A Credit Union Partner Playbook

The goal of any credit union seeking a partner is to find one that can help manage a particular area of service. Payments is an important area, Whitney says.

“Looking for a payments partner makes sense for us, because in our case, we’re a bit different than other credit unions,” she explains. Central 1 is a leading service partner to other Canadian credit unions: a liquidity manager, payments processor and digital banking solution provider.

Partnering that improves one area of service helps make overall service more effective, Whitney adds. The credit union can concentrate on areas where its direct input is best; the payments partner specializes in tech that the credit union may not necessarily want to take on or have the capacity to manage by itself.

“We’ve outsourced some elements of how we do payments processing because we knew the system would benefit from a large, proven player who is already providing this kind of service around the world. It has worked out really well for our members and our clients and for us,” Whitney says.

“Payments is a really complex area, with a lot of particular sub-areas, so we’re always looking for specialists who complement the areas where we thrive,” she says.

“The alternative would be for us to try to do everything ourselves. That’s not only unwise given our size; it’s counter to the cooperative nature of the system,” she says.

Serving Members and Keeping up Digitally

There appears to be growing interest in partnerships, including those in new service areas. The interest in these partnerships is not only among credit unions and small fintech firms, but also well-known tech giants that operate in finance- and banking-related areas.

“Big tech firms (among others) are becoming increasingly interested in the financial services industry, introducing a new wave of opportunities and challenges for credit unions,” says a report called Is Your Credit Union Prepared for the Future? by professional services firm MNP.

“Apple is offering loans through Apple Financial Services, has launched its own credit card and is working on payment processing and credit risk evaluations. Amazon also provides financial products through AWS financial services, including Amazon Cash, Amazon Pay, loans to small and medium-sized businesses, and credit cards—and will soon launch chequing accounts,” MNP says.

“Additionally, Google offers a Google Pay debit card that skips the need to transfer cash to a bank account,” it says.

“Some of these big tech firms are already partnering with credit unions to offer exciting new opportunities to increase innovation, expand reach and advance personalization,” MNP’s report says. There’s more than one way for credit unions to get on board and work with partners and in many cases, to expand services to members through these alliances, the report adds.

Banking as a Service

For example, the MNP report says “further partnership opportunities may be available outside the financial services industry through the banking-as-a-service model.”

BaaS is a tech ecosystem. It’s analogous to software as a service, where firms that need to deploy a technology for a particular task “hire” the software for a relatively small fee when they need it, rather than spending large amounts to buy the software outright. BaaS lets such traditional service providers as banks and credit unions rely on third-party partners without having to build their own tech infrastructures, which constantly require maintenance and expert updating. One example is buy now, pay later offerings.

These kinds of partnerships can be nimble, cost-effective, and responsive to customers and members, who expect services to work for them faster and faster in the digital era. A report by consulting firm Deloitte Digital found that internationally, “BaaS offerings are rapidly gaining ground” because consumers are getting used to using fintech and are growing impatient with traditional services.

Deloitte found that 30% of banking customers are apparently impatient enough that they’re considering switching banks, and 42% are familiar with BaaS, having already tried a buy now, pay later service.

The expectation that financial institutions, including credit unions, will offer the services that a tech partner can offer is not a new one. But it’s growing, and financial institutions are extending their service offerings into other, non-banking areas, MNP’s report says.

“Product and service partnerships are not a new concept between traditional financial services firms and non-financial services firms. However, further integration with retail, healthcare and other sectors under the same or adjacent ecosystems have the potential to deliver significant value and benefits to the clients or members of both organizations.”

Where There’s a Will …

In June 2023, $1.6 billion Northern Credit Union, which serves 28 communities in Northern Ontario, announced a partnership with Willful, a platform that lets Canadians create a legal will and other estate documents online. Northern CU members can use this online service to create a wide range of affordable end-of-life plans that can stand up to legal scrutiny. 

Drawing up a will is apparently daunting for many people; a 2018 poll found that 51% of Canadians don’t have one in place. Now, the credit union’s 75,000 members can get an exclusive discount to create theirs.

“This partnership ensures that our members can access a seamless platform and compassionate guidance to create a personalized and legally sound will,” says CUES member Liisa Wooley SVP/member experience at Northern CU in a news release. “Willful makes creating a will easy and convenient,” she said.   

In early 2023, $30.8 billion Meridian, Ontario’s largest credit union and the second largest in Canada, also announced a partnership with Willful, as well as with another online estate planning company called LegalWills.ca. Even among the minority of Ontarians who do have a will, one in 10 are out of date.

“This partnership will empower Meridian’s more than 360,000 members to complete their will, power of attorney documents, and other estate plans online for a fraction of the cost of visiting a lawyer,” says Kirsten Sonius, VP/retail banking at the CU.

