Liquidity was both the question and answer for financial institutions in 2023, but while capital remains tight, can credit unions afford not to invest in fintech?

Banking failures may be more common than the financial services industry likes to admit (75 in the last decade) but rarely have so few had such a profound and longitudinal effect on the economy.

After seven interest rate hikes over the preceding 12 months, 2023 started out on relatively shaky ground but the public fallout following closures of SVB and Signature Bank in Q1 was swift; consumers battened down the hatches, hesitant to borrow in anticipation of a recession that, in fairness, had been predicted for years.

But while a recession never materialized, the Federal Reserve’s inflationary action drove up the cost of capital. Year-on-year loan growth lays the situation bear, with credit unions predicted to achieve just 7% loan growth in 2023—down 13 percentage points from the previous period. In addition, after years of essentially flat savings returns, the high interest environment put members in the driving seat as deposits became fluid.

Misery loves company

Of course, liquidity management hasn’t exclusively been an issue for credit unions. Fintechs too have seen a perceptible deceleration in venture capital flow—but this isn't the end of an era, rather a recalibration. In reality, just shy of $35 billion was invested in fintech through 1H 2023. 

The vast majority of credit unions already partner with at least one fintech (is your core not, after all, financial technology?) but the scale of those more mature, integrated partners can sometimes skew the reality of fintech: There is a veritable ecosystem of burgeoning innovators, primed to help credit unions of any size recapture and recapitalize in 2024—and they need credit unions to survive as much as credit unions need them to remain member-relevant.

The right partner at the right time

With the digital-first Millennials and Gen Z now dominating the workforce, credit unions looking to engage and integrate novel fintech have reason for optimism.

Millennials are often painted as jaded spenders, (perhaps unsurprising for a cohort battered by the Great Recession) but Millennial demand led the explosion of digital banking, as traditional financial institutions and shiny neobanks developed revolutionary technology we now expect as standard: Mobile apps, online loan applications, and account management in a couple of swipes.

When it comes to borrowing, this generation may be temporarily tapped out. They are hanging onto mortgages markedly lower than current rates with resumed student debt repayments … but enter Gen Z; the generation born with a smartphone in their hand.

Observing the preferences of their Millennial predecessors, Gen Z has not only adopted but expanded demand for digital-first financial solutions—and has done so without the lethargy of borrowers used to more affordable credit.

For Gen Z, digital finance isn't a convenience, it’s the minimum. They expect instantaneity, personalization and innovation; qualities almost every fintech provides.

Building a new tech stack

In 2024, with a willingness to take calculated risks and partner with new, emerging fintech, there’s no reason why members of a $50M credit union aren’t effortlessly paying for their morning coffee with a digital wallet as easily as their Chase-loyal neighbors.

In fact, one of the more enticing opportunities for credit unions at the start of their fintech journey is to potentially update legacy tech stacks over time with multiple, collaborative (or at least technically communicative) fintech partners. To build a truly curated technical community, committed to serving your credit union and members as unique and vital partners.

The partner that brought you your digital account opening program may not be the same as the company behind the financial management app helping your members navigate their personal finances with newfound clarity, or the AI-driven concierge providing highly tailored financial wellness prompts, but the experience—the tangible impact felt by your members—is consistent, invaluable and, vitally, associated with your brand.

Living the credit union mission

Ultimately, this is what credit unions exist to do: To cooperate with the partners best-placed to improve the financial health and wellness of their employees, members and communities. Like any service, there’s a cost associated with integrating new technologies, but the cost of losing members will always be higher, and with three times as many fintech as there are credit unions, it’s a buyer’s market.

Get in touch to discover how Mission Brands Consulting can support fintech integration and in-market acitvation.