The embedded finance model actually takes business away from the credit union; according to Cornerstone Advisors, it is the integration of financial services into non-financial websites, mobile applications and business processes.

While this approach generates revenue for the credit union behind the fintech, it also segments and erodes business and relationships away from financial institutions. With embedded finance, credit unions risk becoming little more than the back office for fintechs.

Embedded fintech, on the other hand, centers around financial institutions and fintechs working together. Cornerstone defines it as the integration of fintech products and services into financial institutions' product sets, websites, mobile applications and business processes. Credit unions maintain the relationship with the member and provide services based on members' needs – all within a regulated environment.

While embedded fintech seems like the best option, actually executing on this model is easier said than done. Credit unions have long struggled with burdensome one-to-one fintech integrations, which typically take more time and resources than internally available. Between the due diligence process to mitigate liability and risk and the intensive ongoing vendor management, it's no wonder credit unions have traditionally struggled to efficiently launch fintechs at scale.

Collaborative Banking: A New Way Forward

However, there is another way. A collaborative banking approach to embedded fintech uses APIs to connect fintechs to credit unions through a third party that tokenizes, normalizes and anonymizes all member data before it's shared with fintechs. This allows credit unions to be the gateway to a secure marketplace of member-facing apps.

Such a model eliminates the risk of fintech competition because the fintechs are contractually prohibited from competing with credit unions – they can't offer checking accounts, cards or loans. Instead, the fintechs actually share leads back with partner institutions to provide banking products and services. Credit unions' biggest disruptors can become their biggest benefactors. And, the fintechs benefit; credit unions send them more users and they don't have to jump through the hoops of trying to be a bank. They can instead focus on their core competencies.

The member also gains significant value from a collaborative banking approach. Data sovereignty and privacy continue to be major issues, with more members mindful and careful about what they share and with whom. With collaborative banking, members have unprecedented flexibility and choice; for the first time, they can try out the latest technology through a safe, secure platform that anonymizes and tokenizes their PII data. Such secure access to a wide range of financial tools empowers members to find and leverage the solutions that best support their unique situations and goals.

Embedded fintech through a collaborative banking lens presents a new opportunity for credit unions to unlock innovation for their members and the industry all in a safe, compliant way. They save time, money and ongoing fintech contracts and partnership management while avoiding the need to develop technology partnerships themselves. Perhaps most importantly, members benefit from financial empowerment, choice and control. Credit unions that embrace collaborative banking are strongly positioned to maintain their relevance, grow market share and forge member loyalty that lasts.

Landon Glenn

Landon Glenn is the CEO and Founder of Asa Technologies, a Provo, Utah-based tech company that connects banks and credit unions with fintechs.