Leaders in Lending
Leaders in Lending

Episode 58 · 6 months ago

Building an Innovative and Member-Centric Credit Union with Fintech Partnerships

ABOUT THIS EPISODE

Credit unions take pride in satisfying the needs of their members. However, many credit unions are overlooking a key way to bring more value to their members—partnering with fintechs. 

Charles Krawitz, Senior Vice President, Chief Capital Markets Officer & Head of Commercial Lending at Alliant Credit Union, joins the show to talk about how fintechs enable credit unions to innovate product offerings and better align with the needs of members. 

We discuss:

  • What it means to be an innovator in the credit union space
  • Building an organization that collaborates with fintechs
  • New product offering opportunities
  • Incubating innovative ideas with universities and educational institutions 

To hear more from Leaders in Lending, check us out on Apple Podcasts, Spotify, or on our website

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You are listening to leaders and lending from upstart, a podcast dedicated to helping consumer lenders grow their programs and improve their product offerings. Each week here, decision makers in the finance industry offer insights into the future of the lending industry, Best Practices around digital transformation. In more let's get into the show. Welcome to leaders and lending. I'm your host, Jeff Kelner. This week's episode features my conversation with Charles Krowitz. He's a senior vice president, chief capital Marcus officer and chief of commercial lending at alliant credit. It's a lot of a lot of titles. Charles and I dove into a lot of stuff, starting with kind of the shift and product mix weight, different things consumers are demanding in terms of lending products. Today we talked a lot about innovation, how you can drive innovation to credit union, what slows things down, what credit unions can learn from fintext and how institutions can not only learn from the things context are doing well, but partner with them to bring some of those capabilities to their consumers. And I really loved his focus on starting with what the customer, what the member needs. As you're starting point. What are their desires, what are their wishes, what are their needs, and not being driven by the bottom line. I think it's a really important point in terms of financial services. How we start with what the customers really need and how we deliver that and build a business around it, is opposed to the business we want, and then how we choose products or configurations or our programs based on that. So it's really interesting conversation. A lot of talk about how we get from where we're at to where we want to beat. So please enjoy this conversation with Charles Kravitz. Charles, thanks for joining the PODCAST. I appreciate your making the time. Jeff, I am absolutely delighted to be participating. You actually sent over your own list of questions. This is going to be fun. We got we got good topics. Not Everybody is as thoughtful about things to talk about, but I want to start. You know, the topic of innovation is always a big one. What does it mean to innovate? I think particularly for a fintach and guys coming from the text Bas we get that question a lot. But what do you think it means to be an innovator in the context of the Credit Union space. Sure you know, I think credit unions have been very member focused and have done a lot of things right for their membership based but very few of them have looked to engage with the fintech world and to really understand the business model of fin tax how they might align with the business goals of the Credit Union and best serve their membership base and how to figure out how to work in partnership with with those Finn Text as. You try to bring best practices from your organization to them and they're brack best practices and and their ease of transaction to our members. Let me ask you one question on that, which is why do you think that's not more common? I mean it's it's interesting to me. I think a lot of flies Tennessee Fin taxs, you know, doing things like the wild west and cowboys or is competitors versus partners. But why do you think there hasn't been a more constructive engagement? Because it seems like a natural thing, particularly, as you mentioned, for credit unions, where the focus on the member experience, the engagement of the member is really more at the forefront than it is in some more traditional banking institutions and so I'm curious why you think that's been the experience that you seem I think credit unions have been relatively insular. Innovation has come from collaboration within the community and fintext maybe are perceived as kind of the other they are outside generally of the credit unions space and so are not looked to as kind of go to partners. That's interesting perspective. I'm assuming you view that differently, Kevin, that you brought it up. How do you think about that relationship between credit unions and fan tax and and what you look for and how you can engage with...

