Should Banks Fear the Surge in Partnerships Between Credit Unions and Fintechs?
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By Garret Reich, Senior Project Manager at The Financial Brand
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The report: Navigating the Evolving Landscape: Fintech and Credit Union Partnerships
Source: Velera and PYMNTs
Why we picked the report: As credit unions compete for members and their wallets, they face growing pressure to keep up with national, regional and local banks that are leading in the development of cutting-edge financial services. This pressure has driven many credit unions to partner with financial technology firms to access technologies that enable modern banking experiences. Banking leaders need to understand the threat at hand, while credit union and fintech executives both benefit from the insights available in the report.
Executive Summary
Credit unions nationwide are embracing technology firms as allies rather than adversaries, marking a dramatic shift in how these member-focused institutions approach digital innovation. More than half of fintechs now sell products or services to credit unions, while the percentage viewing themselves as competitors has plummeted from 16% to a mere 1.9% over the past year.
This transformation creates unprecedented opportunities for collaboration as credit unions face mounting pressure to meet members’ digital expectations. With rapid advancements in mobile banking and digital payments, credit unions increasingly turn to fintech partnerships to remain competitive against larger financial institutions without sacrificing their community-focused values.
Key Takeaways
- Only 1.9% of fintechs selling to credit unions view themselves as competitors, down dramatically from 16% a year ago, signaling a fundamental shift toward vendor-client relationships.
- The percentage of fintech providers reporting no obstacles when selling to credit unions has surged nearly fivefold, from just 6% to 29% in a single year.
- Untapped partnership potential: While 61% of fintechs partner with digital banks, only 40% currently collaborate with credit unions, suggesting significant growth opportunities.
- One in five fintechs that don’t currently sell to credit unions would reconsider if they could onboard multiple institutions simultaneously.
Why we liked the report: The visuals and layout were the strongest elements of this report. It was easy to scroll through and nab the most important research for someone looking to skim.
Why we didn’t: The sample, made up of roughly 100 fintech executives looking to partner with financial institutions of different sizes, would have benefitted by being larger and/or the addition of credit union executives. The insights from the data was still useful, but quantity or quality would have made for a stronger report.
Shifting From Competitors to Partners
“The dramatic decrease in fintechs viewing themselves as competitors to credit unions presents a significant opportunity for credit unions to foster more open and collaborative relationships,” notes the report.
Currently, a little over half (52%) of fintech vendors sell their products or services to credit unions, a figure that has remained relatively stable over the past four years. This consistency highlights the enduring value credit unions represent as customers for fintech innovations.
The most significant change appears in how fintechs perceive their relationship with these institutions. By November 2024, an overwhelming 98.1% of fintechs selling to credit unions identified as vendors rather than competitors, up from 84% the previous year.
What is perhaps more interesting is the insight from the research, which revealed a dramatic improvement in the ease with which fintechs can sell to credit unions. In November 2023, only 6% of fintechs reported facing no impediments when attempting to sell to credit unions. By November 2024, this figure had surged to 29% — a nearly fivefold increase.
Challenges do still remain. Among the fintechs that do sell to credit unions, 14% cite small budgets and prolonged implementation timelines as significant impediments. Lower prioritization of innovative offerings and regulatory complications are also cited as obstacles by approximately 10% of fintechs.
The changing landscape of impediments provides valuable insight into the evolving relationship between these two sectors. The decline in barriers related to technological infrastructure suggests credit unions have made significant strides in upgrading their systems to accommodate modern solutions. Meanwhile, the persistent challenges around budgets and implementation timelines highlight areas where further optimization could yield substantial benefits.
For those not currently selling to credit unions, regulatory complexities (44%) and product misalignment (42%) represent the most substantial barriers. Nearly 38% of non-selling fintechs indicate they compete for credit union members as customers, and 31% believe credit unions aren’t innovative enough to want their solutions.
As one mid-sized fintech executive noted, “Adjusting to shifting consumer preferences and changing market conditions is one of the biggest challenges we face when implementing innovations.” This observation highlights the need for agility and responsiveness on both sides of the partnership equation.
Dig deeper:
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Generating More Pathways to Greater Collaboration
The research provides valuable insights into fintechs’ current partnership preferences. Software platforms (65%), merchants (62%), and digital-only banks (61%) currently top the list of preferred collaboration partners for fintechs.
Credit unions, alongside smaller financial institutions, currently engage with approximately 40% of fintechs — significantly less than digital banks but ahead of national banks (36%). Local banks and regional banks both register at 41.6% partnership rates. This positioning suggests both challenges and opportunities for credit unions seeking technological partnerships.
The gap between credit unions and digital-only banks (a difference of over 20 percentage points) illustrates how digital banks have prioritized technological integration from their inception. This difference reflects the inherent advantage digital banks have without legacy systems to update or traditional processes to transform. However, credit unions outpacing national banks in fintech partnership rates demonstrates their adaptability and commitment to technological advancement despite their size and resource constraints.
“Credit unions might benefit from focusing on areas where fintech solutions are already prevalent in partnerships,” the report advises, identifying mobile and contactless payments as particularly promising areas for collaboration. These areas represent the intersection of high consumer demand and readily available technological solutions.
For fintechs not currently selling to credit unions, the research identified several potential catalysts for future partnerships. Notably, 20% of these companies indicated they would reconsider their position if they could onboard multiple credit unions simultaneously, pointing to efficiency and scalability as critical considerations.
“Exploring bundled onboarding solutions for multiple credit unions could provide fintechs a strategic advantage,” the report suggests, highlighting a practical approach to overcoming current limitations.
The primary obstacle remains regulatory complexity, with 44% of non-selling fintechs citing compliance issues as a major deterrent. Product misalignment follows closely behind, with 42% reporting that their offerings don’t align with what credit unions typically seek.
When examining the specific technologies fintechs offer through third-party collaborations, payment solutions dominate the landscape. Mobile wallets (65%), contactless debit cards (60%) and mobile banking services (59%) represent the most commonly offered capabilities.
Other prevalent offerings include peer-to-peer payments (57%), contactless credit cards (50%), and cryptocurrency transactions (50%). Buy now, pay later services also feature prominently at 44%.
Building a Future Conducive for Credit Unions and Fintechs
For credit unions, embracing a partnership-oriented mindset and actively seeking fintech solutions that enhance member experiences represents a path forward in an increasingly digital financial landscape. For fintechs, tailoring offerings to address credit unions’ specific needs and operational frameworks can unlock a valuable market segment.
The data suggests several strategic imperatives for both parties. Credit unions may benefit from exploring bundled onboarding solutions that allow multiple institutions to implement new technologies simultaneously, addressing the 20% of non-participating fintechs that cited this as a potential motivator. Similarly, fintechs should consider how to navigate the regulatory complexities that credit unions face, perhaps by developing compliance-ready solutions that minimize the implementation burden.
As one smaller fintech executive observed, “Obstacles such as user acceptance and adoption of innovative solutions often lead to slow implementation of new innovations,” a challenge both parties must address together to realize the full potential of their partnerships.
As the financial services landscape continues to evolve, the growing synergy between credit unions and fintechs may well represent the future of community banking: technologically advanced yet deeply committed to serving members’ best interests. With the percentage of fintechs viewing credit unions as competitors dropping to a mere 1.9%, the foundation for these productive relationships has never been stronger.
Editor’s note: This article was prepared with AI language software and edited for clarity and accuracy by The Financial Brand editorial team.
