Do you see fintech as a threat? Do you struggle to identifywhich problems you're trying to potentially solve with fintech?

If your credit union is like many others I've spoken with, theanswer is yes.

Filene Research Institute and its Center for Emerging Technologyat the University of California, Irvine, will soon release itsinaugural research “FinTech: Developments and StrategicImplications for Credit Unions” to address these issues.

As I reflect on conversations and questions from a recent Filenecolloquium on the topic of fintech, a dominant theme emerged – thecredit union industry needs guidance in identifying the problemsthat fintech can help them solve.

With a unique culture of intermeshing relationships, cooperativearrangements, CUSOs, leagues and a very high trust betweenindividual institutions, the industry seems to struggle with thegap between the culture of credit unions and the business models ofvendors or outside technology partners.

Technology roadmaps aren't perceived as providing sufficientguidance for fintech, and many credit union leaders feel stuck –looking to their peers for help making good decisions aboutfintech, but needing examples to use to justify the risk.

Unfortunately, there is little time on the clock for creditunions to make strategic plans to deal with the increasedcompetition from fintech firms and, more broadly, the shiftingdemands of consumers that are reflected in the successful fintechcompetitors' product offerings.

Through our research we found three essential strategicconsiderations that all credit unions need to address.

First, where is the locus of innovation? Does your existingnetwork of vendors, core systems and staff provide you with theinsight you need to plan? Are you examining the business models andnot just the technology of fintech competitors to help guide yourstrategy?

Second, vendor management and risk management models needadjustment. Your members are demanding digital innovation – yourchallenge is to invest in digital innovation to maintain theincredible levels of loyalty and satisfaction that your membersreport. But, partnering or launching trials with fintech firms willnecessitate the creation of simpler, leaner and potentially morerisk-tolerant models for vendor selection and screening.

How can you apply an agile development mindset to your vendorselection processes, not just your development team's managementprocesses? Fintech firms move fast, and the caution andconservative nature of many credit unions needs a nudge.

Third, step back from your systems and think about how you canlearn from fintech firms. Can you do a pilot? Can you partner withthem? They are usually experts at user interface design, and as acredit union you understand your members better than they do. Banksunderstand that their cultures must change, and that part ofteaching their IT teams and product managers how to compete isthrough interaction with fintech firms.

For What Audience of Members?

A consistent theme we heard from research participants is thefear that millennials don't trust financial institutions. Wepropose two opposing viewpoints.

First, millennials are learning about money and how to managemoney at a much later stage of life compared to previousgenerations. This is a generation of delayed lifecycle milestones.They take classes in “adulting” and sorely missed out on the homeeconomic classes many of us took. The implication is that mostfintech companies have a very narrow product offering to solvea narrow and simple set of problems. Millennials are trying tomanage relatively modest sums of money; they are the poorestgeneration in U.S. history. Rather than focusing on the technologythat powers a competitor's solution (machine learning, artificialintelligence, etc.) understand the scope of their solution. Webelieve that as millennials mature in earning power and financialliteracy, they will migrate to solutions for more complexlifestyles – meaning Mint doesn't manage your life as well asQuicken.

Second, members across the age spectrum are migrating to adigital-first lifestyle. Gen X spends more time on social mediathan millennials. Baby boomers are the fastest growing segment forFacebook in the U.S. How are you providing digital literacy andhelping make a transition to digital banking? Are you intentionallytargeting all your members, or focusing solely on millennials?Credit unions are safe and trusted places. Extend that trust bycreating opportunities to learn in your credit unions. There is agenius in Apple's Genius Bar – which is probably 90% customereducation and mentoring and 10% technical fixes.

You will change your technology to adjust to fintech – whichreflects the needs and desires of your members. That is a given.But where to start? We offer a very non-technical model of thinkingabout this inspired by nature's landscape around us.

Prune

First, start by cutting. Where is most of your revenue? Where isyour growth? Are you able to cut outdated or less-demanded programsor services? Does your strategy reflect your members' changingdemands? Given how many credit unions operate on default, startwith a deep strategic review. Cut costs, update outmoded systemsand verify that your marketing spend is returning on yourinvestment. Many credit unions can't invest in fintech withoutfirst freeing up cash flow, which requires cutting costs andnarrowing focus.

Graft

Can you form a partnership with a fintech firm to improve partof your member experience? Graft on one of their solutions. Many ofthem have sophisticated APIs and the ability to be integrated withyour existing systems fairly easily. Be transparent with yourmembers and call the arrangement a trial or a pilot. If thingsdon't go as planned, chances are members will forgive you. Consideronly offering the solution or service to a limited number ofmembers. You don't need to re-engineer your core to start learningfrom fintech firms.

Grow

Focus on where you see growth in the future and invest inlearning, strategy and technology that positions you for the next10 years. There are hundreds of billions of bank and credit unionrevenue up for grabs, and regardless of member loyalty, over timethe business will flow to the institutions that have the rightsized solutions for their field of membership.

Tree analogies aside, with a disciplined and member-centricapproach, your credit union can begin to develop a roadmap forfintech decision-making that will best position you to responsivelyaddress your members' demands while wisely investing your creditunion's limited technology resources.

Richard Swart is a Fellow for the FileneResearch Institute. He can be reachedat 608-661-3758.