Fintechs Can Help Credit Unions Meet Today’s Challenges

Credit unions are a powerful player in the US financial services industry. With nearly two trillion dollars in assets, $1.16 trillion in outstanding loans and 120 million members, the five thousand federally insured credit unions play a particularly critical role in marginalized communities: they have a 50% higher proportion of branches in low income areas and are better connected with BIPOC communities than larger banks.

Still, despite their size, scope, and connections, many credit unions are struggling. They have long competed with larger banks that have far more resources to innovate and attract customers, and more recently they have been losing market share to neobanks and other fintech competitors.

But fintechs aren’t just competitors of credit unions; they can also be an important ally. Across the country, fintech startups are creating tools, products and other technology for credit unions to improve their operations and retain and improve customer relationships.

According to a recent US Financial Health Pulse survey, only 29% of people in the United States are considered to be “financially healthy.” In response to this, there are a growing number of entrepreneurs working on all different aspects of financial health, including helping people and small business owners stabilize their income, access affordable credit, reduce debt, grow their wealth, and save for the future.

Nickels is one example. Based in Ann Arbor, Michigan, Nickels provides digital debt management products that use behavioral science to improve people’s financial health, creating new credit opportunities and increasing access to customers’ wallet share. They help credit unions by supporting members' financial health and stability, which makes them more likely to stay with a credit union and use additional financial products.

Other fintech startups have created innovations that have benefitted credit unions: 

• Lifesaver (New York, NY) offers an inside sales platform for community and regional financial institutions in the US. Lifesaver is an invaluable tool for credit unions because it helps them compete with the digital world, by digitizing existing offerings and deepening the connection with members through their cross-sale engine.
• Bond.ai (Little Rock, AR) uses artificial intelligence to create unique personas for a credit union’s business or individual customers. This is invaluable for credit unions who may struggle with understanding individual details of customers’ behaviors. Offering Bond.ai also improves member experience by helping members more easily engage with their own financial data.
• Flourish Savings (Berkeley, CA) helps credit unions better engage customers. Their platform helps financially excluded people establish savings habits and achieve financial security by making saving money feel like play.
• Everyday Life (Boston, MA) helps credit unions offer their members understandable, cheaper, and tech-enabled life insurance policies. By simplifying the often difficult-to-understand topic of life insurance, credit unions can increase sales and enhance member experience.

Each of these startups is providing tools and services to help credit unions compete and better serve their customers.

A mutually beneficial relationship

The relationship between fintechs and credit unions also works the other way around. As VilCap Investments Co-Founder Victoria Fram has written, credit unions can serve as a valuable distribution partner for fintechs that are looking to reach low-income consumers. With greater access and connectivity to underserved communities, credit unions offer a path to customers who are best positioned to benefit from financial health products. 

Once again, fintech startup Nickels provides an example. As Joseph Gracia explains, “One of our products helps people resolve student debt. I initially thought universities were the key to scale and reach consumers in need. However, I discovered that there was another route to reaching our target customer: credit unions and regional banks.”

As with any relationship, there are still challenges. For pre-seed and seed-stage entrepreneurs, the ocean of credit unions is hard to navigate. This is due to a variety of factors, including finding the right decision maker at the credit union, enduring long, and often, complicated procurement cycles, and sifting through opaque relationships that credit unions already have with existing suppliers. 

But, the ocean is becoming easier to navigate as credit unions continue to warm to the idea of integrating digital products. Platforms such as Synctera are even stepping in and helping fintech’s navigate early financial institution (including credit unions) partnerships. 

As we look at the future, we believe that credit unions and other last mile financial service providers will play an increasingly important role in helping everyday people access financial services. As the field talks about closing the racial wealth gap and building economic justice for everyday people --- we anticipate and encourage more investment in financial health startups partnering with credit unions and regional/community banks.