Connectivity in the Fintech Era
By John San Filippo
Credit unions have been connecting third-party software to core platforms for decades. The methods of connectivity have improved considerably over the years – from brute-force, one-off connections to relatively easy application programming interface (API) integration – but the overall process and considerations have remained the same. That is, they remained the same until fintechs arrived on the scene.
The issues connecting credit unions to fintechs are apparently so unique that a new company called Janusea was recently formed to help credit unions bridge the connectivity gap as they seek various fintech partnerships. Finopotamus spoke with co-founders Chief Executive Officer Kyle Stutzman and Chief Revenue Officer Jack Smith to better understand these issues and why an organization such as theirs is needed.
“Our software is the gateway to connect fintechs and credit unions,” explained Smith. “We will take fintechs and help them connect to any core that they need a connection to. Janusea is the connector from whatever your fintech is.” This allows fintechs to write a single interface to the Janusea software, which in turn serves as the middleware to connect to any core platform a credit union might be running. The Janusea platform is based on the CUFX standard, which is currently owned by CUSO Bonifii.
The Cultural Divide
The difference working with fintechs versus legacy third-party providers is largely a matter of culture, continued Smith. “The people starting fintechs are more developers, they're more software folks,” he said. “They've really never worked in a credit union.” Janusea seeks to bridge both the technology gap and the cultural gap between credit unions and fintechs.
“Thirty years ago, everyone knew the landscape,” added Stutzman. “If you were a third-party software company, you knew that in order to play the game, you had to focus on the cores, pursue their partnerships, create the interfaces and make that be part of your solution.”
In contrast, said Stutzman, a typical fintech will develop its software as a consumer-facing product, with little thought given to the what, why or how of connecting to a financial institution. “There’s been money dumped into fintechs all over the world, especially in the U.S.,” noted Stutzman. “None of these fintechs have any experience working with cores or core data. It is a complete cultural divide between the fintech world and the cores and the credit union world.”
According to Landon Glenn, co-founder and CEO of Asa Technologies, a company that tokenizes FI data for safer connectivity to fintechs, this cultural divide can also lead to regulatory and compliance issues. “If you've got a company that's designed solely to provide a service internally for a credit union, like an infrastructure play or maybe it's an ATM, they would be built with that security in mind and they would have experience doing that,” he said.
“Fintechs are out in the wild,” he continued, noting that fintechs often pay little attention to compliance. “How do you protect your members? A lot of these fintechs don't understand the laws and the regulations.” He said he routinely comes across statements made on fintech websites that are seemingly “illegal.”
“They make mistakes all the time,” added Glenn. “Robinhood said that they were FDIC insured when they launched their accounts. Then someone forgot to get [the insurance].”
He added that every fintech must be treated as an extension of the credit union. “If the fintech is consuming, regulated data, all of a sudden you're responsible for what they do and what they say,” observed Glenn. “If they go out of business, for example, there's a lot of reputational risk and there's a lot of compliance risk.”
Easier for Everyone
According to Stutzman, his company’s goal is to make connectivity easier for both fintechs and credit unions. Janusea is equally committed to making its technology accessible for credit unions of all sizes, he added.
“Larger institutions are doing this already. They have middleware,” noted Stutzman. “A smaller credit union doesn't have the resources to do it.” He explained that while Janusea is initially focused on fintechs, its middleware solution can be used to connect any type of third-party software. In the long term, this means that the platform can provide a simpler means of connectivity for traditional third-party software providers, as well as fintechs.
Stutzman said that even if a credit union is already integrated to a fintech, there may be good reason to consider deploying the Janusea platform to serve as the middleware for that connection. “There are integrations that have been done that are still batch instead of real time, or they are partial integrations just to get something live,” he said. The benefit to the credit union is better integration, while the benefit to the fintech is a more standardized integration to Janusea credit unions in the future.
For Asa’s part, Glenn said that his company is trying to ease the compliance burden for both credit unions and fintechs. “We're building a different path forward where the FI can partner with any fintech they want without having to do the one-on-one vendor due diligence with each one,” he concluded.