...with fintext to, you know, to improve your experience as a credit union? Well, I think also fintext maybe incorrectly, have reputation for being either noncompliant or maybe, better said, creating compliance and regulatory challenges for a financial institution and a Credit Union, you know clearly is going to be leary of that. We have certainly found that through engagement, were able to talk to credit unions about our regulatory and our compliance needs, explain to them why, as a over ten billion dollar and Asset Credit Union, certain things are needed. Perhaps dotting the eyes and crossing the teas in a way that they have not had to do with some of their capital partners in the past, you know, sharing with them and really kind of aligning on the benefits of a partnership with a institution of our size and working on constructive change over time, not not necessarily expecting our Fintech or lend tech partners, if you will, to have all of the mechanics and place day one, but to have an understanding of where they are there perhaps falling down, and a willingness to work towards and end destination, and one that is not in the very far off distant future, but one that is is proximate, and to up their game to allow for their product to be put in front of our membership base for their borrowers to become borrowers of Aligned Credit Union. I think it's a fascinating model in thee. The question I want to ask is really one of the things I've experienced with credit unions and banks. Is that the kind of muscle of that active engagement, of that kind of back and forth with a partner like a Fintech is, you know, especially across different stakeholder groups within the institution, be a credit risk or regulatory compliance or legal is maybe not. It's not. It's not a natural way that they're used to interacting with external partners. It's this kind of like muscle around partnering define solutions or to close the gaps on, let's say, a regulatory issue or to work through things. It's like a new, new way of operating in some ways for these groups and I'm curious how you build an organization that is good at that and that kind of learns how to do that well, because it feels like an advantage to me to have that kind of capability and yet one that for many institutions isn't totally natural or historically the way they've done things. So I'm curious how you think about building the organization they gets good at, you know, partnering with Fintext or outside organizations to do these kinds of I tell you, you know, from the perspective of a Fintech, some of them are more attuned to the regulatory and compliance needs and other some of them are are pure tech people that got their algorithm, they've got their marketing strategy and they're a little unawares and perhaps sometimes a little up to what it comes to the regulatory environment, but increasingly I think they've learned that for them to have a prosperous future, they have to become our compliant. Concerns are their compliance concerns and they, some of them, will have a a chief, you know, capital markets officer, someone who probably came out of the banking space, or multiple people that are part of their teams that came out of the financial industry and not out of the tech sector, to help them bridge, bridge that gap. And then from our organization, a realization that there is a way to rinse, wash and repeat, to assemble an agile team that involves legal compliance, tech, Tech Folks, regulatory folks, part of an agile team. In the lessons learn from one encounter make us better and more capable when it comes to the second, third, fourth and fifth, and that's that's...

...what we've done, is that we've put together as cross functional team that is, you know, very, very well aware of the right questions to ask and the you know, doctor, not to overburden a potential partner but to be kind of smart in our interactions. I think that's a great approach and I think for the fintext that they're listening, you know, or for the institutions that are curious, like the same thing needs to be done on the FINTEX side. Like I think we've certainly learned through our interactions with lots of partners about how do we rinse and repeat get to a place where you know, we can anticipate the questions you're going to have, we've got the regulatory answers buttoned up, we've got the documentation that's required ready, where you know, like we kind of know how the how the process will flow, and not that they're not all a little bit unique and different and people have their own specific questions and concerns, but that it needs to be a view to something we're doing as a repeatable process, not a one off thing that we do once and then kind of forget how we do and I think if you've got that on both sides and you've got a real opportunity to to lower the burden to get these kinds of things done, unquestionably, and we have found that sticking with adjacent fintech partners has been very, very beneficial. So rather than having one partner that say in the personal term loan space, to have two, perhaps three, rather than having one solar partner, to have two, perhaps three solar partners, to take the lessons learned and to be able to get some economies out of those lessons as we move forward. Are there particular product areas you see a lot of opportunity in? Are Like trends you see that you think are interesting from just a product offering point of view? You know, there's there's definitely more concern about the environment. I just brought up solar lending. That is certainly an area that top of mind for for a variety of reasons. You have the wild fires in the western United States or an unfortunately not just confined to the western United States, and people are concerned about, you know, the the continuity of their power supply. They're concerned about the impact that their power consumption has on the on the environment. And then, you know, they're smart, they're savvy and they're they're interested in lowering their bill and oftentimes, you know, solar will allow them to save over their traditional utility bills. So that certainly seems to be top of mine with a lot of consumers. The green going green, you know, extends to electric cars and you know, for a lot of the lot of the same reasons, particularly appealing as as we're knocking on the door of five dollars a gal and and guess lean cost, you know, making that appealing. So, you know, I would say those personal term loans the general ease by which people can, let's face it, Americans like to consume. You know, we like to we're staying at home during Covid we're looking around saying, wish that bathroom was a little bit nicer, which I had a deck or what have you. So personal term loans as a means of getting getting those things accomplish, getting the home improvement aspirations taken care of. And then, you know, certainly there's wherever a borrower is, wherever a member is kind of in their and their journey. Maybe it's to acquire an RV, millennials having decided that they can work from anywhere and an RV being a, you know, a great solution allows them to travel and see the country while still being able to, you know, to work from home. Or someone's retiring, you know, and R V obviously is is an interesting and oftentimes appealing proposition for for retirees. So there's a focus, I think, more on one's kind of life journey within the within the thin text space. Yeah, that's interesting. Do you do you see any like themes to those trends? I mean you talked about environment. I mean one of the things I think has been interesting between personal loans and being Plis as kind of you...

