On this episode of Sensedia Talks, Sensedia’s U.S. Managing Director, Lisa Arthur hosted expert panelists Amber Harsin, VP of Credit Unions at Mambu, Angelina Renaldo, Innovation Strategist at Velera, Bill Butler, CEO of Kachinga, and Sue Mitchell, CEO of Mitchell, Stankovic & Associates to discuss

The Future of Finance is Integrated:

Mastering Open Banking Ecosystems

Seamless Connectivity Powering Credit Unions and Fintechs.

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The episode explores how credit unions and fintechs are overcoming partnership challenges, simplifying ecosystem complexity, and achieving growth through scalable infrastructure and open banking.

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What is an Embedded Financial Ecosystem?

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Arthur shares that a  McKinsey & Company report states that 80% of companies believe embedded finance will significantly impact businesses over the next five years. McKinsey & Company defines embedded finance as “the provision of goods and services to nontraditional customers or new business models.”  It’s about meeting the customers where they are, taking services and products that used to be separate, and allowing collaboration for a better customer experience.

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“It’s really about embedding in the journey - meeting where the customer is,” said Arthur. 

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As financial cooperatives of members helping members, credit unions have a history of working together - shared branches, shared ATMs, and shared auto lending. Credit union service organizations (CUSOs) share common services like administrative, professional, management, and technology, between several credit unions to create economies of scale. Credit unions have collaborated for years.

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Credit unions also have strong partnerships to meet the needs of their members. Over time, these partnerships have evolved from sharing insurance and investment products to API-enabled, expanded possibilities. Buy-now, pay-later is a great example. As consumers become more digital, they want more services available in one place. Credit unions can expect a constant evolution and will need to serve members creatively in a safe, scalable way as our world becomes more open and connected.

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How Will the CFPB Ruling 1033 Impact Credit Unions?

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The CFPB (Consumer Financial Protection Bureau) just published the Personal Financial Data Rights rule, accelerating a shift toward open banking. What is open banking? Gartner defines it this way: “Open banking enables third-party financial service providers to access financial data from banks and non-financial institutions via open application programming interfaces (APIs).” 

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Many credit unions have skepticism, fear and negativity around open banking. Larger credit unions have resources and IT teams to implement the new requirement. But smaller credit unions face what seems like a daunting task. Alone, they have assets under 100 million, but when all 4,000 small credit unions combine, they represent about 90 billion in assets. Working together is the answer to implementing the new rule and open banking.

“It’s here. It’s done,” said Mitchell on data sharing and open banking. “We have to get on board. We have to figure this out. And we have to rely on partners that have strong technology, compliance and security in place.”

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How Can CUSOs Help?

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CUSOs are examining data providers and recipients. They’re exploring open finance and asking what problems they can solve as consumers share more of their data, even beyond financial data. 

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“One in three financial consumers already connect their financial accounts through six or more apps and websites. Consumers are already sharing financial data,” said Renaldo. She explained that transmitting financial data through standardized APIs vs screen scraping, an inferior and less secure option, allows credit unions to extract insights securely from the shared data. That information can drive credit unions’ strategy.

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Data gives credit unions a glimpse into other products and services their members use. That information can drive digital strategy in marketing and product roadmaps. As data providers, credit unions can also be on the receiving end of data portability, and they should be. While most may not have the resources to build out the technology and use cases, they can find partners to help leverage solutions surrounding open banking.

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Renaldo shared an example of how credit unions could examine small business loans from a cash flow underwriting perspective, not just the credit report.  Information about cash flow gives a window into the borrower’s ability, not just willingness, to repay a loan.

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Fear of mass exodus? 

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One of the concerns credit unions share is the worry members will leave for better options. There is much to learn from companies in countries where open banking is now the norm. 

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Instead of a mass exit of members, Sicredi, a Brazilian credit union, saw the opposite when they implemented open banking. Membership grew. Sicredi embarked on a journey to glean insights into its members’ financial behaviors through the data it received. This initiative enabled the institution to innovate quickly and deliver solutions customized to meet individual needs. By harnessing the wealth of new information available, Sicredi developed over 300 products, grew membership and ROI, and stayed true to its cooperative principles of mutual support and financial responsibility. And it continues to thrive.

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How are Fintechs Navigating Compliance and New Territory?

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Open banking provides more innovation opportunities. “When it comes to compliance, it’s important for my team, my organization, and other fintechs to really understand the environment we work in,” said Butler. “Fintechs could be narrowly defined as companies offering products and services relating to banking, but that definition is widening. Retailers give consumers new payment options to purchase items online. Many businesses are acting like fintechs, and it’s critical we do it right as we connect to members’ needs.”

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“There’s a lot of pressure for credit unions to increase member growth, increase deposits. It’s important, as we look at those key KPIs, to find creative ways to reach those members,” Butler continues. “As we look at compliance, of course, we need to understand the environment we work in, but on top of that, we need to work with our partners to understand what compliance means to them.” He talks about how partners are the connection points, and by managing APIs carefully, all parties benefit. 

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The Integration Challenge

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Two years ago, 70% of credit unions reported they struggled to integrate fintech solutions with existing systems. Legacy integration is still the most significant pain point today. On average, credit unions have 182 vendor partners to manage, many of which are probably fintechs. How do credit unions integrate new technology quickly? 

