Money20/20 Confidential: From Fintech to CUSO

By John San Filippo

Money20/20 USA, the fintech mega-conference, was held in Las Vegas Oct. 26-29. Among the many stages on the show floor was one called Off the Record. The rules for the Off the Record stage were simple: Cell phones and smart watches had to be checked at the door, and no recording was allowed. It was on this stage that a panel of credit union experts presented an informative session called “Ultimate Integration: From Fintech to CUSO,” explaining to fintechs the benefits of becoming or forming a CUSO.

Defining the Cooperative Model

Session moderator Susan Mitchell, CEO of Mitchell, Stankovic & Associates, kicked things off by asking the panel to define the very industry they were discussing.

Brandi Stankovic, CEO of Strategic Advisory, explained the credit union cooperative mode:

“It is a financial cooperative and it is built on being member owned,” Stankovic said. “So, if you invest in the credit union essentially by having account, you become an owner of that institution... So, it’s not for profit, but all earnings are just reinvested into the membership.”

Mitchell then explained that the CUSO model was born of necessity. “The reason CUSOs formed was because we weren’t getting any attention from business partners,” Mitchell shared. “We had to create our own... we had to create our own ATMs, we had to create our own lending system.”

Brian Kaas, president of TruStage Ventures, provided a more formal definition. “So CUSO  is an organization that is formed for purposes of primarily serving credit unions to provide a banking-related function or service.”

The New Flavor: Fintechs as CUSOs

Kaas noted that the traditional model of credit unions pooling resources to form a CUSO has evolved. “I think what’s been interesting is there’s sort of a new flavor of CUSO that has emerged over the last five to 10 years,” Kaas said. “And that really is, I think driven in part by a lot of fintech startup companies. And what we’re seeing are fintech companies want to collaborate with credit unions and want to also then look at ways for those credit unions to invest in those fintech companies.”

Alex Lopatine, CEO of the technology CUSO Blossom, explained why this model is so different from typical venture capital funding. “[Credit unions] are investing because they want a seat on the table and they want a partner rather than a vendor and they’re not driven, they’re nonprofit so they’re not driven by growth,” Lopatine explained.

He added that the CUSO model creates a “self-fulfilling prophecy” by aligning the fintech with its customers. “Those customers are giving you feedback; you can build something beautiful together with them.”

The Credit Union View: Trust and Thinking Big

George Estrada, chief technology and innovation officer for $1.25 billion Rize Credit Union, provided the perspective from inside a credit union. He framed the fintech-credit union relationship as a perfect combination of complementary strengths.

“Innovation, speed, that’s what the fintechs bring,” Estrada said. “Conversely, credit unions have what fintechs don’t have, which is long established relationships and trust for members.”

Estrada warned, however, that this trust is a double-edged sword. “Once you are in with a credit union in that trust, they start coming to you one after the other after the other,” he said. But, he cautioned, “If they have a bad experience with you, everybody’s mad about it.”

Estrada identified a major challenge inside certain credit unions, noting many executives are not technologists and therefore may struggle to “think big.” He urged fintechs to help, but to remember that execution is everything. “It’s like it’s not just going to the dance, but take me home, right?” Estrada said. “How are we going to deliver? What’s the timeline that we’re going to deliver? What’s going to happen when it doesn’t work out?”

Arrogance and Predatory Contracts

“There’s a lot of margin out there for really poor-quality services and products,” Estrada said bluntly. “There’s a lot of garbage...Predatory contracts that make no sense.”

He described a “level of arrogance” from some account managers, telling a story about one vendor who treated him like a subordinate. “I had someone send me their calendar and say, ‘Schedule a meeting with me,’” Estrada recalled. “And I was like, I don’t schedule meetings with you.”

Stankovic agreed, noting that this type of attitude is counterproductive. “While credit unions’ lives need to be better and we need those partners, that arrogance of spirit sometimes can shut down what could be a really positive partnership.”

Mitchell pointed out that 10-year contracts and punitive terms for mergers are handcuffing the industry. Stankovic warned that this behavior has consequences.

“First of all, I think that there is an abuse of power that happens with contracts,” she  said. “And abuse of power always lends to regulation... Somebody pulls some stunt, and then next thing you know, we’ve got a rule, and now it’s limiting us. So, stay away from some of that abuse of power... don’t abuse it, because then we end up with more rules, and more rules are what get in our way.”

Final Takeaways

To close the session, Mitchell asked each panelist for a one-word takeaway for the audience.

Kaas said: “Maybe urgency.”

Estrada offered: “Roadmap.”

Lopatine concluded: “Patience.”

And Stankovic summed up the panel’s theme: “Integration, that’s my word.”