What do you hear when someone starts talking about “the shadow banking system?” A secret, Illuminati-like cast of hood-wearing creepers dictating rogue government policies in a secluded location, the single objective of which is to topple the global financial system?
Clearly they’ve been reading too many Dan Brown novels. Nevertheless, that appears to be the general mindset accompanying the misinterpretation still being bandied about the financial service and banking industries going into the 2020s concerning financial technology (fintech) and established financial institutions. This shadow banking system — this much-less, and in fact no-way-diabolical assemblage of digital lenders, brokers, and other financial companies and organizations — have evolved outside the realm of the traditional regulated financial banking establishment.
Responsible fintech startups typically fall into this industry category, and they’re increasingly gathering market share among banking customers. In fact, about a third of Americans have, at minimum, one account, or engage in a financial activity with said fintechs, according to a recent FICO survey. Completely unsurprisingly, that number leaps to 47 percent for Millennials.
It’s easy to see why traditional financial service providers viewed fintech as adversarial. But cementing such conservative thinking in this context only inhibits the potential for even greater revenue-generating opportunities. Any forward-thinking credit union leader is consistently looking out the window for innovative ways to create value and ease of accessibility for their membership. That’s what fintech partnership brings to the credit union movement — unique avenues that employ member deposits that keep the credit union competitive in an ever-evolving digital market.
Why fintech makes pairing with credit unions so easy
That’s where this journey has led; the future of finance and banking is digital. There’s no getting around that reality. The tsunami of younger generations adopting digital banking will never stop while they build their careers and wealth. When consumers now pay their bills, pay a restaurant tab with friends, or apply for a credit card or their mortgage, they now expect a smooth and seamless process to the transaction or set-up and a secure technology allowing them to complete their financial responsibilities with as few clicks as possible.
In fact, that’s the name of the game with the QCash life event loan platform. We understand credit union members’ needs in getting a small-dollar loan in six clicks in 60 seconds. Whether it’s simply more month than money or a life emergency happens when members least expect it, they know relief is just six clicks away. That’s the convenience digital banking brings to the contemporary consumer. If a digital banking experience saved you in a big way, please tell your story in the comments below this post. The best way to communicate its value is through peer-to-peer experience!
Credit unions should invest in the digital platforms and startups that are in demand today, but we must keep in mind that fintech specializes in creating new technology with expert efficiency — it’s what they do. Today’s financial institutions have so much advantage by leveraging current sophisticated platform algorithms, origination processes, and processing capabilities like QCash’s life event loan decisioning engine that offer a more detailed, 360-degree evaluation of member applications.
Applying their healthy balance sheet, credit unions can invest capital in a given fintech partner, working closely with them to develop and enhance screening models and algorithms useful in identifying potential applicants. It’s a profitable partnership that helps credit unions provide significant value-add to members.
Evaluating risk with a potential fintech partner
It’s also important to be able to recognize risk along with evaluating fintech opportunities, with a concerted focus on regulatory compliance.
This is where “shadow banking” comes back into play, invoking mental images of secret-society organizations operating on the digital fringes. Here in the real world, there is mandatory, regulatory oversight required of credit unions that has entailed fintechs heed to meticulous and legitimate obligations. The willingness of such fintechs to willingly adapt to such regulatory requirements of credit unions has resulted in truly fulfilling and productive partnerships for both entities and especially the credit union members. Because some fintechs are a little more refined than others when it comes to regulations, there is every reason for your risk management and legal teams will want to have a central role in the partnership negotiations and contractual agreements.
The credit union movement is founded upon the spirit of collaboration. When we are open and cognizant of upcoming and innovative competitors from the so-called “shadow banking” entities and bring them into the light, that shine may just uncover some new opportunities to raise product and service standards while working together to create long-lasting value for your members!