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Harsin explained, “Open banking has the opportunity for us to really open those floodgates. The use of modern APIs (vs. legacy APIs) not only offers fluid data exchange and gives flexibility to consumers to have custodianship of their data and lets them decide who they want to share it with, but it also allows us to speed up integration paths.” She shares that credit unions taking advantage of modern APIs don’t need to be as reliant on their core providers to get solutions integrated and operational. Larger credit unions may tackle integration independently, and smaller credit unions can find partners to help them through API development.  Services are available to bypass credit union implementation's roadblocks, especially legacy systems.

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Today, fintech providers rely on data exchange with core systems, and all are legacy, built decades ago when fintech provider’s technologies didn’t even exist. Expecting a seamless transition using these core systems isn’t realistic. “Open banking will push solutions forward,” said Harsin. “There may be closed systems that may not be able to adapt to open banking, and that’s going to put credit unions in difficult positions to make some really difficult choices in their digital transformation.” 

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She added, “And it may slow them down. And there’s going to be opportunities for new entrants to come into the market that already have open banking, cloud-native, API-first driven technologies that are going to enable credit unions to move faster.” 

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She shared that credit unions will need these technologies to create the personalized experiences their members want. Technology isn’t the panacea, but it is the answer for less friction and more integration.

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According to Harsin, credit unions have three choices. They can stay stuck in their legacy core, hollow out the core to add some third-party vendors, retire parts of the core and replace them with fintech solutions, or choose to adopt cloud-native, API-first solutions to manage vendors and streamline innovation. It takes sophisticated internal teams to tackle true legacy modification alongside open banking  - something large credit unions have but small credit unions don’t. 

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Smaller institutions will need to form collaborative partnerships. These partnerships will require give-and-take and compromise, but it is a path forward and better than choosing to stay stuck or pay far too much for a slow transition and a hollow legacy system.

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Credit Union Shared Services™ working group (CUSS) is an example of a collaboration working to create a modernized tech stack solution so credit unions can move forward from where they are. Mitchell is CUSS’s founder. “We believe there’s growth, and we want to make sure that we’re given the venues and the collaboration to make that happen,” she said. “It’s been 50 years since we’ve created a shared services model, something similar to our shared branching. We need to have that kind of power come together with our CEOs and the organization. The time is now.”

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When credit unions partner with fintechs, they can tailor products and services to member needs. For example, integrations help credit union members borrow funds in real-time. They help credit unions reach new, younger members, engage with them, and encourage them to stay with the credit union in this competitive industry. 

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Credit unions have the choice to build new solutions, buy established options, or partner to bring new solutions forward. Collaboration is often the least expensive, fastest, and easiest way to enhance products and services. Partnerships are win/win for the fintech, the credit union and the members. If credit unions wait to address these integration and compliance standards, it may be too late. 

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What Does the Future Hold?

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In a world of open banking where credit unions are shackled with old technology, what does the future look like for credit unions and fintechs integration?

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“The future of integration and the financial ecosystem is going to be transformative,” said Renaldo. “The rise of open banking and standardized APIs enable fintechs to integrate more seamlessly with financial institutions, ultimately creating that interconnected ecosystem. And this is going to foster embedded finance, where we will see more financial services weaved into the everyday consumer experiences.” 

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She added, “Fintech integrations will be a critical enabler for credit unions to evolve and meet the future head-on. And, as credit unions are thinking about how they are going to meet regulatory requirements of the CFPB’s section 1033, there are a lot of considerations, such as the authentication, user experience, and third-party management - we’re talking about a number of vendors and those actionable insights that I mentioned earlier. And that in itself is an undertaking. But the key to credit unions’ success is not to depend on the ruling to shape their direction but to look at the value open banking brings their members.”

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Butler added, “As we look at open banking, we look at where the industry’s headed. This idea of collaboration is key.” He continued, “It is the time for the credit union space, executives who are running credit unions small to large, to collaborate together, leverage the latest technology and better serve members.”

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Harsin said, “I think the future relevancy of credit unions is tied deeply to our willingness to continue to collaborate with fintech partners. Because so many of our fintech solutions are tailored to very specific problems, it will let us personalize how we interact with our members in our communities, which will create a stronger relationship with them over time. And open banking is the key to being able to do that.” She concluded, “The future is fintech collaboration and modernization.”

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Mitchell shared, “If we’re going to truly help society, the regulators need to understand that there are different positions for different markets. And I believe that they’re going to step into that. And with open banking, we will have more data to prove our cases.” She added, “And we’re seeing billions of dollars going into the CDFI and going into lower-income neighborhoods, to the Department of Treasury. So we have an opportunity right now to meet the needs of a changing society, not just our financial ecosystem.”

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Final Words of Advice for Credit Unions?

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Renaldo said, “My advice to credit unions would be to hone in on your ability to form impactful partnerships. Lean into the trusted partnerships you already have and reimagine what credit unions can achieve.”

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“My advice is to be bold and break up with anyone you don’t trust. And quit giving them your members’ capital.” shared Harsin.

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Butler stated, “Don’t be afraid to partner.”

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“We love our credit union system,” Mitchell expressed. “There’s an unbelievable passion, and we come together to do the right things.” She concluded, “I truly believe that we need to reach a generation and a next generation that will be using the fintech solutions probably exclusively. So this is our time to reach out and connect it to the purpose and mission of a credit union, and that is people helping people. They will love that social impact story if we can get it to them in the right way.” 

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There is so much opportunity to embrace open banking and partnerships. “The time is now,” Arthur concludes. “These four panelists have laid out a vision and a way for (credit unions) to get where you need to go for your members. We believe that we all need to work together to educate ourselves on what the future can hold and how we get there.”

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