Advice Shared on Partnership Opportunities to Cut Costs, Grow09.11.2017
It’s a myth fintech partnerships work well only for big banks. Even though they are often way, credit unions are easily capable of partnering with fintechs, as long as they understand what they are, according to one person.
Vince Passione, chief executive of LendKey here, defines a fintech as “a technology-enabled service provider.”
The first thing a financial institution needs to understand about any fintech, said Passione, is whether the potential partner is a competitor or just a middleman. “Beware of general contractors who have outsourced everything,” he advises. “There’s no value in that.”
Credit unions will be open to partnering with fintechs when “they recognize they are not technology firms themselves,” according to Passione, whose firm has raised $30 million in venture money and invested in technology to benefit credit unions and banks.
Making a big investment in technology is often not doable for most credit unions. “It’s very difficult to do that without an infusion of capital,” he says. “We invest ahead of our clients (275 credit unions and banks).
Other Potential Partnerships
But fintech parnerships aren’t just limited to lending platforms, which is where many CUs often look. Instead, credit unions need to be looking for fintechs that can partner on back-office functions, such as regulatory compliance and loan processing.
LendKey’s credit unions average about $300 million in assets, but the company also has about a dozen CU partners that have more than $1 billion in assets. Is there a difference between how a fintech works with larger or smaller credit unions?
Larger credit unions are looking for scalability, Passione says. “And it’s not just originations or servicing capabilities, but things like audit management and member management. Do you have the organizational structure to handle a company of our size?”
Large credit unions, too, want to partner with a firm that has its eyes on what regulatory changes may be coming downstream for them, he says.
But in other ways there isn’t much difference between what large and smaller credit unions want, he told CUToday.info. They are things like, is the fintech stable? Will it add value to my members? LendKey’s due-diligence packages are the same for both smaller and larger ones.
The Need is Large
LendKey started offering private student loans in 2009 and added student loan refinances in 2011. It also offers home improvement and energy efficiency loans. It has originated $1.5 billion in loans for credit unions, and currently services $1.1 billion in loans at a processing center in Ohio.
“The need is large” for student lending, he said, pointing out that there is $1.3 trillion in debt outstanding in this niche.
“Credit unions were great partners,” he said, because not only were they looking for lending, but they also wanted to lower the average age of their members.
Student lending growth has been “amazing,” he added, and “the refinance program has been a big win for us.”
Passione has attended credit union conferences where there is much discussion about Millennials. But when he asks how many are offering student loans, just a few hands go up.
He tells those meetings that student lending will help them switch the bulk of their membership from Baby Boomers to Millennials over time.
“With this product, Millennials will show up at your branch,” he tells those conferences.
A white paper the firm has published on student lending notes the average student loan debt of graduates rose by 6% from 2015 to 2016 as education costs continue to soar.
The average college graduate of the class of 2016 had more than $37,000 in debt to go along with the diploma, according to LendKey. Students can save an average of more than $10,000 over the life of the loan by refinancing, the firm says, with a typical reduction of 2.2 percentage points in the interest rate.
One trend is that graduate students are taking a higher percentage of refinance share. “In 2016 borrowers with a graduate degree represented close to 30% of originations,” according to the report.
Reprinted with permission from CUToday.info, a leading source of news and resources for credit union decision-makers.