The days when fintechs and credit unions were seen as mortal enemies are clearly over.
For much of the 2010s, this alleged pitched battle for the hearts and minds of members was a popular storyline, portraying these brash startups as disruptors bent on bankrupting dinosaur financial institutions.
While this portrayal may sometimes be true, both sides have come to recognize the natural synergies that exist between the two.
At the 2021 NACUSO Network Conference, NCUA Board Member Rodney Hood praised the “symbiotic relationship” between these entities, particularly in creating pathways to serve digital natives.
Recent industry events, such as Finovate, have revealed an increase in start-ups actively seeking partnerships with credit unions from the podium.
As the saying goes, follow the money. Investments in fintechs in 2021 broke previous records, and credit unions played an active role.
The Curql Fund, a recently launched collective, raised $252 million in funding from credit unions and league sponsors, far exceeding its original goal of $150 million.
CMFG Ventures, the investment arm of CUNA Mutual Group, has invested over $240 million in a portfolio comprising more than 30 active fintechs.
Institutions such as the $10.8 billion asset VyStar Credit Union in Jacksonville, Florida, and the $6.2 billion asset Michigan State University Federal Credit Union (MSUFCU) in East Lansing perform large-scale direct investment strategies, taking the movement’s longstanding credit union service organization (CUSO) model to a new level.
Each of these strategies is based on a common goal: to ensure access to the latest digital solutions as quickly as possible in a form that meets the specific needs of credit unions.
While a healthy direct return on invested capital is certainly a key objective, many of the major players make it clear that their most important indicator of success will be bringing valuable technologies to market, in which case the benefits will flow directly to members. as well as through the credit union. Income statements.
The different approaches need not be propositions for credit unions, as our conversations with several leaders leading the charge clearly show.
A signal for industry
“The concept of investing is not new to credit unions, although we hadn’t used the word ‘fintech,'” says Jenny Vipperman, director of loans at Vystar. “We have Visa stocks, for example.”
Although the first official CUSO regulations were not adopted until 1987, in practice CUSOs existed much earlier. The Federal Credit Union Act of 1934 allowed credit unions to invest in organizations associated with day-to-day operations.
The NACUSO database currently lists 1,100 recognized CUSOs.
VyStar President and CEO Brian Wolfburg introduced the notion of a more programmatic approach in 2018, says Joel Swanson, director of member experience.
“We didn’t know what appetite fintech would have for investment in credit unions, so we announced our $10 million fund as a signal to the industry that VyStar wanted to partner,” he says. “Before that, I don’t think anyone was approaching this as a fund.”
The signage had the desired effect.
“I see more opportunities because they know we have this strategy,” Vipperman says. “More fintechs are reaching out to me now to share what they’re doing.”
The existence of VyStar’s fund also serves to delegate senior management to seek out opportunities.
“It makes conversations easier,” she says. “We are expected to invest, so we don’t have to seek approval for every investment. The funds are already set aside.
Two of VyStar’s main investment criteria are internal use or intent to use the product, and a clear path to a successful return.
“We first realize value through our own implementation, with additional value coming from our subsequent investment,” Vipperman says.
VyStar is also seeking representation on CUSO’s Boards of Directors. “When you’re a customer, fintechs care about you to some degree,” Swanson says, referring to comments from advisory groups and others. Naturally, an equity stake and a seat on the board of directors amplifies this voice.
Vipperman acknowledges that it also ups the ante on his own commitment. “I still share my thoughts with other credit unions on service providers, but I spend even more time doing so for our portfolio companies.”
The fund’s first investment, a $2.5 million stake in Payveris, recently generated a 220% return when the company was sold to Paymentus. VyStar has also multiplied its initial $10 million fund commitment several times over.
VyStar was the first live client on Zest AI, in which Vipperman championed a $10 million investment soon after. They have also invested $20m in Nymbus and $10m in the Curql fund, which Swanson played an early role in launching and is seen as “a version of our fund on steroids”.
“If you’re a fast follower, you’ll always be behind,” he says. “Don’t be afraid to be the first.”
While he and Vipperman acknowledge that not all credit unions are in a position to take this position, they see their own involvement in the fintech space as an opportunity for VyStar to help move the entire movement forward.
FOLLOWING: More than ROI