Growing With a Fintech’s Help – Intentionally and Safely

Select fintech partners based on your CU’s specific growth goals and begin conversations about partnerships at the board level.

By Natasha Chilingerian, CU Tech Hub | July 24, 2023 at 04:25 PM

More and more credit unions are inviting fintechs into their world, enlisting their help to expand or improve existing member services and offerings in the hopes of gaining a competitive edge. But with more choices out there in the fintech marketplace than ever before, credit unions also have more work to do than ever before when it comes to choosing the right fintech partners and thoroughly vetting them for risks that could arise during the partnership.

According to several experts, the key for credit unions looking to optimize their fintech partnerships is to select fintechs that can help them reach their unique growth objectives, and to base their risk mitigation strategy on the level of access the fintech will have to credit union and member data as well as the potential rewards of the partnership.

For credit unions looking to grow membership, for example, there are fintechs like Union Credit, which is focused on new member acquisition via loans. The Santa Rosa, Calif.-based Union Credit blossomed out of CuneXus, a digital lending platform provider acquired by TruStage (formerly CUNA Mutual Group) in 2020 that helps credit unions retain existing members through the delivery of preapproved loan offers. Barry Kirby, former CuneXus SVP and Union Credit co-founder and chief revenue officer, said CuneXus clients frequently asked him and Dave Buerger, former CuneXus co-founder and president/CEO and Union Credit co-founder and CEO, if the platform could be used to target nonmembers. The CuneXus platform wasn’t designed for member acquisition, so the co-founders decided to create a platform that was, launching Union Credit – which enables credit union clients to reach consumers by placing targeted, preapproved loan offers onto widely-used, national websites and apps – just last month. “We’re able to take our credit unions out of the small zip code or county they’re located in and give them national distribution through those larger players,” Kirby said.

“We’re able to take our credit unions out of the small zip code or county they’re located in and give them national distribution through those larger players
– Barry Kirby, Co-Founder, Union Credit

One of those websites is, which connects approximately 6.5 million automobile owners to local services such as insurance, parking and car washes. Users of who qualify for credit union membership are prescreened for loans offered by the qualifying credit union(s) via TransUnion, and may receive firm offers of credit on the website or app that they can accept in just a few clicks. Once the consumer accepts the loan offer, they’re connected directly to the credit union, which then funds and processes the loan, and reaches out to the newly-acquired member to teach them about and cross-sell them on other credit union products. Union Credit offers credit union clients a monthly subscription model, meaning they can opt in to participate in the program on a month-by-month basis according to their business growth needs.

Kirby noted that the Union Credit marketplace is designed to meet consumers where they are – on popular service apps and websites on their mobile devices – and take them to credit union websites, which consumers rarely visit on their own and where they can access low-cost financing products.

“Most consumers aren’t actively out there shopping for a new financial institution,” he said. “What they’re shopping for is products for life events that are coming down the way, and we want to be there in that moment to give them another option [outside of the banking relationships they’ve already established].”

Another business growth-focused fintech that recently entered the credit union space is the New York, N.Y.-based merchant gift card withdrawal platform provider Prizeout. Launched in 2019, Prizeout teamed up with nine credit unions earlier this year to form a CUSO, Prizeout Partners, as well as with Callahan & Associates, which is managing the CUSO and serving as a credit union industry resource to Prizeout.

Members of credit unions utilizing Prizeout’s technology receive access to gift card deals from merchants when they make account withdrawals. When making a withdrawal, members are given the option of receiving their money in the form of a gift card from a participating merchant – often at a higher value than the withdrawal amount – with instant electronic delivery and no transaction fees. The transactions also enable credit unions to earn noninterest income.

Prizeout CEO David Metz said partnering with credit unions was a natural fit for his company, given that its objective is to connect merchants to people and money. However, credit unions’ overall low risk tolerance and use of legacy core banking systems presented a few challenges right out of the gate, he indicated.

“Credit unions are more collaborative that other industries, but they’re also more skeptical, so cracking in and earning their trust was tough. Also, most credit unions that are midsized and smaller don’t control their own tech stacks – they’re at the mercy of their online banking and core systems. So before we partnered with them, we had to integrate with the cores,” Metz said, adding that once Prizeout’s platform became available on several major core banking systems, getting those core processors’ credit union clients to use the technology was “like flipping a switch.”

Prizeout is now in the process of launching its services to credit unions via a number of popular core platforms, including those provided by Q2, PSCU’s Lumin Digital, NCR, Alkami Technology and Jack Henry. Metz said Prizeout recently launched its services with six credit unions, and has so far seen close to 20% of those credit unions’ online and mobile banking users engage with the technology. Of those, over 60% have clicked on Prizeout partner brands, and of those who made purchases, 70% have been return customers. In addition, digital marketing efforts to promote Prizeout’s services to credit union members have resulted in engagement north of 75%, he said.

