By Ray Birch
BIRMINGHAM, Ala.—In the era of digital financial service delivery, credit unions must be every bit as swift as fintechs, but NCUA may be slowing down the industry, according to the agency’s former chairman.
Dennis Dollar told CUToday.info that speed is not only needed for service delivery, but for planning purposes, as well, and that credit unions must not allow fear of the “referees” in Alexandria to stop them from tossing the innovation pass way downfield.
“The days of five-year or even three-year strategic plans are over,” said Dollar, principal partner at Dollar Associates. “The digital scene and technology advancements are bringing about strategic, and certainly tactical, changes that credit unions must face within a 12-month period.”
But Dollar is concerned about the future for credit unions that are hampered with guardrails the tech upstarts do not face.
“Credit unions are having to adjust to market changes with a fintech’s speed, but yet be in compliance with regulations that a fintech often does not have to comply with,” Dollar said. “It is perhaps the biggest challenge a credit union faces today—staying fast and nimble, responding to the marketplace’s demand and still staying on the right side of the regulators and examiners.”
As CUToday.info has extensively reported, credit unions, their vendor partners, their members and even regulators already know all about the “new normal” that has changed everything about how credit unions plan to meet member needs moving forward. For longer-term leaders of credit unions and their supplier partners, that doesn’t mean the new normal is easy—old mindsets and expectations can be very difficult to overcome and all that change can be uncomfortable. This CUToday.info series looks at how credit unions are approaching their planning for 2023 and beyond with the new year upon us.
Dollar pointed out that historically regulators are years and sometimes even a decade or more behind the marketplace.
“This is natural because regulators are risk-averse and want to make sure all of the risk has been or can be mitigated. Of course, time is the great proof they want to see before the regulators are open to most new products and delivery methods,” he said. “This marketplace is not waiting, however.”
The uneven playing field is evident, Dollar beleives.
“The fintechs are largely unregulated and therefore are able to respond so much more quickly than regulated institutions,” continued Dollar. “That is the challenge for credit unions, and actually banks as well, in this market.”
The Banks’ Advantage
But banks have one big advantage over credit unions even in the same regulatory environment—deeper pockets.
“The advantage most banks have over credit unions is the scale to either offer their own products and delivery systems to compete with the fintechs or perhaps even to buy them out and make them part of their own delivery system,” said Dollar. “Credit unions, many of which lack the scale to do the same, are going to have to use the CUSO model and other collaborative methods to join together to get the scale necessary to stay viable as the fintech world emerges even further.”
As many experts, and credit unions themselves, have stated, the movement needs to partner with fintechs to progress, and many are doing that today.
“Another part of the credit union strategic future depends upon their ability to partner with fintechs,” said Dollar. “Again, we are back to regulatory impediments to these credit union/fintech partnerships. Hopefully, with its new proposed rule just approved in December for a public comment period, NCUA will remove some of those impediments to credit union/fintech partnerships.”
The New Proposal
Dollar said he expects those who comment on the new NCUA proposed financial innovation rule will offer a number of other steps that NCUA could take, along with their state regulatory counterparts, to remove barriers to tech-driven service delivery in partnership with fintechs.
“It is quite possible that though the CUSO model credit unions may become investors in or developers of next generation fintech products themselves. This is the biggest issue facing credit unions strategically today,” Dollar said.
But one thing is unlikely to change, according to Dollar.
Dennis Dollar
“In fact, the assurance that regulation and examiner pressure is going to continue and perhaps even grow further is the constant which serves to have a chilling effect on innovation,” Dollar said. “The ‘What will the examiner say?’ question has stymied many partnerships and investment opportunities for credit unions that perhaps could have been industry-leading concepts if the fear of the examiner had not made credit unions tentative.”
‘Referees Can’t Call the Plays’
Dollar insisted that regulators and examiners must become more open to financial technology options and partnerships, and credit unions must—at the same time—not allow the “referees” to call their strategic plays for them.
“The referee, in this case the regulator and examiner, has a flag in his pocket and must be respected as the enforcer of the rules,” said Dollar. “However, the credit union cannot allow fear of the referee to keep them from throwing the ball downfield and trying to score.”