Credit unions are increasingly investing in financial technology companies to enhance their services and adapt to modern banking demands. Michael Abraham, the chief strategy officer of Great Lakes Credit Union (GLCU), recognized a significant gap in the way the $2.4 trillion credit union sector operates. Many credit unions lack the financial resources and expertise to develop essential digital tools like wallets and AI chatbots independently. Instead, they have relied on outside firms, often resulting in a fragmented array of software systems that fail to integrate smoothly.
To address this issue, Abraham proposed the creation of an independent arm within GLCU dedicated to investing in FinTech companies. This approach, likened to a “private equity sandbox,” allows the credit union to purchase or license innovative financial services tools. In 2023, GLCU established a new holding company to manage its investments, including a stake in Interface.ai, which developed an AI agent named “Olive.” In December, GLCU also invested in LetMeDoIt, a financial planning app aimed at individuals with disabilities, a demographic Abraham described as underserved and numbering around 45 million.
Credit Unions Seek Growth Through FinTech Partnerships
The landscape of credit unions reveals that over 80% have assets under $500 million, contrasting sharply with larger banks like JPMorgan Chase, which boasts $3.9 trillion in assets. For credit unions, forming partnerships with FinTechs is not merely a strategy for growth but a necessity for survival. “Anything that automates any and absolutely every part of the process we work on is top of the list,” said Christine Blake, CEO of Cardinal Credit Union. Her organization collaborated with Velera, a payments-focused CUSO, and Lumin Digital to launch an online banking platform in 2024 that offers features like real-time payments and personalized financial recommendations.
Data from PYMNTS Intelligence indicates that more than half of credit unions believe FinTech partnerships allow them to innovate faster and on a larger scale than they could achieve internally. With 66% of credit unions planning to rely on FinTech partners for mobile and digital payments within the next three years, the urgency for modernization is palpable. The sector, which collectively serves 145 million members, recognizes that enhancements like chatbots and improved fraud detection are essential to remain competitive, particularly with younger customers.
Navigating Challenges in FinTech Collaboration
Despite the potential benefits, collaborating with FinTechs presents unique challenges. The “Innovator’s Dilemma,” as described by Nadim Homsany, head of AI and innovation at Boeing Employees Credit Union, illustrates the struggle between maintaining organizational stability and embracing disruptive innovation. Homsany, who previously co-founded EarnUp, a platform for automating debt payments, emphasized the need for a protective environment within larger credit unions to foster innovation without bureaucratic constraints.
In practice, partnerships often focus on enhancing existing services rather than creating entirely new ones. More than 60% of credit unions work with FinTechs to add new features to their products. For instance, Prizeout, a FinTech focused on cash-back rewards, collaborates with credit unions to integrate loyalty programs directly into existing systems. This model not only improves service offerings but also gives credit unions a voice in shaping the technology they use.
However, the merger of FinTech speed with credit union caution can lead to misunderstandings. Credit unions typically operate on annual budgets and require consensus for spending, while FinTechs often work on tighter timelines. This misalignment can delay projects significantly. For example, Wyman from Coastal Credit Union noted that discussions with Prizeout took nearly two years before they could join the CUSO.
Ultimately, as credit unions navigate this evolving landscape, their focus remains on enhancing member experience and ensuring financial security. By strategically investing in FinTechs, they aim to retain their community-oriented service model while embracing the technological advancements necessary to thrive in a competitive financial environment.
