JPMorgan Chase currently invests $12 billion in technology annually, which is twice as much as the IT budget of credit unions nationwide—combined. For this reason, it’s becoming increasingly challenging for credit unions to keep pace with the technology, research, and development of larger financial institutions. To stay relevant and continue improving client experiences and offerings, credit unions must find ways to leverage technology and use emerging trends or disruptions to their advantage. Our “C.U. on the Show” podcast guest describes why fintech partnerships, which integrate financial services and technology to address various needs, are proving to be a more efficient credit union solution.
Doug welcomes guest Brian Kaas, president and managing director leading CMFG Ventures, CUNA Mutual Group’s venture capital entity that focuses on strategic, early-stage investments in the credit union, financial services, and insurance industries. Kaas, a former partner at the national law firm Foley & Lardner, also serves as the senior vice president of corporate development at CUNA Mutual Group, where he has led the acquisition of numerous companies. CMFG has invested over $270 million in 50 fintech companies providing solutions to credit unions. Brian shares the trends CMFG is observing, how credit unions can benefit from fintech partnerships to address common and emerging challenges, and what credit unions should do today to prepare for the future.
Using fintech products and services is an efficient solution credit unions can employ to remain relevant and competitive, rather than spending time and budget on developing internally. Brian explains how various fintech companies are addressing a broad range of credit union needs, from accelerating growth through lending and promoting financial wellness to automating traditional operational processes for a more streamlined member experience.
The key, Brian shares, is reducing the friction of a digital experience and offering solutions that can help expand the member relationship. For example, Brian discusses CarSaver, a fintech company that addresses the growing trend of online vehicle sales and allows credit union members to have a comprehensive experience, from choosing a car to funding, all on one site. In addition, since many indirect lending members are non-returning, it can create an opportunity to lengthen the relationship through its upgrade program.
What Credit Unions Can Do Today
While rapidly changing technology and consumer expectations can sometimes feel overwhelming, Brian encourages credit unions to approach fintech one topic at a time. He shares various emerging issues credit unions may focus on, such as decentralized finance, financial wellness, or creating another stream of revenue that doesn’t rely on traditional fee revenue, such as courtesy pay. Now is the time, Brian emphasizes, for credit unions to have these conversations among their boards and management teams and begin exploring and pursuing fintech partnerships so they won’t be left behind in the technology race.
CMFG helps credit unions mitigate the effort required to partner with fintech companies by providing a shortlist of vetted companies and free educational resources to learn about the space. Stream the episode to learn more, including:
- How credit unions can proactively use fintech to promote financial wellness, a critical mission of the credit union movement
- Case studies and success stories of companies where CMFG has been an early investor
- The community forum CMFG provides to credit unions at no cost to discuss and learn about emerging tech topics and solutions
Brian Kaas, CMFG Ventures, and CUNA Mutual are not affiliated with or endorsed by ACT Advisors, LLC.
Audio Transcription (pulled from the podcast)
My guest on today’s podcast is Brian Kaas. Brian is the president and managing director of CMFG Ventures. Brian oversees all aspects of CUNA Mutual’s venture capital program, including the acquisition of numerous portfolio companies. In this episode, Brian shares how their philosophy guides the ventures they decide to invest in, talks about new ventures poised to have a big impact on credit unions and their members, and shares what your credit union should be doing now in fintech.
Welcome, Brian. Tell me, how did you get started working with credit unions?]
Well, thanks, Doug. First, great to be here. Yeah, my journey working with credit unions started almost a decade ago to the day I joined CUNA Mutual group. My background before that was as an attorney of all things; I spent my career trying to solve complex problems in a transactional setting. And when I joined CUNA Mutual, there was an opportunity a few years later to lead our venture capital arm. It was really an intriguing opportunity of how do we kind of solve some of the challenges and pain points of credit unions in terms of staying competitive and relevant with all of the change that’s going on around us. And it’s been a really great experience since then, to really work with credit unions on a daily basis now.
Interesting, so lots of stuff I’m sure our listeners want to know. So how much money did CUNA Mutual put into this venture capital arm? How is it structured? Does CUNA Mutual wholly own the ventures? How big a stake are you taking in the companies? Tell us about all that.
