other crypto exchanges. For some credit unions, it was a significant amount of deposits they were losing each month – in the millions. It has probably cooled off a bit given that the crypto markets have struggled, but they will come back and now is actually a good time for credit unions to develop a point of view and a strategy around crypto and blockchain.

CU Times: CUNA Mutual Group Chief Economist Steve Rick gave a presentation on financial trends in turbulent times at the Fintech Summit. What is the relationship between the economy and credit union fintech partnerships, and how might a potential recession affect them?

Kaas: There are definitely some direct links there, with the use of fintech partnerships to address some of the larger macroeconomic pressures, whether they are headwinds or tailwinds in the market. For example, with the rising interest rates and the significant increase in the cost of a home, mortgages have taken quite a significant drop. If a credit union relied quite heavily on mortgages or mortgages, that business will have taken a significant drop – so are fintech partnerships that can be used to increase lending in other loan classes to offset the decline in mortgages? When rates come back down, there’s going to be a period of pretty significant refinancing, and there are some fintech partnerships out there that are good at automating some of the refinancing options. So there is a fintech that can help either mitigate some of the headwinds you face or create that headwind. [Another example is] some of the AI solutions that can be implemented in underwriting – how can you improve your underwriting to reduce losses? All of these things become more important if we enter a recession. So there were some pretty good ties that these credit union leaders were hearing that fed into the trends that Steve was talking about.

Rear image of the Fintech Summit audience

CU Times: What emerged from the Fintech Summit in terms of challenges credit unions face in their journey to partner with fintechs?

Kaas: One of the comments I heard from many of the credit union attendees was that it opened their eyes to a lot of opportunities they never realized existed in terms of how they can partner with fintechs. One of the challenges the industry still faces is that it’s such a new world out there when it comes to fintech, so it can be overwhelming for credit unions trying to develop a strategy or game plan for working with fintech. And once they have a strategy, [the question is], how do we go about finding companies that can help in that strategy? So getting to know the space is a challenge, in addition to the historical concerns around regulatory compliance.

Another thing is, as we’re going into a bit of a volatile market here, I always ask credit unions to look at the investors behind the companies that you might want to partner with, because you want to make sure that those investors have the ability to provide the financing that’s needed in a period of volatility.

CU Times: What is your overall assessment of where the credit union industry is now in its journey of partnering with fintechs?

Kaas: The industry as a whole has crossed this stage of realizing that these fintech partnerships are going to be a way of doing business as we move forward. It’s a big step from where they were two or three years ago, when I think there was generally curiosity about fintech, but not a feeling or a need to do something about fintech – I think that’s now changed.

As far as where credit unions are on their journey, it’s all over the map. We’ve seen credit unions that are extremely sophisticated and have had these partnerships in place for five years — and coincidentally or not, they happen to be some of the fastest growing credit unions out there — while others are just starting to have these executive-level discussions.