The Customer Effect

How credit unions are embracing fintech to stay competitive

  • As fintech startups and banks upgrade their customer experiences through technology, credit unions are fighting back through digital-centered customer services.
  • Some credit unions have amped up their technological offerings to stay competitive.
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How credit unions are embracing fintech to stay competitive

For someone who’s digitally savvy, joining a credit union for personal banking isn’t an obvious choice given the perception that they’re behind the curve. That is, unless you happen to live in a West Coast tech hub in the shadow of the digital giants.

Take First Tech Federal Credit Union, which is headquartered in Mountain View, California, with branches primarily in Washington State, California and Oregon. With a significant portion of its 500,000-person customer base living and breathing tech, Brian Ziff-Levine, director of cards and payments, said First Tech had no choice but to embrace technology. (Credit union customers are called members because they’re also owners).

A lot of the credit unions get a pass when it comes to perhaps not having the most up-to-date online experience or a few-generations-old mobile apps. We don’t get the same leeway,” he said.  

Ziff-Levine said First Tech will be one of the first credit unions to join the bank-backed peer-to-peer payments network Zelle. The credit union plans to roll out payments innovations in coming years, including confirmation through facial recognition (“selfie pay,” working with Mastercard) and the issuance of card credentials to a customer’s phone after a successful credit card application.

First Tech may be ahead of other credit unions and even some smaller banks. But to industry watchers like Shana Richardson, who runs a technology company that works with credit unions, they are aren’t moving fast enough to keep up with fintech startups. Richardson said credit unions need to up their game by working more closely with third-party suppliers and fintech startups; and rolling out more consumer-centric features like peer-to-peer payments, push notifications and personal finance tools enabled by technology.

“There are particular shops and markets or geographic areas that are really doing interesting, unique things, but it’s fairly pocketed, but for an industry or movement, we don’t seem to be collaborating at a fast enough rate to stave off the impact of fintech,” she said.

So while credit unions get high marks on serving their loyal customers, they risk falling behind on technology.

“They need to stay focused on gathering the data that will allow them to gain insight so they can help customers manage their finances,” said David Albertazzi, senior analyst at Aite Group, a research and consulting firm.

In response to this, other players in the industry, including CUNA Mutual, which offers insurance and technology products to credit unions, started a venture fund to help credit unions update their technology.

Some credit unions are using fintech startups to develop digital customer service tools and update backend technology to retain and expand their customer base.

“We can’t sit back on the sidelines and complain,” said Shazia Manus, chief product and strategy officer for Co-op Financial Services, a network of credit unions across the U.S. “With fintech, we can leverage the same API open architecture and build solutions. We have a huge advantage because we know the members a lot more intimately than the bigger players and fintechs.”

Manus said startups and credit unions are natural partners because startups can use the credit unions’ networks to scale and credit unions need the technology.

Co-op has partnered with financial technology companies including Ondot Systems to create a card fraud prevention tool called CardNav, which offers transaction-level alerts and controls via smartphones. The CardNav API integrates with customers’ mobile banking apps.

Others are also looking at technologies that help them use data. One of Canada’s largest credit unions, VanCity, upgraded its backend technology in late 2016, which should help it use customer data better. It also opened up APIs so that fintech companies can integrate third-party apps with customers’ bank accounts.

VanCity, which has over half a million customers, has focused on customers that interact with the credit union primarily through digital channels, said Jay-Ann Gilfoy, svp of digital solutions and business technology at VanCity. VanCity is also using customers to beta-test new products.

But what sets apart credit unions is their focus on values, which also influences which financial technology startup partners they choose. Gilfoy said VanCity will only work with fintech companies that care about building communities, environmental sustainability and economic inclusion. “We want to make sure the fintech partners are in it for more than just the money.”

Despite the competition from banks and startups, Gilfoy said the focus on values will ensure that credit unions will continue to have a place in the market. She added that it’s a big part of the reason Vancity gets 25,000 to 30,000 new customers a year — mostly younger ones.

“It’s predominantly because of values,” she said. “They believe credit unions are a better place to put their money.”

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