By Ray Birch
DALLAS—A fintech has applied for a charter with NCUA to form a new credit union that will be based on open banking and distributed ledger technology, claiming the move will drive open banking within credit unions.
Called Defy FCU—a play on “defi,” the abbreviation for “decentralized finance—the charter application is in its initial stages, reported John Wingate, president and CEO of BankSocial, whose parent company, Fivancial, is the proposed CU’s sponsor.
Wingate emphasized a goal of the new cooperative is to establish a framework and template to make it easy to launch credit unions that are part of the Web3 community.
Web3 is a term used to describe the next iteration of the Internet, one that is built on blockchain technology and is communally controlled by its users.
As CUToday.info has reported, BankSocial is a crypto services platform being used by a growing number of credit unions that offers a self-custody crypto wallet, where the individual owns their own cryptocurrency and their keys. Wingate described BankSocial as an "opening banking platform that provides access to the latest technologies to credit unions to set them up for the next 10-15 years of the evolving financial landscape."
Discussions Held With Agency
“Our main goal is to create a template with the NCUA, and we've already discussed all this with them, so we can spin up new credit unions based on this Web3 model,” Wingate told CUToday.info. “We can spin up new credit unions in a fraction of the time with the template. Our main goal is to create more credit unions that are part of the Web3 community.”
Wingate said NCUA has approved the CU’s primary field of membership. In an email, the agency told CUToday.info the credit union’s organizers have “applied for a charter and the application is in the beginning phase of the application process.”
Wingate explained the field of membership is BlockAdvocates, a 501(c)(3) focused on education and activism and the Web3 space.
“It is a 100% virtual field of membership composed of people who are passionate about spreading awareness of distributed ledger and blockchain technologies in the traditional finance world, basically people interested in marrying traditional finance and DeFi,” said Wingate. “We've also extended the field of membership to the Texas Blockchain Council, which almost quadruples our initial access. It's a nationwide field of membership, and to be a member of BlockAdvocates you have to care about the Web3 space and have an interest in financial institution.”
Acknowledging its field of membership could ultimately include most U.S. consumers, Wingate said he believes the proposed CU’s members will be Web3 focused.
John Wingate
‘Not a New Type of Credit Union’
“It's not a whole new type of credit union. We wanted NCUA to understand that this is a traditional credit union,” Wingate said. “I would compare it to the 1970s, when credit unions went from writing things by hand to doing Excel spreadsheets. They didn't say they were creating a whole new credit union, they were just leveraging new technology to do what they had been doing before, and in a more efficient, lower-cost, easier to manage way. That's all we're doing here. We're taking an evolutionary step with these brand-new distributed ledger technologies.
“I would also liken it to the early ’90s when the Oracle databases came in, when people went from spreadsheets to Oracle databases,” he continued. “Think of that transition…That's what is happening here. It's a traditional credit union that's lowering costs, lowering headcount, automating more, and providing more security by leveraging distributed ledger technology. We're creating a new framework for a credit union. We’re not reinventing anything. The old world was about batch processing. Nightly batch processing. Batch used to be the best mechanism for settling, for truing up the general ledger. Now, with the move to more real-time transaction processing, those old systems no longer work well.”
Savings & Deposits Ony
The proposed Defy Federal Credit Union will handle only savings and deposits.
While not including loans in its offering, Wingate said the credit union will have “mechanisms for revenue” that it is currently unable to share.
“Think of it as a PayPal that was built exclusively for the credit union ecosystem,” said Wingate. “Instead of one bank getting all the deposits from PayPal, we connect into the credit union Web3 ecosystem liquidity network and we share the opportunity. With Defy, the open banking framework—driven by our BankSocial app—will now have a pilot institution, and then we’ll bring on more credit unions.”
Wingate said BankSocial will provide its technology free of charge to the CU but will receive transaction fees from members.
Becky Reed, COO with BankSocial, will be the CEO of Defy FCU. Reed formerly was the CEO of Lone Star Credit Union in Dallas. Lone Star was one of the first credit unions to sign on with Bank Social.
“I believe that credit unions of the future will be small, nimble and niche focused,” said Reed. “Meaning they're focused on a very specific field of membership. It’s going way back to the early days of credit unions when there was a common bond and people were very closely aligned. I believe the future of credit unions is small and not large.”
The Ultimate Answer
Wingate contended that open banking has not been done correctly so far, and that open banking based on distributed ledger technology is what will ultimately be the answer to sharing financial services information.
“This is no longer Core A and Core B, when you have a member at credit union B and the credit union opens up its core and sends the member’s information to Core A at another CU. That doesn't really work and that's why open banking has failed to this point. That model is too risky and this is where this new model comes in,” he said. “In the Web3 world I can go to credit union C and say here are my credentials. Here's my information, and you can trust me more than you could have trusted anybody before because all these other institutions trust me. We reduce the attack vector. It's no longer banks sharing with banks and credit unions. It’s the individual who's been vetted by all these other institutions who's able to freely roam…The credential is owned by the individual.”
Not in Crypto Business
Reed stressed Defy FCU will not sell crypto.
“Defy will not hold crypto,” she said. “We’re not a custodian for crypto. We’re not banking bitcoin deposits. The credit union is a traditional credit union that offers open banking software that allows members to access to the Web3 space.”