By John San Filippo
The past few months have seen a steady stream of major announcements from major fintech players, including the Temenos partnership with Mbank to create a Credit Union as a Service product, Jack Henry’s recently unveiled tech strategy, and Fiserv’s acquisition of Finxact. With this in mind, Finopotamus asked Fiserv’s President of Credit Union Solutions Theo Curey and General Manager of Next Generation Solutions David McIninch whether the high demand for rapid and constant innovation favors larger technology providers with greater resources.
The High Cost of Innovation
“Innovation is expensive,” answered Curey. “You have to have good people for that. You have to have infrastructure for that. You have to have scale for that.” He also admitted that there can be disadvantages to being a larger provider.
“Big players, however, have a natural disadvantage in that being large, they sometimes get in their own way,” he continued. “That’s why over the last couple of years, we’ve put a lot of effort into clearing up our channels to make it easier for Fiserv to innovate as an entity.”
“The way that we're structured organizationally increases our ability to be nimble,” added McIninch. “What works well for the largest banks is not going to work well for the smallest credit unions. We compartmentalize the businesses and run them as units that can be nimble relative to the needs of those market segments.”
While many companies have responded to the pandemic by employing a geographically broad remote workforce, Curey said that Fiserv has moved in the other direction. “During the pandemic, we took the opportunity to start consolidating people into fewer locations,” he said. “Why? Because now the person who takes the call from a client can go over to the development person 25 feet away to discuss the issue. A lot of innovation happens by accident,” he asserted.
According to McIninch, one major challenge is that many financial institutions are slow to embrace change. “We have thousands of clients that have a lot of demands that aren't focused on the next big thing,” he said, noting this is one reason Fiserv is interested in “smart acquisitions.” The company is able to buy pre-built innovative technology without taking resources away from its existing clients.
“There will be those tectonic plates that shift eventually,” added McIninch. “For example, the world has been in the cloud for 10 years. Everything that gets built today is cloud native. Yet it’s taken financial services a lot longer to get there [compared to other industries].”
Cryptocurrency as a Case in Point
When asked about the current state of cryptocurrencies, Curey said that most financial institutions are starting to realize that they need to learn more about the topic and Fiserv seeks to provide that education. “We just had a lunch with 20 or so clients and Apolo Ono was the speaker,” he said, referencing the Olympic Hall of Fame speed skater. “People were probably expecting him to talk about his life and his medals, but it turns out he’s a crypto expert. That’s the topic he covered.”
He continued, “We had a [cryptocurrency] webinar for about 300 clients in December. We talked about what's going on with some real research. Interest is growing and people are interested.” He added that during the webinar, attendee polling showed that a lot of the interest from financial institutions is being driven by inquiries from consumers. “I think at this point, some institutions want to get their toe wet, but not go super deep.”
Curey said that any credit union executive unsure of the impact of cryptocurrency on their institution should run a report so see how much member money is flowing out to crypto firms like Robinhood and Coinbase. “We have a partnership with Segmint. They can actually see the transfers of money out to Coinbase, for example.”
Providing members with a view of their crypto assets through open banking technology is a logical first step, Curey said, adding that credit unions becoming custodians of their members’ digital assets is inevitable.
“Financial institutions can serve as custodians today,” added McIninch. “Credit unions just need to recognize that the early adopters are not going go to their credit union to get into crypto.” He agreed with Curey that giving members visibility to their digital assets is the logical starting point.
“Now I get a 360-degree view of my Robinhood account or my Coinbase account, along with my credit union accounts,” added McIninch. The goal, he said, is to keep as much value as possible inside the credit union. However, he noted that once a credit union plays a custodial role, members might tend to wrongly blame the credit union for losses due to price swings in the cryptocurrency market.
“You're putting your brand on the line, too” he said. “Some are more comfortable with that than others. I’ve had a lot of those conversations with bankers.”
Differentiation in a Commoditized World
Thanks to open banking, members will be able to see their entire financial picture, including digital assets, from their credit union account. The drawback is that they’ll be able to see that same information via their account at any other financial institution that has deployed open banking technology. In that environment, how can an individual credit union differentiate itself? That was the final question Finopotamus posed to the Fiserv executives.
“The trust equation that credit unions have built with their members can’t be overstated,” said McIninch, “even in a fully digital world. There will always be this customer service element to it that credit union brands can leverage.” In other words, it all comes down to something credit unions are famous for: service.
Curey added that keeping employees engaged is just as important as keeping members engaged. “I think that credit unions will weather the Great Resignation better than almost every other industry,” he said. “If you look at the research for the Great Resignation, a lot of people are leaving because they don't feel connected to the purpose. And I can't think of another organization outside the military that’s more aligned around a mission than a credit union. Every time I go to a credit union, it’s obvious the people care about what they do.”