Figuring Out Fintech

Practically no industry has gone untouched by rapidly changing technology—certainly not the credit union industry. To help credit union leaders truly understand how financial technology is impacting their organizations and how to make the most of it, we turned to fintech leaders to share their advice. 

Finding Your Way Around Fintech

Attending conferences and learning events are table stakes for CU leaders who want to stay on top of industry challenges and trends. “I encourage those leaders to also attend some of the fintech conferences outside [the credit union industry] because I think it helps open the eyes of CU leaders to what’s happening [elsewhere],” says Brian Kaas, SVP/corporate development at CUESolutions provider TruStage™ Ventures, Madison, Wisconsin. He also recommends that they join TruStage Ventures’ Fintech Forum.

Collaborating with those who are immersed in the emerging technology space is also key for CU leaders, and so is talking to their peers. “That is a very powerful network for credit unions,” says Kaas, “to understand challenges that other CUs have encountered too and help along with fintech partnerships.”

Kaas believes there are four very broad but significant emerging technologies and trends that credit unions should be tracking now. “One is the emergence of embedded finance,” he says. “That is financing and lending moving closer to the point of transaction and to the point of sale. 

“We’re working within TruStage to find opportunities for credit unions to participate in that world of embedded finance,” Kaas adds.

“Two is the utilization of artificial intelligence and machine learning across a very broad component of services and solutions. Three is the move towards instantaneous decisioning and advanced underwriting when it comes to lending. Four is one that’s been out there a while but quietly continues to make advances, which is the use of blockchain as a technology—which is different from cryptocurrency, which is a use case for blockchain,” he explains. 

On the compliance side, Kaas is tracking potential regulation around the use of AI and the use of alternative data for underwriting. “There are certain privacy concerns that this technology can create. We want to ensure the technology is not used in a way that could have unintentional, discriminatory impacts. Obviously, the regulators share those concerns.”

Another area that is garnering attention is how state and federal CU examiners are viewing fintech partnerships. “I think the NCUA has done a really nice job of taking a leadership role around the topic of fintech," Kaas says. “They’ve created [the role of] director of financial technology. So, we spend time with the NCUA on [fintech] topics. 

“And lastly,” he notes, “we’re seeing a growing number of credit unions that are interested in investing in fintech companies and monitoring how the state and federal rules are going to evolve to better enable that to happen.”

Continuing Fintech Education

There are several tech and regulatory areas CUs should be diligently monitoring, according to Vladimir Jovanovic, VP/innovation for CUESolutions provider PSCU, St. Petersburg, Florida: digital payments, blockchain technology, open banking initiatives, optimization via artificial intelligence and machine learning, and cybersecurity’s role in digital finance. Developments in these areas significantly influence the trajectory of the dynamic financial landscape, he says. 

“For example, the recent arrival of the Federal Reserve’s FedNow Service expanded the ability to send and receive funds in real time, 24/7/365—and credit unions that track this expansion are well-positioned to act strategically to deliver the benefits of faster payments to their members, among other technological advantages,” Jovanovic says. “Additionally, keeping a pulse on regulatory shifts is vital for compliance, security and competitiveness. The CFPB may soon be releasing language that could help shape consumer rights related to sharing consumers’ financial data. Staying close to topics such as this one will ensure CUs are ready for any changes that may be required by the CFPB.”

CUs should focus on emerging technologies with the greatest potential to heighten member experiences and mitigate fraud risks. “The developments around open banking efforts as well as advancements and innovation in generative AI, combining large language models with natural language understanding and machine learning, are particularly promising,” Jovanovic says. “While leveraging AI and ML to analyze large amounts of digital and biometric data can help deliver a better member experience, it can also be more effective at keeping fraudsters at bay.”

As an example, Jovanovic says that PSCU is working alongside CUs to leverage proprietary AI models and machine learning capabilities to better understand fraud trends and help CUs identify potential fraud risks with a high degree of speed and accuracy.

Fintechs play a pivotal role as the driving force behind many emerging technologies. “These nimble and innovative companies are adept at addressing specific gaps in the financial industry or enhancing existing processes,” Jovanovic says. “... Collaborating with fintechs allows credit unions to offer competitive, innovative solutions—driven by leading-edge technologies—to deliver on expectations for fast, seamless member experiences.”

Encouraging Innovation

Understanding emerging financial technologies is imperative in our fast-evolving financial landscape. “From my experience, including being the founder of Geezeo (acquired by Jack Henry in 2019), a personal financial management fintech, I’ve seen firsthand the transformative power of innovation,” says Peter Glyman, managing director of corporate strategy at Jack Henry, a CUES Supplier member headquartered in Monett, Missouri. 

It’s helpful for CUs to nurture an internal focus on digital transformation and innovation. “Having dedicated teams within the credit union centered on innovation ensures that the institution is always at the forefront of technological trends,” Glyman says. “Embracing a collaborative spirit is equally crucial. By forging strategic partnerships with fintechs or other tech providers, CUs can combine the agility and innovation of startups with the stability and trust they’ve historically offered to their members.”

Technological advancements, along with regulatory changes, are shaping the future of financial services. Glyman shares the emergence of open banking, which provides third-party access to financial data through application programming interfaces, and API-driven digital banking frameworks as examples. “[These technologies] are revolutionizing how financial data is shared and accessed, bridging the gap between credit unions and pioneering fintech solutions,” he says. 

Credit unions should also stay on top of cutting-edge security features and data security compliance. “As more services transition online, innovations like biometrics and AI-driven identity checks are becoming indispensable tools for digital identity verification. Monitoring developments in self-sovereign identity will be necessary. The global emphasis on data privacy, highlighted by regulations such as Europe’s GDPR (General Data Protection Regulation, effective 2018) and California’s CCPA (the California Consumer Privacy Act of 2018), underscores the importance of robust data protection protocols.”

Another area to watch, Glyman notes, is decentralized finance—which uses secure distributed ledger technology and removes centralized institutions from financial transactions—and blockchain. “Although nascent, DeFi promises to redefine traditional financial structures and must be monitored closely,” he says.

Advancing With AI

Glenn Grossman, director of research at CUESolutions provider Cornerstone Advisors, Scottsdale, Arizona, agrees with predictions that AI will have a major impact on financial technology. “This is beyond credit unions; this is broader than the industry itself,” he says.

But there’s plenty of misinformation along with the hype. “Anything that has to do with data and analytics is getting relabeled as AI, and that could be a harmful thing for organizations because a lot of people don’t know how to see the difference.

“AI is considered exciting and novel, especially compared to traditional, predictive analytics,” Grossman says. As a result, CUs should do their due diligence to confirm whether they’re really working with AI, particularly in the credit risk area.

“Can AI help? Maybe, but you must ask yourself what you are going to get out of it. Will AI tell you whether this person is a good credit decision? The core of this decision is fundamental predictive analytics that have been in existence for decades. Maybe there are machine learning models in use, but ChatGPT and things like that have no role in figuring out if I’m going to pay my bill next month.” 

If there’s one AI application that CUs should act on sooner rather than later, it’s in the communications service area with chatbots. “Like any technology, you need to have a plan for it,” Grossman says. “Make sure you’re applying good management principles deploying it. If it doesn’t align with your business model, you could argue it’s not even worth investing in, but it’s good to keep an eye on it.” cues icon

Celia Shatzman has penned stories on topics ranging from beauty to fashion, finance, travel, celebrities, health and entertainment.