“The younger you are, the less likely you are to have a will, so we hope this partnership encourages our members of all ages to create or update their will,” she adds.

Credit unions need to have a structured approach to the partnerships they consider, says Atlantic Central’s Masterson.

“I’ve seen organizations use a ‘partnership playbook.’ It’s an assessment process where you look for alignment. You want to make sure the partner shares the values and a similar culture of your organization. You want a partner who sees the world in the same way you do,” Masterson says.

Masterson, who took over as head of Atlantic Central in November 2022, has experience with developing partnerships in his former role as chief financial officer at Concentra Bank, doing business as Wyth, which provides banking and trust services to credit unions.

“We spent a lot of time talking to potential partners before choosing. We had an assessment process to weed out ones that probably wouldn’t fit with our culture or values. This took a lot of effort; it meant we had to develop a large pipeline of potential partners to determine which ones might work,” he says.

It takes time to work through the list of potential partners, which is something Masterson and his leadership team are doing at Atlantic Central right now.

“We’re in the days of early assessment, talking with prospective partners to determine whether we’ll fit with each other,” he says.

A Partner Playbook for Fintechs and Beyond

When considering partners and partnerships, Masterson says it’s a good idea for a credit union to work from a playbook—a set of guidelines to help determine the pros and cons of entering any kind of mutual deal.

One of the first questions to consider is why the credit union is looking toward a partnership for a particular service or function.

“You have to be cautious. You have the ‘crown jewels’ of your own organization—your core group of members and the core services you provide to your member. You want to maintain those core needs. But there might be adjacent services that are not within your organization’s skillset or technology, things that are ancillary yet complementary to what you offer,” he says.

“Every organization will have its own analysis of what makes a good fit. But there are common questions to ask yourselves. Is the prospective partnership a strategic fit for your credit union? Will the partner’s corporate or business culture be a good fit with your credit union’s culture?” Masterson says.

“Each entity has to define, what is it you need to protect. You want to make sure a partner doesn’t come in and take over that part of your organization,” he adds.

Understanding the Details

Credit unions that give up control of credit card issuance can lose much of that revenue to the outside suppliers they partner with to provide that service, he says. As well, partnering with outside wealth management firms can also make it harder for credit unions to provide in-house wealth management services.

It’s critical for both sides to understand the details of a partnership, Whitney adds.

“Everything related to regulatory obligation is baked into any agreement, of course. And both sides need to be clear on who owns what in the partnership, and who does what,” she says.

“Partners also need to know about everything related to the processing of data—we have a need for it to be processed in Canada,” she says.

“The ownership of data is important too. Every financial institution guards its data closely, and they should. You want to be clear on who gets to see what and how that data is used, how it’s kept anonymous, how it’s kept secure and so on,” she adds.

As in any contract or business arrangement, it’s important to anticipate what will happen if things go wrong with the partnership. “You spend a lot of time looking at ‘what happens if,’” Whitney says.

“For example, as a heavily regulated institution, we have some obligations around auditing, which enable us or our customers to ensure that the performance or the standards we agree on with the partner are met. Cybersecurity is also a huge area that needs attention—a credit union will want to know what global cybersecurity standards are being met,” she adds.

“These partnership agreements are not short documents by any means,” she notes.

The search among Canadian credit unions for new partners is going to grow and intensify, Masterson says. The growth will come in several areas, he and others predict.

“Fintech is one area. Credit unions engaging with various fintechs find that there are all kinds of bright young entrepreneurs creating new solutions,” he says.

Another factor fostering growth is the advent of open banking. The federal government is expected to release an update on the Canadian open banking framework later this year or early in 2024, which will set the stage for future partnerships.

Open banking gives credit union members the ability to share their data, making it easier to work with partners and build a wide-ranging view of a member’s financial situation. “Studies show [that] people are open to sharing financial information if they believe it is secure and will create value for them,” MNP’s report says.

The quest to be able to provide members with a whole financial picture that’s secure will lead credit unions to look for partners who can provide this service under the credit union’s umbrella. Otherwise, members may look for competing financial institutions that can deliver this.

“If credit unions cannot add value for members through their data, there is a real risk that relationships will shift to competitors offering a more attractive value proposition,” MNP says.

“At the end of the day, banking is really about managing risk. So when a credit union finds a partner, everyone wants to have confidence in the partners and the partnership,” Masterson says.

“Once you strike a partnership, the other important aspects take hold — managing the relationship, maintaining transparency and collaboration between the partners,” he adds.

“A healthy partnership will continue to evolve over time, making sure that both partners are getting what they need out of the partnership—and the members.”

David Israelson is a non-practising lawyer who writes about Canadian business topics.