No, I’m not talking about the clothing pattern. Plaid is a Fintech startup which just announced a Series C funding round of $250 million. That gives them a valuation of $2.65B. Yes, billion. Chances are, 25% of your credit union members are using their service without even knowing. And Plaid isn’t alone, either in ubiquity or in valuation.
Powering The New Banking
Plaid powers the backend technologies which connect cool financial apps to your bank (or credit union) account. Little players like Venmo. Which is owned by PayPal (they bought them in 2013). I’m sure these aren’t worth your attention.
It’s not like Plaid does anything which may make your credit union into a “Dumb Bank”, simply a place where your funds sit and nothing else. No, they have no plans to take on other traditional bank services. Like mortgages. Oh, it appears they do. But it’s ok, they want your help.
This appears to be a common theme. PayPal’s new debit card “checking program” links with banks across the country to provide needed services, like deposits, check scanning, and lending. ApplePay partners with Discover and GreenDot Bank, itself a Fintech providing reloadable debit cards.
You’re Still Necessary, But Only For the Boring Bits
Fintechs look to partner with banking institutions because the bank part is hard. There’s lots of regulations, safeguards, and steps you know lots about. Basically, it’s easier to buy space in the safe than to build one yourself. Except they don’t pay you. Your resources get used, your members find great value, and might forget you’re the one holding their money.
“So if Fintechs need us banking institutions, why worry?” It’s a good question. And I’ve answered it before, in reference to lending services. How do you best serve your members? Is it with zero interaction, contact, or even awareness from them that you exist?
Of course not! You’re a part of their lives and they know it.
Well, what if your members never knew who you were? What if you were as recognizable as the brand of tires on your car? (I think I have Dunlop, but I’m not sure, and don’t really care, so long as they do their job) Could you still accomplish your mission?
At Least There Aren’t A Lot Of New Fintechs…
If only. Here’s a short list:
- GoodMoney – Taking a piece of the credit union playbook, they give shares to all users, making them part owners, then use funds to support charitable works. Mission-focused and mobile-centric.
- Netspend – Prepaid debit products in lieu of using traditional banking
- Gotransverse – Backend software to allow complex billing solutions for companies
- Simple – Banking with an app and debit card
- Koho – Canadian firm with similar product to Simple. Site makes it clear “We are not a bank”, yet with their card, you don’t really need one.
- PayPal – Besides powering online payments, making business loans, offering the underbanked a checking solution, they can also replace your banking needs. At least they did for this financial sector journalist.
- Amazon – Business lending, potential checking, and pretty much anything…they’re Amazon
This list is by no means exhaustive. And, more importantly, the larger firms listed (and many more not included, like big banks and other tech companies) acquire start-ups for millions once they offer a competitive advantage. That’s a competitive advantage over you, to be clear.
What Can Credit Unions Do?
It’s unlikely your team will develop the next billion dollar valuation financial services solution. They’re too busy serving your members and countering the efforts of emerging Fintechs!
For me, the only answer is in partnerships. Some Fintechs seek to replace you. Others, like Kasasa or Econocheck (Disclosure: My company represents this service) focus on adding value to your services, while keeping your name front and center.
Your members will look to make their financial lives easier. Services like Plaid might be part of that answer. However, to remain relevant, you must deliver clarity on your value proposition to members as well. Take a look at some of these Fintechs, understand what they are doing and why they are so popular, and then decide how you can adopt these principles to grow into the future!