Nickels Advisor Bill Zysk recently ended his long tenure at PSECU in order to guide fintechs. Here’s his candid advice.
In my role as Chief Credit Officer for Pennsylvania’s largest credit union, I managed a loan portfolio of more than $5.5 billion, serving a membership that is now approaching 500,000. I left it all behind—the leadership role and the steady paycheck—to spend time advising innovative new businesses like Nickels. That’s how convinced I am about the power of fintech, and the role that partnerships between startups and credit unions play in bringing our business into the future.
My former employer, the Pennsylvania State Employees Credit Union (PSECU), has long been seen as a digital leader: We were one of the first internet real-time lenders and among the first to be branchless and remote.
From Day 1, I’ve been an Automator. An early FICO adopter, back in 1991, when the score came out. Massively into pre-approvals, before Fannie Mae and Freddie Mac were working with the score. Over the past five years, it’s become clear to me that the next generation of innovation is happening in fintech.
Fintechs now control 50 percent of the unsecured personal loan market, according to a recent Experian report; they have claimed 25 percent incremental market share over the past five years alone. Instead of seeing this as a growing threat to the credit union business, we should be seeing this as an opportunity.
Credit unions must supplement organic growth by any means necessary in order to bring in new members. Their survival depends on a different approach to digitization, one that truly embraces the way consumers have changed.
Fintech partnerships help with scale. They’re also acquisition tools, bringing business in and offsetting the business that’s leaving. Here’s what I’ve learned about how they can expand a credit union’s reach and create deeper levels of connection.
This year, 36% of bank and credit union execs see fintech as a significant threat in the coming decade, compared to 29 percent in 2020.
Personalization Must be a Priority
If the younger generations aren’t buying your product, it’s because your product is irrelevant. Think about it: Is your mobile app clunky? Can your members find easier, more seamless ways to borrow, or to save? To win today, credit unions need something that makes members feel special.
I see collections, lending, and new accounts as a 360—a continuum of the life cycle. At all points, even fraud, you’re monitoring the person, looking for the good and the bad, trying to improve what you can. Each moment is an opportunity to differentiate—to truly and immediately meet someone where they are.
I’ve done balance transfers since Bush the elder was in office. I was even working on continuous pre-approvals, where you would call in, or I would monitor you, and I would try to hit you up with an offer. It’s important work, but it’s painful—and the returns on that traditional approach to loan growth continue to dwindle.
What moved me most about Nickels is that they provide a more in-depth version of what I’d always been doing. There’s now a win-win opportunity, where we can use new data feeds to both help members improve their financial health while also leveraging that data to build our business. Using artificial intelligence, we can even share, in real time, the most opportune moments to consolidate debt and improve a person’s financial health.
Timing is everything—almost. After all, your financial health is not only about where you are now, which a credit report captures, but also about where you’re headed. For example, your doctor can check your current vitals when you come into the office for a visit, but what would be even more helpful is knowing where your health is headed. The same way that medicine is looking at trends and ongoing health monitoring, with the right tools you can understand financial behavior and develop models that go further in forecasting financial health.
Partnerships That Deliver Require Investment
In 2020, it looked like credit unions were placing more emphasis on fintech partnerships, with 30 percent of senior executives surveyed by Cornerstone Advisors describing them as “very important.” In this year’s survey, though, that percentage dropped to just 21 percent.
As credit unions remain focused on what worked in the past, we are leaving so much opportunity on the table. The same survey this year found that 15 percent of credit unions don’t devote any staff to maintaining, expanding, or creating fintech partnerships.
About five years ago, I went to New York for Finovate and began to see the rise in AI, robotic process automation, and some of the biometrics. “This is what we need to do to make ourselves more efficient,” I said. “To do more, more quickly, and to develop more of an outreach program to target people.”
By accepting that fintechs have the tools, credit unions can invest in the right kind partnerships that bring the members and benefit everyone. There’s no better example of how this works in practice than the Pentagon Federal Credit Union (and note – I have no affiliation with them).
I’ve really admired all that PenFed has done, under James Schenk, to expand their markets—buying and selling participations, keeping the pipeline going. One of their most interesting recent partnerships is with a leading credit-focused fintech that had gone out with a proposal to credit unions and banks, looking for players who could “member-ize” people, either through an association or a federation. The startup worked with a ratio, saying that for every $10 million in loans, they could deliver a certain number of members. They went out to all the third-party sources—Credit Karma, Lending Tree—to find people who are looking to get credit or improve their credit, and get business that way.
Some fintechs in this space are more aggressive than others. A few are morphing into credit cards, to hold balances for more than one transaction. Others come in with different products—auto rollover, new auto, second mortgage. The key is to find a partnership that can bring your services to more people who need them—and to commit the time and resources to make it successful.
Think Critically About Your Credit Card Program
Credit cards have long been seen as a point of differentiation for credit unions. At the moment, they are showing signs of growth, but it shouldn’t obscure the fact that the market is saturated.
PSECU has a long-standing credit card business, with rates that are pretty much fixed. For a while, things were steady; in 2017 and then in 2019, the Amazon Prime card came out with Chase, and the Apple Card came out through Goldman Sachs’s Marcus, respectively. Both offered all these rewards: free Prime and cash back, plus immediacy and even provisional crediting. When COVID hit, I saw the business change and market share shift elsewhere. It makes sense: At first, people couldn’t shop. Then they didn’t want to: Why spend $4 on gas and valuable time when, with Amazon’s card, you could get 5 percent cash back and groceries on their doorstep within a day?
If I were contemplating a new credit card program, I would be honest about whether or not we could play the rewards game competitively and hit the scale. If not, it becomes a real eat-lean game, with a very marginal, incremental increase. Even if you have the most loyal, long-standing members, if they find a better offer, they’re gone in the blink of an eye.
Like BNPL, Be There When They Need You
The success of the Amazon credit card clearly illustrates how much customer convenience matters. Another example is the popularity of Buy Now, Pay Later (BNPL). Like the old layaway model, BNPL is attractive: Who doesn’t want access to an asset without having to pay? While we are now seeing some delinquencies, unfortunately—a function of how carefully BNPL offerings do, or don’t, vet their clients—there is still a lot for credit unions to learn from this trend.
Businesses like Affirm, Klarna, and Afterpay are flourishing because they’re meeting customers at the point of sale. (Thanks in large part to its partnership with Peloton, Affirm recently reported 71 percent year over year revenue growth.) While a few of the major players, particularly in California, might have enough market share for a product like Peleton to give them a shot, there are many other ways to meet customers where they are.
Back in the 80s, I helped pioneer Autodraft, which pre-approved our customers for a car loan. Since then, and still today, PSECU members in good standing who know they’re shopping for a new car can quickly and seamlessly have $50,000 there when they need it.
Credit unions now need to go a step further, to the potential transaction. Using technology, you can monitor customers’ behavior, keeping their goals and intentions in mind. Through Nickels’ Credit Card Coach, for example, you can say, “Hey Bill, I see you’ve got $5,000 through Discover; I can move you to our credit union loan in real time and save you a bunch of money.” You can even extend this logic out, offering a fixed portion of the credit, at a certain percentage, for big purchases. You can have tranches geared, with a deferred payment plan. It’s all possible if it’s properly messaged, easily understandable and accessible.
Ultimately, this is a convincing job. You need to sell the credit union trust with the BNPL convenience. That is absolutely possible, with the right structure and the all-important simplicity.