Sure, yeah, just a quick overview. So the venture capital arm is known as CMFG Ventures. We launched back in 2016, with a focus to invest in companies that either at the time of investment or at some point in the future we see an opportunity for those companies to work with credit unions to address their needs or to better serve their members. So that’s sort of the underlying theme that really kind of weaves through all of our investments. Since we launched back in 2016, we’ve invested over $270 million into fintech companies; we’re approaching our 50th company we’ve invested in since that time. And really looking at holding an investment position that will be less than 50%—typically in the 10 to 20% range. Oftentimes we have a board seat or board observer role, so we can really get sort of an inside look and work with these fintech companies, so they’re building solutions that will be relevant to the credit unions we serve.
So the companies you’re taking a position in since CUNA Mutual doesn’t have stock, so you’re taking a position in with cash, and then you’re getting a board seat, and these seats are being filled by employees of CUNA Mutual Group or CUNA Mutual Group Ventures, is that right?
Yeah, in most cases it is somebody on our ventures team who will hold board seats. And we don’t have board seats in all the companies we sit on, but it is someone within CUNA Mutual who serves as a board member. And the capital we do invest in these companies is really coming off of the CUNA Mutual balance sheets; we don’t have outside investors and we don’t have shareholders. We’re a mutual insurance company. And really, I think that goes to the philosophy of we’re really investing for the future of the industry, and we can kind of make some of these investments and be more patient than maybe stock companies would be comfortable doing.
You vet the companies and decide to invest in them, and then a credit union could potentially invest in them as well, if their round was open, or they could use their services or both. Is that right?
Yeah, correct. I would say certainly most of these companies create partnership opportunities for credit unions to work with them. And there’s many companies in our portfolio addressing a very broad range of needs. Some are in the lending space, so they work with credit unions to kind of grow and accelerate their lending. Some might be in financial wellness, which is a critical mission of credit unions, and how can we use technology to serve a broader group of membership to address their financial needs and wellness. And in some cases, it’s more just kind of more traditional banking technology to automate processes, create better member experiences. So a lot of different companies serving different needs. And we are starting to see credit unions start to invest in fintech companies. I’d say that’s not real common yet. In many states, there are limits or restrictions on the ability of credit unions to invest, certainly outside of a CUSO structure. But again, I think we were seeing more companies, more credit unions, looking for some investment opportunities as well.
So let’s talk about some examples. You said 50 companies in an almost $300 million portfolio. So I imagine you have lots of stories in there. Maybe it’d be fun to hear about some good ones. And tell us about a couple of bad ones too.
Well, there are no bad ones. A lot of learnings along the way, I’ll say that. I think some of the companies, by way of example, that we’ve invested in, we’ve invested in a company called CarSaver, which is an e-commerce platform for buying, selling, and financing a vehicle. We believe more and more vehicles will be sold online. What challenges or opportunities does that create for credit unions? And the unique thing about CarSaver, which is sort of a call it like an asset-light version of Carvana, in the sense that CarSaver works with your local auto dealer to help them sell their vehicle inventories, and then can also work with a credit union to provide the financing for that vehicle. They’re really kind of the technology that brings all these pieces together. Again, we see a big trend of more cars being sold online. This creates the opportunity for credit unions to avoid disintermediation. And in fact, we think this creates a great way to create a new engagement opportunity for the credit union member who we hope will be able to go on to the credit union’s website, work with CarSaver, and go through that car-shopping journey without ever leaving the credit union’s website. So that’s one example of a company we’re really excited about.
Let’s talk a little bit more about that one, because I bought a car online before, so I have some personal experience. So how long has that one been in the portfolio?
We invested in CarSaver in the fall of 2021. So relatively new. CarSaver has been in existence for several years and has hundreds of integrations to really drive a lot of automation and kind of reduce friction through that digital car-buying experience. They’re powering the auto-buying platform that Walmart will be rolling out, they power the digital auto-buying experience for Nissan. We think CarSaver delivers the best experience, and the fact that it’s trusted by some of the largest companies in the world makes us want to bring that technology into the credit union space.
That’s interesting. And obviously, Tesla, Carvana, CarMax have had that for a while. And again, I’ve personally had the CarMax experience. It’s great. It really truly is a great experience. Now CarMax is looking to have you finance with them. They are not trying to help me hook up with my local credit union. How does CarSaver change that equation? And have you seen credit unions start to get involved in this short period of time?
