FRISCO, Texas–Would you sink your own money in a fintech seeking an investment from the credit union? How do you know when it’s time to slow down when mulling a fintech investment? Is your CU being left behind by “monolithic partners?” Those questions and others were explored by three credit union leaders during a meeting here.
Sharing their experiences, processes and insights with the VentureTech conference were Brenda Worrell, CEO of the $10.7-billion Idaho Central CU in Chubbuck, Idaho; Darlene Johnson, chief growth officer with the $17-billion Suncoast Credit Union in Tampa, Fla., and Nancy Sternitzy, CIO with the $2.8-billion Sound Credit Union in Tacoma, Wash.
The three CU leaders discussed what they are doing in fintech, what they have learned and more during a Q&A that was moderated by Barb Lowman, president of CUNA Strategic Services.
From left: Nancy Sternitzky, Barb Lowman, Darlene Johnson and Brenda Worrell at VentureTech in Frisco, Texas.
Here is some of what was discussed:
Q: What is your philosophy when it comes to investing in and partnering with fintech?
Worrell: Our philosophy has always been not to do a lot of direct investment in fintech. We have a small portfolio. We have invested in some CUSOs. We look for where we can pool our resources together and mitigate that risk. We feel that's a good way to promote fintech and develop that technology, but also protect the credit union, as well.
When we consider investing—and this may not be the typical way—we put a lot of time and effort into working with the tech companies themselves and building the technology. So, we may not give them a million dollars, but we will give a ton of time from our team in helping them build out the ideation on the product and build the technology. We do the beta-testing and really give them feedback to help build that out.
Johnson: We prefer to go through more of a group setting to avoid some of the potential risks. But when we see a fintech that in my mind can really change the industry, it's very important that we help them succeed and get the visibility and the funding that they need.
Recently, there have been a couple that we've directly invested in from a financial perspective, but also from a time perspective. I think what's so important for fintech as they begin to enter the credit union industry is to have coaching and counseling from people that can really help them understand how to approach credit unions, what they need to be successful in that space and, sometimes, even tweak the solution they bring.
A lot of times they have a really great, innovative idea, but in order for it to work in the credit union world it needs a bit of tweaking.
Sternitzky: We do a little of both: we use fund investments and make direct investments…We are in a lot of referral calls and reference checks and things with people looking at the fintechs. I think we'll continue to be because we're using their products in most cases, we’re on their boards. We like the influence we have with that direct model.
Q: What would you say is your investment philosophy?
Sternitzky: Fintech is our primary R&D. When we look at where we’re headed, we look at our investment portfolio. We look at the strength of the direct partnerships. We look at, are there things we should be doing? We want to help these new ventures succeed.
What’s near and dear to my heart is that the monolithic partners aren’t getting us to where we need to go, so what better way to get introduced to those who are going to do it? There is also a little bit on leveling of the playing field. We want to bring in people who have ideas that might not be accepted by the (larger market).
Johnson: Our philosophy is not to compete with fintech but to collaborate with them. When we started seeing a lot of new financial technology coming into the playing field it began to feel a little bit threatening at first, like wait a minute, who are these new guys? They're very innovative, they're very focused, because they usually have a singular product or singular problem they're solving for. Of course, as a credit union we try to solve for everything, because we have a difficult time finding that target member. We want to be everything to all.
So, fintech bring things to the industry much faster. We typically will identify what the issue is, what's the problem or the job to be done, and then go out and seek a fintech partner that can solve that.
There are many out there that have variances in terms of what they can do for us. One of our strategies is to just find as many as we can to bring into our ecosystem, because at the end of the day members and consumers are going to find their solutions somewhere. The idea of a primary financial institution has kind of gone away and so they're going to look for more of that subscription-based thinking, and in order to do that fintechs are essential.
Worrell: I love fintech. it energizes me. I think that they have wonderful new ideas that can really change the trajectory of our industry and help us stay relevant long term for our members, and that's the most important thing.