Metz noted that the benefits of Prizeout’s technology to credit unions and members include rewarding members for using a debit card – a product many credit union members tend to favor over credit cards; helping members save money on everyday expenses amid inflation; boosting noninterest income for credit unions at a time when interchange income is being squeezed; giving credit union business members the opportunity to increase their sales by joining the Prizeout marketplace; incentivizing members to engage more frequently with their credit union’s mobile app and enabling credit unions to attract a younger audience.

“There’s a whole generation that grew up [during the Great Recession] in 2008 and 2009 that is very deal-conscious,” Metz said, also noting, “With the cost of everyday necessities like gas and groceries costing more, an extra 5-15% off is a big deal for members, and if they can get that from their credit union, even better.”

Regardless of which fintech a credit union chooses to work with on its unique growth needs, up front and ongoing risk mitigation is required to ensure the credit union’s reputation and member data are protected throughout the duration of the partnership.

Erin O’Hern, vice president of strategic initiatives for ViClarity, a Des Moines, Iowa-based governance, risk and compliance management solutions provider serving highly regulated industries including credit unions, said the process of vetting a potential fintech partner is similar to that of other critical vendors, but some additional due diligence is required around cybersecurity, privacy, member data protection and ensuring you understand the service the fintech is providing. For instance, in addition to ensuring basic elements of technical security are in place, credit unions should investigate whether the fintech has cyber insurance, and what its disaster recovery and incident response plans look like, according to O’Hern and Carrie Helmle, director of audit services for ViClarity.

“If [the fintech-provided services] are down for six hours or member information has been breached, you have to make sure you’ve done your work ahead of time to know how they’re going to handle that,” Helmle said. “From our perspective, in working with credit unions, we see a little bit of a gap there, where they don’t know what [the fintech’s] disaster recovery or incident response plan is.”

While the NCUA does not currently have direct authority to examine third-party vendors, O’Hern said it’s a good idea for credit unions to consider how their potential fintech partner would fare should that be the case in the future. “There’s a change element that’s specific to fintechs because they’re on the front lines, developing new technology or new ways of delivering member service,” she said. “So a lot of them are the best at adapting to change, but that doesn’t mean you shouldn’t check to make sure they’re able to weather changes concerning risk and compliance. If I were a credit union, in the back of my head I’d be thinking, if the NCUA examined them, how would they come out?”

Helmle and O’Hern also emphasized that there is no one-size-fits-all playbook when it comes to fintech due diligence – the process will look different every time depending on the type of fintech, its level of access to credit union and member data, and the value its services will bring to the credit union.

“There’s a direct correlation between the amount of due diligence you’re going to do and the criticality of the fintech,” O’Hern said. “A financial education tool is not going to have access to most of the member data that an underwriting tool would, so your due diligence is going to be more thorough when the fintech has access to member data.”

Reputation management is another key consideration for credit unions entering a fintech partnership, given that the fintech’s services are often delivered under the credit union’s name and brand. In this case, if a problem occurs with the services, members are most likely to blame the credit union.

“There’s extra pressure not only to make sure you’ve got everything in order in terms of your contract responsibilities going forward and the fintech’s security, but also how confident you are in their ability to continually provide service to members, because often times they are member-facing,” O’Hern said.

O’Hern also advised credit unions to start any new conversations about a fintech partnership at the board level and document those conversations in the board’s meeting minutes. This allows the credit union to be intentional about the types of services they’ll be introducing or expanding as a result of the partnership, and helps set the tone for risk tolerance around fintech partnerships from the top down.

“When you start at the board level and have that strategic conversation, then you know where it fits into your strategic plan, the board has approved it, and I do think that makes regulators more comfortable,” O’Hern said.

Another piece of vendor due diligence that credit unions often overlook, according to the ViClarity experts, is ongoing monitoring. “We found that many credit unions took a ‘set it and forget it,’ approach,” Helmle said.

Ongoing monitoring of risk in a fintech partnership might include periodically reviewing the fintech’s Statement of Control (SOC) reports and financials, visiting the fintech’s staff onsite at their offices, and ensuring the fintech is continuing to adhere to regulations applicable to the area of business they’re assisting the credit union in.

O’Hern added that she hopes credit unions don’t shy away from fintech partnerships due to the amount of work involved around compliance and risk.

“We’ve seen a lot of successful examples where credit unions have been able to enhance the member experience or their internal practices because they partnered with a fintech,” she said. “So while there are definite risk and compliance processes to work through in order to feel confident that you’re meeting all those regulatory requirements, and for your own safety and soundness needs, it’s absolutely still worth it.”