Yeah. So, we’re now working to connect credit unions with CarSaver. And you’re right, most of those companies that are selling vehicles online are looking to capture the financing. Carvana will also make it challenging to get financing from someone other than Carvana. But with CarSaver, they do not provide the financing on the loans; they’ll integrate with partners to provide that financing, but at the end of the day, CarSavers is not the lender in the ecosystem. So it is a big distinction from some of the other digital auto-buying platforms that are out there.
Have you had some credit unions start to participate with them?
Yeah, we do have credit unions now that are signed up, including some very large credit unions we’re excited to have come on to the platform as partners of CarSaver. And there’s some really interesting work we’re doing within CUNA Mutual to actually integrate a couple of the technologies we’ve either acquired or invested in over the last several years to really deliver a very powerful auto-buying platform that’s integrated into the credit union system. We’re pretty excited about this but not quite ready to roll it out. But we will be in the coming months, when we have technology from a few companies that will be fully integrated, to make it easy for credit unions. That’s a pain point; there’s so many solutions credit unions need to try to maintain that there’s always a backlog for integration of these solutions. So that’s another pain point we’re trying to solve within CUNA Mutual, to mitigate some of the effort needed by credit unions to take advantage of these partnerships.
That’s substantially over my skis, Brian. So I’m going to not pretend to be able to follow you down that path a whole lot further. Compare if you would the customer. I know credit unions got in trouble with indirect several years ago, but indirect is a big source of business for credit unions. And does the customer you acquire through indirect lending, how do they compare with someone acquired through CarSaver? And is the net loan rate to the credit union similar?
One of the challenges with indirect auto lending is—most I’ve heard the statistics I could be off by a little bit—but I’ve heard as many as 90% of those loans are one and done. Meaning they get the auto loan on that vehicle and nine out of 10 of those consumers will have no lasting relationship with a credit union. So a lot of the technology we’re investing in is how do we increase both the engagement opportunities with the members and really kind of expand that relationship. So again, to kind of stick within auto lending, we’ll have a program called the upgrade program and similar to how you can upgrade your iPhone, we want to upgrade people into newer cars that will have fewer miles, maybe fewer hassles from breakdowns and whatnot. But at a price point that is comparable to the loan payment they’re paying. And so a consumer or credit union member will be able to shop for and upgrade their vehicle without leaving the credit union website. We want to turn those members into returning members. And so they’re just thinking about where technology is at today. There are just so many more opportunities for credit unions to deepen those relationships.
That’s a really interesting one. So let’s talk about another one. Tell me another one you’re seeing make the biggest impact on credit unions and credit union members or one you think will.
Yeah, maybe to go outside of lending, we have a really broad suite of lending companies that we’ve invested in that are working with credit unions. But I’ll maybe kind of go a different direction. One I’m really excited about. It’s a company called Goalsetter. And Goalsetter is a teen banking app. And I think what really sets Goalsetter apart from some of the other companies out there is that the founder of Goalsetter spent a big part of her career at Nickelodeon developing content that was engaging for young people. She didn’t have a financial services background, but I think that was a plus, because she approached it from a very different lens, to create content that educates kids about financial wellness. That creates savings features and the ability to hold fractional shares of companies, and really kind of uses memes and TikToks and other content that really resonates with young people. So I think that’s a really unique way to engage younger people, but I think, for credit unions, what we want to look to do is, can we white label that app and try to draw in the next generation of credit union members, because I think that’s a concern and challenge for the industry. You look at the average age of a credit union member, and it kind of tends to creep up every year. But there’s a lot of parents who are credit union members, there’s a lot of grandparents who are credit union members who could use this app, offer it to a child, maybe put $50 in there to start that savings account for that teenager. And now that credit union has an opportunity to build a relationship with a next-generation credit union member. So I’m really excited about that, again, a very different challenge that company, I think, can help solve for credit unions. But one that presents a tremendous opportunity as well.
My first bank deposit account was with a credit union. And I can remember it was IBM employees credit union in upstate New York, and the credit union and IBM employees used to have a fair. And so I remember distinctly the ferris wheel and the various fair stuff. And I had that associated with my credit union in my mind. So there was a good connection there. Right from the start, no financial education, but some good rides.
