Credit unions are increasingly joining forces with financial technology – or fintech – startups to offer new consumer-focused products to clients.
"Most of the larger credit unions have entered into partnerships or are actively exploring them right now," says Doug Macdonald, a consulting partner in the financial practice of MNP, a national professional services firm. "It's a symbiotic relationship. The credit unions provide members, they provide capital and a tradition of customer service, while the fintechs bring advanced analytics, plug-and-play functionality and faster time to market."
For fintech startups, though, the biggest advantage might be legitimacy.
Many Canadians are still wary of doing business with new, online-only, financial services providers, says Kevin Sandhu, the co-founder and chief executive officer of Grow Financial, which offers personal loans.
It has partnered with First West, a British Columbia-based credit union, and Conexus, the largest credit union in Saskatchewan. Those partnerships gave the company access to customers it wouldn't have been able to reach on its own, Mr. Sandhu says.
"Knowing that this is being offered in partnership with a tried, trusted credit union or financial institution brand and knowing that that brand, that credit union, has done the diligence," Mr. Sandhu says, allows some credit union members to feel comfortable doing business with a company like Grow.
Worldwide, investment in private fintech companies rose from $1.8-billion (U.S.) in 2010 to $19-billion in 2015, according to a report published by Citigroup in March. It warns that disruption from fintechs might force large banks in the United States to cut their work forces by 30 per cent over the next 10 years.
"There's this big debate about disruption versus partnership," says Michael Garrity, who falls on the partnership side. He is the CEO of Financeit, a company that offers point-of-sale financing services to small and medium-sized businesses.
In mid-April, Financeit formed a partnership with Concentra, a co-operative that offers wholesale financial services to more than 300 credit unions.
"We fundamentally believe that there are some things that we're good at," Mr. Garrity says. "There are some things that we're not very good at. We don't have a deposit base. We don't have a loyal set of customers who leave capital with us every day."
That, he says, comes from credit unions and other financial institutions.
For Concentra, the partnership model allows the company to focus on its main lines of business, rather than becoming a software developer, and can help bring products to market faster, says Ken Kosolofski, the co-op's CEO.
Canada's largest association of credit unions, Montreal-based Desjardins Group, isn't just doing business with fintech startups – it's also funding them through its venture capital arm and incubating them at its "innovation lab."
Chadi Habib, the company's chief technology officer, says it's not money or technology that fintechs bring to incumbent financial institutions.
"In theory, we can hire the same talent they're all hiring," he says. "Where we get challenged is the culture."
Financial institutions are accustomed to working in a heavily regulated, highly structured environment, he says. "That brings along with it a certain way of working, a certain inertia."
Fintechs, he says, "have a lot of agility, they learn by iterating and they're focusing on areas, frankly, that are much less regulated."
But Mr. Habib warns that there is a lot hype around fintechs and that their influence may be more limited.
He says the disruptive influence of fintechs might be limited to creating frictionless customer experiences and developing new actuarial and risk models, but he doesn't see them moving into taking deposits or getting involved in the mortgage market.
And, he says, incumbent financial institutions remain highly trusted when it comes to protecting customers money and personal information.
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