I think that my strategy is always, how do we partner with them? How do we utilize their great ideas to make us better and work together and collaborate on that? We can't do it alone. What we've learned over time is that all of us have to pull together, because none of us have the resources to do it by ourselves.
We all have different needs for our members. We have different markets, but we have to be able to think further out and have that longer term vision of how we can all achieve our goals even if they aren't the same.
Q: Has that philosophy changed as leadership has changed or the economy has changed?
Worrell: I would say we probably have accelerated a little bit with our fintech involvement. Idaho Central has a long history of working with fintechs and being at the leading edge. That’s always been part of our history, but I think we feel a greater need now more than ever as we look at the competitive landscape and how things are changing.
We have to be in this arena, but we have to do it in a way where we can mitigate our risk and protect our members.
Johnson: At Suncoast we have the advantage that our CEO (Kevin Johnson) used to be a CIO, so he is a very open and focused on having his leadership team explore opportunities where technology can fill the gap.
Traditionally, we have been an organization that preferred to build internally and it's been successful for many years. More recently, we are having the conversations around does that really move the best idea forward? The perfect solutions didn't necessarily exist 10 years ago. Now, there are so many fintechs that you can plug and play and you can find really cool opportunities to partner with fintech.
I think we have shifted more recently in understanding the need to go outside and partner more aggressively.
Sternitzky: I've seen changes. We've passed on a couple of calls and really focused in on some of those direct partnerships and investments where we want to see them make it. We're also getting knocks on the door all the time for direct investments from some of the tech providers. We have had to pass on some. We’re very particular these days and really supportive of the funds we already have and not really looking all the time for net new.
Q: How do you go about identifying the solution you want to look at? And who makes the decisions or brings the recommendations forward at the CU?
Sternitzky: Out executive team brings ideas. They all have favorites. They hear things. They're out there in the community. But we also have our investment committee that will look at anything that we're seriously considering.
We also have sort of a side thing going on with an incubator with one of the local universities, where we have these preemie fintechs. They're really, really, really early; most of them are students at the University of Washington or one of the campuses nearby. We open a competition and we get to see their ideas. We get to vet those and many times it highlights something we don't have right or an idea that these young partners have thought of. It has always amazed me how many of these entrepreneurs are looking at investment solutions…and finding ways for young people to invest that aren't threatening, that are very open and inclusive.
I do have a VP of innovation that keeps the flow going and answers all those technical questions.
Johnson: I have a senior VP of business transformation and a senior VP of digital and, typically, the fintechs live in that digital space. They attend a lot of events like (VentureTech), so that is really an opportunity to meet a lot of the new fintechs and see how others are using them. Credit unions are very collaborative, so if you get engaged in the right way with credit unions, we will typically talk to each other and tell each other about really great.
One of the newer fintechs we have invested in came about as the result of a call from a CEO Iat another credit union). We made an investment within three months. Because credit unions care about other credit unions being successful, if we see something that will help them serve their members, we will share that. If you see something that is really significant in your market, don’t pass it up. Six months from now they may not be there.
Worrell: We have an informal team. Our executive team is really good at being out there and looking at companies and attending events trying to find new ideas from a lot of different sources. We bring those in and look at them and decide is that something that really helps further our strategic objectives? Is that something that's going to help our members? Is that something that provides great value or helps us build out a new area where maybe the credit union hasn’t focused on as much.
I think it's always important to think through, what's the level of commitment? How much do we believe in it? One thing I always try to ask my team is, would you be willing to put your own personal money in as an investment? If I'm not willing to do that, why would I commit my members’ money?
I think we have to have a really strong level of confidence in that decision. I do believe that you need to move fast. We tend to move really quickly. But don't move too fast and make a bad decision. If you don't have the processes in place or the ability to do the analysis, don't do it. You have to have the framework internally and that knowledge base or you could make a really bad decision moving fast.
When you have that feeling, that sense of urgency that we have to get something done or we're going to lose it, that’s usually the time you should slow down, in my opinion.