It’s the next generation of that version, I think.
Right, different time, different place, for sure. Obviously, the digital native and mobile are some of those trends that are hard for credit unions to acquire talent and to follow the very fast-moving industry. What are the other trends you are seeing that are being helped? Or how can you help credit unions to keep up using some of these fintech solutions?
If you take a step back and you look at the amount of money the big banks are spending on tech—JPMorgan Chase has an annual tech budget that’s about almost twice the size of the credit union industry combined. It will become increasingly difficult for credit unions to build technology on their own that is competitive with what the big banks are doing. And interestingly, they spend a lot of money and still end up partnering with fintechs at the end of the day, because it’s really tough to build what a lot of these companies are doing. Fintech companies have raised probably well over $200 billion over the last few years. We’re seeing, and we’ll continue to see, highly automated processes, no matter what it is, lending that can be done in a couple of clicks and funded within a matter of seconds. Sort of the days of having somebody fill out a complete application, go through manual underwriting, then take days to fund—will knock out those letters, because consumers just have different expectations than they did, five or 10 years ago, so a lot of companies are tackling that and a lot of those companies are looking to partner with credit unions to help them deliver that best- in-class experience to their members. One topic I think is probably emerging, at least from a credit union interest standpoint, is around decentralized finance, cryptocurrency. I think there are certainly a lot more credit unions that are wanting to really understand what this could mean to their credit unions. And I think what we saw, although it may have slowed down now, just with kind of where crypto is trading, but a lot of money going out of their share accounts into cryptocurrency. So they’re losing a lot of those deposits. And I think that at least raised the initial questions of, is there anything we can do to avoid those funds from leaving our credit union, and so looking at solutions in that space. But I think, looking more than over the next three to five years, but what about five to 10 years out? I mean, I think there’s going to be a lot of opportunity for credit unions to leverage some of this technology to lower costs for members. Just given the mission-driven focus of credit unions, I think it aligns with a lot of the focus of decentralized finance to kind of drive out a lot of the costs and inefficiency. Almost at times, it feels like an overwhelming amount of change happening. But what I tell credit unions is you don’t have to solve everything on day one. But what I do encourage credit unions is to find a particular pain point or strategy you want to focus on where a fintech partnership could really kind of accelerate addressing that issue and use that as a starting point. And then go out and look for solutions. Because I think sometimes credit unions might react to whatever solution happened to be introduced to them. So developing that strategy, I think, is really critical.
Yeah, and agreed, very overwhelming. The number of choices is vast, and some are far down the pipe as far as how far they are built out. And some are very much in the beginning stages and figuring out which is which is very time-consuming. So I imagine your team is helpful and you’ve done a large amount of vetting so the credit union can have a bit of a shortlist if it’s made it on to your list. Is there any track record there, Brian? I mean, when you guys invest in something, does it go to the moon? I forget what you call the company that goes to the billion-dollar mark.
You got any unicorns in the portfolio?
Yeah, we have five companies that have hit unicorn status in the portfolio. So we’ve had some good success with some of our companies. And so it’s providing financial returns to the organization, which I think is important, because it allows us to continue to reinvest dollars. The pace of change isn’t slowing down, and we want to continue to be very active. We want to invest in companies that are financially successful, because those are the companies that are going to be around for the long term for those credit union partnerships. We don’t want to invest in companies, obviously, that have a two-year lifespan and then have to close their doors because that is a bad experience to credit unions that may have spent a lot of time, energy, and resources to work with a company only for it to no longer exist. So we really, again, for multiple reasons, want to invest in those companies we think will be here for the long haul.
Let me ask you, I don’t know if you have a company that addresses this. Obviously, there’s been much discussion recently about courtesy pay and fee income resulting from overdraft activity, eliminating it or reducing it or making it some kind of a limited amount per month. Have you had any fintech activity in that area?
