The financial services industry is on the precipice of enormous transformation because of new technology developed by fintechs. For credit unions, 2019 will be a year to sink or swim: join the fintech revolution or risk being permanently left behind. But how can the system balance embracing change with prudent financial management?
Fintechs, technology-based startup firms that provide financial services to people and businesses, already impact the way we pay bills, invest money and transfer funds. Having experienced tremendous growth over the past few years, fintechs now total more than 5,000 companies worldwide. In Canada, while our strict regulatory environment has led to one of lowest global adoption rates of fintechs at only 18%, credit unions are already collaborating with firms to create efficiencies, develop new products and improve the customer experience. In fact, 82% of financial service providers are expecting to increase partnerships in the next three to five years according to PwC.
But working with fintechs need not mean taking on excessive risk. Although credit unions will have to become comfortable with the uncomfortable – for example, extending beyond their usual list of vendors to work with new firms – the system’s dedication to reducing risk could be advantageous when partnering with fintechs. If credit unions can sensibly apply existing procedures to assess and monitor the risk of fintech partnerships, they’ll be positioned to launch new technology to meet evolving member needs. Look no further than the partnership between Celero, ASAPP Online Solutions (a fintech) and Alberta’s Encompass Credit Union for an example of how credit unions and fintechs can work together. ASAPP provides their deposit and lending solutions to Encompass, working with IT provider Celero to directly connect to the core banking system. In June 2018, Encompass launched an online account opening tool using this new technology so opening an account is now as easy as a click of a button.
Credit unions partnering with fintechs is a natural fit. Fintechs are created for the people, by the people to serve a market opportunity, just as credit unions (or “people’s banks”) grew out of a need to better serve those who couldn’t get a loan from the bank. Credit unions are well positioned to continue to take the lead in offering innovative member solutions by working with fintechs. After all, we were first to offer products and services from debit cards and fully functional online banking to mobile deposit apps, and today we offer competitive products and services with the added bonus of profit-sharing. Becoming a member is as easy as opening a chequing account, and when you’re a member you have a say in how your credit union invests in your community.
There is still much to be done to revolutionize and modernize credit unions across Alberta. 2019 must be the year of innovation as new fintechs continue to emerge. But I believe credit unions can be vigilant in assessing potential fintech partners, and continue to offer the best products and services possible using the most cost effective and secure technology.