The Growth of Fintech: Can Credit Unions Have Too Much of a Good Thing?

The concept of fintech is nothing new.

From longer-term, more mature partners like LendKey to nascent, early-stage start-ups, every credit union is aware and typically working with—to some degree or another—at least one fintech provider. But is the rate at which new players are entering the market untenable?

With some 26,000 fintech companies now operating in the U.S., the marketplace can seem disruptive at best, overwhelming to say the least. In a recent episode of LendKey’s 22 Minutes in Lending podcast, Dr. Brandi Stankovic, a leading strategic advisor renowned for her insights into credit union growth strategies, gave a no-holds-barred account of the strategic benefits and risks the current fintech ecosystem poses for both parties.

New Kids on the Blockchain

The fintech market has been steadily growing and maturing for a generation, but the digital evolutions of the last decade—emergence of blockchain technologies, mobile banking, AI etc.—has seen a burst of new opportunities and, therefore, new fintech.

“I’ve been going to the Governmental Affairs Conference for 20 years,” says Dr. Stankovic, “but over the last few years I’ve found myself walking through the exhibition hall wondering ‘Who the hell are these people?’ There are so many new businesses there, and that represents both a risk and reward.”

Stankovic notes that an industry doesn’t just swell like that for no reason. “Consumer behaviors and expectations are changing daily, and typically it’s fintech reacting first. Certainly the younger fintech are more nimble, more agile, able to move and develop solutions faster than your typical credit union–or even some of the longer-tenured, larger fintech partners.”

That’s not to say that credit unions should exclusively pursue the latest shiny object, however.

“I believe credit unions should challenge their loyal partners, the organizations they’ve worked with for years, to do better; to be better,” Stankovic adds.

“If credit unions are always just shopping around for the latest partner, it doesn’t give existing partners the opportunity to grow and improve. That means new, emerging players are coming in who don’t necessarily have the experience and knowledge of our system or credit union members, and that can be just as dangerous.”

Partners vs. Vendors: The Key to Growth?

Of course, credit unions cannot afford to dismiss emerging fintech en masse either. Instead, what Stankovic advocates for is a focus on impact and intentionality.

“Whether it’s upskilling and improving an existing partner, or integrating a new one, credit unions need to re-evaluate their relationships with technology providers,” says Stankovic.

“Like the broader credit union system, the key to success is cooperation and collaboration. It’s about finding partners rather than vendors. That can require a willingness to challenge the status quo; for leaders to step outside of their comfort zones and engage in difficult but necessary conversations about the future of the industry and the role fintech has to play in it.”

Stankovic points to the contraction of the credit union system, particularly the net-volume of credit union losses over the last ten to fifteen years, as a core concern that everyone is aware of but too few are openly discussing.

“Boards and executives must be prepared to call it as it is and ask the right questions of themselves and their existing partners.

“If you know your credit union is at risk of closure–or worse, irrelevance–then you need to be educated on what solutions are available to help you address your credit union’s specific challenges. You need to be honest about what those needs are, and that can be pretty uncomfortable.”

“Future-proofing a credit union requires active participation on the part of the board and the c-suite in sourcing and implementing the fintech partners that can support longer-term success.”

Addressing Critical Issues: Student Lending and Younger Members

One area where credit unions can make a significant impact is student lending. Despite the enormous demand for education loans, many credit unions shy away from this market due to perceived risks. Currently, credit unions represent just 3% of the student lending sector, despite student lending opening up access to a younger membership group and the opportunity to build long-term relationships.

Stankovic argues that with proper risk management, student lending could build member loyalty and serve communities effectively.

“Credit unions need to overcome their cautious stance and recognize the long-term benefits of offering such crucial financial products to a membership that they are looking to attract,” she says.

“It’s just one avenue, but it’s a potentially powerful one. Particularly to attract and secure younger members before they reach financial maturity. It’s an opportunity, and credit unions can’t afford to shy away from too many of those.”