That’s an interesting question. Because there are a lot of fintech companies that have products and solutions that can create new revenue streams for credit unions to really replace some of the noninterest income and fee revenue credit unions have relied on. Credit unions have incredible trust, and in many cases, really great engagement with their members in whether it be financial wellness companies. We have a company that we’re just going to start working with credit unions on; it’s called Tally. And so Tally is a company that will help people pay down credit card debt, and automates the payments to your credit card companies using an algorithm to pay off the companies in a way that is sort of most beneficial to the consumer. We think there’s opportunities where it can create some fee income for credit unions, it can deliver opportunities for growth for that company. But most importantly, it goes to the mission of really kind of helping out the financial wellness of the credit union members to help them get out of credit card debt. So that’s one example. But there’s numbers of others where credit unions can offer solutions that create revenue streams that are really kind of a win-win for the credit union and the member.
Yeah, that’s the hard part about fee income, right? It’s a very, very small number of members that generate a lot of the courtesy pay revenue. Figuring out how to serve those members and not live off of them, if you will, is, I know, going to be a tremendous challenge for credit unions. What I’m hearing you say is that there isn’t a pivot that’s direct in that area, it’s more of a let’s help you stop bouncing all those checks. And there will probably be, I would assume, a nominal amount of revenue associated with that compared to the very large amount of revenue that courtesy pay has been for a lot of credit unions.
Yeah, I think that’s right. And I think that something that is a fee probably is kind of borne by people who are least in a position to pay additional fees. And again, I think there’s just so many companies out there now that can promote and improve a person’s overall financial status in a way that enables them maybe to get out of debt sooner or to pay lower interest rates, to have maybe high interest debts a member has with another financial institution and enroll them into a credit union loan at a much lower rate. There really are countless opportunities these tech companies are enabling to better serve credit unions, again, in a way that really aligns with the mission of not only credit unions, but those fintech companies as well. You think of a lot of fintech companies founded by people who just want to build a billion-dollar company at all expense. But you’d be surprised how many of those founders maybe grew up in a household where they were financially stretched, or their parents didn’t have access to affordable credit. And it really inspired them to build a company to help that next generation avoid the challenges of their parents and their families. And so there is a lot of mission alignment even between founders, many of the founders we invest in, and the credit union mission.
This being a complex, fast moving broad space, I know you have an educational resource for credit unions to start to kind of figure out what to do and where. But talk to me a little bit about the Fintech Forum and is that the starting place for credit unions?
It certainly is a starting place. The Fintech Forum is a community we launched late last year to bring fintechs and credit unions together. So we’ve spent six years talking to thousands of these fintech companies and have developed a lot of learnings and have met some companies we think really are difference makers, but how do we kind of share that information with credit unions? And so we created the forum, and this will be a community that is available to credit unions at no cost. And we really look at a variety of some of these really significant trends that are emerging in financial services, but really looking at them through the lens of what does a credit union need to know to use this trend or disruption to the advantage of the credit union. So we talked a little bit about the shifting of auto sales online, which can be very disruptive to many credit unions that rely on auto lending if they’re not sort of ahead of where that trend is going. So we’ll talk about those trends. We’ll talk about companies that enable credit unions to leverage that trend to their advantage. So each month, we take a different topic, and we’re creating a library of content and information for credit unions to learn about opportunities for partnerships, to learn about some of these trends, really, again, more with the credit union focus on the educational content we create.
So if the credit union wanted to learn more about the Fintech Forum and the companies CUNA Mutual has been involved in, does it go to the cmfgventures.com website—is that where you would start?
Yeah, that’s correct: https://www.cmfgventures.com/. There’s a registration link for the Fintech Forum. It will take 15 to 30 seconds. And then you’ll get on our list, you’ll see all of the speakers and topics that will be coming up for the remainder of the year and also have access to sessions we’ve had in the past. So again, it’s a great free resource of content about companies we’ve vetted specifically for credit unions.
Thank you for all that great information, Brian. As we sort of wrap up, any final thoughts for credit unions that might be listening to this podcast? Obviously, we told them the website to go to any other guidance you want to offer.
My advice to credit unions is I think the time is now to really get serious about exploring and pursuing these partnerships, if you’re not already. I think this needs to be a discussion that occurs on a regular basis among board members of credit unions and among the C-suite of credit unions. The level of change and competition is changing so rapidly that I think if a credit union kind of pushes this and kicks the can down the road a few more years, they will be that much further behind. So that’s my parting advice for credit unions.
Excellent. Thank you so much, Brian, for your work and for joining me today on the podcast.
Thank you so much, Doug.
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