Industry Leaders Forum: Technology and Inclusivity, Pt 2
Updated: Apr 12
By John San Filippo
Finopotamus has assembled a panel of experts in a recurring series, The Industry Leaders Forum (ILF). Each month, we’ll ask the panel a broad technology question and share their informative responses. Respondents are presented in alphabetical order by last name.
Part 2 includes responses from:
For April 2023, Finopotamus asked the ILF panel:
Credit unions have always been committed to inclusivity. How can modern technology be used to strengthen that commitment?
Origence Lending Services’ Hannah Johnson
One of the most important ways credit unions can utilize technology to strengthen a commitment to inclusivity is to intentionally use technology enabling a fairer lending process for all members.
Historically, many people have faced lending barriers based on outdated, inequitable cultural beliefs, norms, or practices. The ripple effects of these obsolete practices are still felt today, but credit unions are well-positioned to help correct this for today’s borrowers by offering equitably made decisions, flexible financing options, and accessible member services.
Technology can create a more inclusive environment by employing AI to underwrite loans. This speeds up the lending decision process and ensures equitable parameters are being applied to every member, removing potential bias from the decisioning process. Instead of waiting days or even weeks to hear back from a lender, borrowers can receive a same-day decision, which helps make a potentially stressful process more pleasant.
Credit unions can offer flexibility to prospective borrowers by using explainable AI to provide more opportunities for approval and avoid bias - an issue that still persists despite the Fair Credit Reporting Act, which requires consumers be provided a reasonable explanation for a loan denial. Consistent standards are necessary to address bias in all AI modeling stages, whether that involves using machine learning tools or avoiding personally identifiable information to ensure fair treatment of credit union members.
Lastly, give members the experience they want and need. Some members love all-digital, all the time and want a fast and highly functional mobile app. Someone with a visual impairment may want to be able to come into a branch and sit down with an employee who can discuss their finances. The technology a credit union offers goes hand-in hand with understanding the needs of their members and the local community, so it is imperative to strike the right balance of the two in the right delivery channels in order to offer a truly inclusive experience.
CMFG Ventures’ Brian Kaas
Credit unions have a proud tradition of furthering inclusivity for underserved communities. Through advances in technology, credit unions now have the opportunity to provide more members, especially low and moderate income communities and those who’ve been historically left behind, financial services and products to help navigate times of uncertainty and provide financial security. Members trust their credit union, which is why offering relevant products and services to help them improve their financial health and remain resilient continues to be critical.
Credit unions should consider partnering with diverse founders and CEOs who are working hard to create and expand financial inclusion. Credit unions uniquely understand that they have an increasingly diverse set of members whose needs they must meet. The people who are often best positioned to build the solutions for these diverse members are those who come from the same underserved communities, who have lived the same financial experiences and know where those pain points are and how to address them.
Partnering with diverse founders to support and expand financial inclusion can also translate into stronger financial returns. Changing demographic trends and emerging market patterns are compelling reasons to support a thesis of supporting diverse founders. Credit unions that have these partnerships in place are already ahead of the curve, supporting their communities with solutions such as wealth management, expanded access to credit through artificial intelligence and machine learning, financial wellness and education, asset protection, and much more. By empowering underrepresented leaders, credit unions can support the needs of their membership, working together to erase financial inequalities.
Union Credit’s Barry Kirby
Credit unions are already known for their community-based approach and focus on serving member needs. However, they often struggle making their services known to the wider market, especially the younger generations. In fact, despite the median age of U.S. consumers being 38, the average age of credit union members is 53.
Younger generations are either in their prime spending years or just beginning. Without the proper information in front of them, making financial decisions can be full of fear and anxiety. Creating change starts with how credit unions can find a way to place their competitive offers and rates in front of these demographics, giving them easy access to information and opportunities, rather than forcing them to proactively find their local credit union and apply for loans.
Embedded finance is the answer. Embedded finance poses opportunities for credit unions to make credit available and more accessible to all consumers outside of their existing lines of business. It can help credit unions provide consumers with full transparency into their buying power, allowing them to make stronger financial decisions.
Embedded finance is second nature for younger generations, whether it be an e-commerce merchant providing insurance, a coffee shop app that offers 1-click payments, or a department store’s branded credit card. Credit unions can embrace fintech to get in front of younger consumers as they shop, bringing credit unions’ supreme customer service and earned community trust directly to these generations.
This modern approach can change the game for credit unions, helping them serve the new faces of their local neighborhoods.
Jack Henry’s Shanon McLachlan
Credit unions have had a long-standing reputation for providing affordable and accessible financial products and services. However, it’s not uncommon for members to still have relationships outside of their primary financial institution. A Gen Z or millennial couple, for instance, does business with 30 to 40 financial providers today. This complexity makes it increasingly difficult for members to have a complete and accurate view of their finances across various financial relationships. Credit unions, however, are best positioned to address the financial fragmentation that exists today, starting with their own communities.
Improving the financial health of members requires credit unions to break down financial barriers and create financial resilience. Embracing an open banking platform can help credit unions provide members with a full picture of their finances in one place. Members benefit from safer and more secure access to their data as well as greater visibility into their financial relationships. Enriching this data can provide members with the information they need to understand and categorize their spending, leading to healthier, more informed decisions.
Having an open infrastructure allows credit unions to easily embed relevant fintech tools geared toward improving the financial health and lives of members. These tools include personal financial management to help with budgeting, credit monitoring to provide advice for members to improve their scores, robo advisors to help with investments and savings, and more.
Credit unions may also consider embedding tools and services for specific segments of their membership. For example, they could offer financial literacy tools to teach younger members about finances; provide retirement planning services to baby boomers or those near retirement; help those experiencing financial hardships by providing a resource center or financial assistance options like skip-a-pay.
Delivering on this commitment to inclusivity helps credit unions build stronger connections with their communities and proactively addresses financial fragmentation.
Sontiq’s Al Pascual
Beyond expanding memberships and growing loan portfolios, financial inclusion strengthens the communities served by credit unions. When underserved segments are better equipped to manage their finances, they gain the ability to plan for the future more adequately.
While there are many different paths a credit union can take to enhance financial inclusion, four strategies stand out as especially relevant today. The effectiveness of each of the following is accelerated with the injection of technology.
Establish or Improve Credit: With better credit comes lower loan rates, expanding the pool of income from which a member can invest for the future.
Increase Homeownership: Beyond helping individual families build wealth, increased rates of homeownership have been shown to reduce incidents of crime in a community.
Make Higher Education More Affordable: College graduates take on fewer loans and earn more money over their lifetimes.
Build Generational Wealth: Prosperity leads to options, giving members more freedom to pursue their ambitions without financial limits.
From a technology perspective, credit unions should consider a three-pronged approach that incorporates digital content and personal financial management (PFM) tools, data analytics and a broader array of identity proofing technology.
Digital Content and PFM Tools: Improve financial wellness through digital content (e.g., financial literacy webinars, SMS subscriptions and podcasts), as well as tools that allow members to better understand and plan for their financial lives (e.g., budgeting modules, credit score calculators and payment or savings simulators).
Data Analytics: Originate more loans to a wider pool of borrowers through the use of compliant alternative data, such as rental payment histories, that makes otherwise “credit invisible” invisible. Layer on predictive modeling to extend responsible amounts to approved consumers.
Identity Proofing Technology: More easily verify “no file” consumers, such as immigrants with credit histories outside the U.S., with advanced authentication technology, identity document scanning solutions and a range of lesser-used, but still compliant, identifiers (e.g., phone numbers and email addresses).