By John San Filippo
Finopotamus has assembled a panel of experts in a recurring series, The Industry Leaders Forum (ILF). Each month, we’ll ask the panel a broad technology question and share their informative responses. Respondents are presented in alphabetical order by last name.
Part 3 includes responses from:
For April 2023, Finopotamus asked the ILF panel:
Credit unions have always been committed to inclusivity. How can modern technology be used to strengthen that commitment?
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Co-op Solutions’ Samantha Paxson
The Federal Reserve Bank in Kansas City recently investigated the tendency and determined several factors are at play. Each offers an opportunity for credit unions to serve as an affordable, people-centered alternative to often predatory payment instruments.
Financial exclusion
Low-income consumers are more likely to be financially excluded. Credit unions continue to make headway here, chipping away at the unserved and underserved markets. However, there is always room to do more, and digital technology has a role to play. Data analytics can identify inclusivity gaps within a community or field of membership. Prescriptive analytics can determine the best payment products for alleviating unnecessary expenses.
Digital exclusion
Banked low-income consumers, too, often chose costlier methods for paying bills. One explanation for this is digital exclusion. With less access to the latest smartphones and the fastest internet, paying online is less of an option.
Mobile banking solutions that prioritize the user experience make it easier to participate in digital banking. Likewise, well-integrated tech stacks make it easy for a member to move between digital and in-person channels when navigating more complex financial transactions.
Lack of trust in digital capabilities
Especially older low-income consumers may not know – or want to know – how to pay their bills digitally. This is where credit unions with member segmentation strategies in place can win. Meeting members where they are, whether digitally or in-person, credit unions that provide hands-on education can assuage much of the discomfort of using emerging payment vehicles.
Cash flow constraints
When living paycheck-to-paycheck, paying bills can get delayed. In these circumstances, low-income consumers may be unable to pay online because of the terms, i.e., transacting one or more business days early.
Payments application programming interface (APIs) integrated into the mobile experience can lessen these challenges. Buy-now-pay-later functionality or skip-a-payment requests, for instance, when provided by a credit union can offer the same flexibility as competitors without the penalties. What’s more, credit unions are more likely to offer support in conjunction with these tools, monitoring use for trouble spots and counseling members along the way.
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CUNA Mutual Group’s Kevin Polinsky
Credit unions are known as the lifeblood of their communities serving with passion and drive to promote financial health and inclusion. However, the consolidation in the credit union industry is showing no signs of slowing down, endangering the local community service model that they are often known for, as well as the health and diversity of the financial services ecosystem overall.
To remain a key resource to their community’s financial needs, credit unions must seek alternative collaboration strategies that offer ways to impact not only each organization, but of the credit union system as a whole, bringing them to the wider market and making their services more accessible and affordable for all consumers.
Credit unions offer two highly competitive strengths. They have low cost of funds, producing highly competitive loan offers and rates as well as significant member trust with a desire to financially improve their communities. The challenge is making these offers known to members without the credit union having to lose its personal, altruistic touch.
Working with large retailers and auto dealers, for instance, is an effective strategy for credit unions to achieve scale and provide access to a new range of digitally-enabled products and services without having to merge; and most importantly, they can keep their logo. Moreover, the credit union benefits from improved member loyalty, while also gaining a new source of revenue. Retailers are able to build out captive finance options for consumers, get more involved in local communities, and more.
APIs are the great unifier for enabling credit unions and retailers to connect via a single end point and share data and functionality, ultimately creating a more streamlined and interconnected ecosystem aimed to better serve communities in their moments of need. This collaboration can bring consumers the competitive financing they need to financially survive.
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FairPlay AI’s Kareem Saleh
Technology is not a cure-all for fintech inclusivity. Algorithmic underwriting is the norm for lending approvals these days but we all know that algorithms are only as "fair" as the data that is put into them.
Our research at FairPlay AI reveals that historically disadvantaged groups, including Black and Native American borrowers, routinely see less fair outcomes and bear the brunt of adverse impacts because the data on these groups is often messy, missing or wrong.
For any credit union that wants to foster inclusivity, it's critical to continually monitor and assess these AI decisioning systems to guard against disparities and give second looks to those who were denied.
Ensuring algorithmic fairness isn't just about inclusivity or minimizing regulatory risk -- it actually increases profits because lenders can issue more good loans at no additional risk. In fact, our AI powered models show that clients could increase lending approvals by 25-33% when better controlling for algorithmic bias.