...know, person loans for home improvement, as you mentioned, kind of replacing Helock in some ways for some customers in terms of how they might have finance similar purchases before and then by now pay later coming up as an alternative to crect cards as a financing vehicle for, you know, for purchases of smaller amounts. kind of this movement towards installment over revolving. I mean both of those are kind of like the shift from a from revolving vehicle to install with vehicle. I don't know if you kind of if if you connect the notts the same way, or you see other kind of like big trends about how consumers are thinking about the kinds of deaths they're carrying. Yeah, I think we live in a world where there's a solution, you know, waiting on our phone. There's an APP pick can give us a a ready made solution for something and we're not necessarily always planning things out, but we're we're wanting that instantaneous, you know, solution at at our hand, and a personal term loan is going to allow you to get into a, you know, a payment structure that you know, at that moment in time, seems right for you. He Lock, you know, might be a little bit longer in the application process. He Lock, I think, will take on greater appeal as we have rising interest rates and and you're not going to see that phonetic refinancing of homes any longer. So people are going to stick with their existing first mortgage and you know, those that are are more planners, are going to decide a helock is perhaps that, you know, lower cost solution and a personal term loan, and so some of the population will gravitate towards that. Some of them will gravitate towards I see it, I want it. Here we go now. We talked about this because this is on my normal question list and on the ones you had thought about. So I'm curious your answer. What's a commonly held belief about consumer lending that you disagree with? You know, I think there's a lot of there's a tendency to look at lending as a product, that financial institutions really look at lending with their bottom line in mind and certainly to lie. We take a very different approach. Lending is really seen as a means of supporting our members and aligning with their needs, all about kind of kind of the membership and their aspirations and objectives, keeping their needs in the forefront and and trying to find len tech partners that are kind of capable of fulfilling those needs to a greater extent and helping us with products that that is that is transparent, that allows for easy price comparison and benefits our members financial journey, as opposed to this mentality of it needs to benefit our institutions bottom line, and that's the real driver, you know, of things, member versus bottom line. How do you how do you make that a reality in the institution? I think I think a lot of bankers would described their focus and, you know, their motivation for entering the industry is like helping people and making loans available, but it's so easy. There was an article I remember, about somebody who worked one of the major credit card companies and they kind of stood. They said, like you know well I got what I got into it for that it turned into like a game where I could turn the Knob to my objective that the company given me, was the drive up utilization or whatever right, and it was kind of like, I won't call it a video game exactly, but it became a numbers game where you could tweak the product to achieve a financial or a business objective and it could become easily detached from the reality of those decisions on as impacts on the customer, like on the end consumer. And so I'm serious. How you think about in that context for financial service, is really driving within the organization, this focus on what the what the member needs, as opposed to managing the program or the product, which, in the context of the institution, is really the portfolio and the returns and the financial results that it drives for the incision? How do you how do you turn that into reality within the organization? Yeah, I mean that's a fairly,...

...you know, disheartening story, Jeff, that you told there, and I could see, you know, where someone could lose that attachment to why they are in business. I think it's easier being a credit union then being a for profit. You know, quarterly driven publicly traded bank per se. I think it's a lot easier for credit unions to stay focused on serving, serving membership it and we do a great job, as you know, as a credit you brought our credit. You can community kind of reminding ourselves as to why, you know, why we exist, who we serve and what our objectives are. And our objectives are not, you know, ratcheting up tweaking terms and, you know, spitting the dials to maximize profitability of a of a product. Yeah, it's always it's such an interesting cultural question about how you drive that belief within the organization, because it's like, you know, it is easy. I always worry about it for us because we got into the business to like to make consumers lives better, to expand access, to lower the cost of credit. But then you can like you sit in that kind of meeting and you go, well, how's returns for the quarter? Could you know, like what do we what do we do? And you so, Jeff, we come foot that way. We actually start every single meeting we have with a member impact story. So I love it someone comes to the table with a five to ten minute story about how we were able to make the financial life of a member a little bit better. I love that we kind of read a borrower review every week. It did you have a starting every meeting with that. I mean it really does help you keep the focus on on on that member. I know one of the banks I talked to, so they have a empty seat at certain of their meetings. It's meant to represent, you know, the member who isn't there, but that you kind of physically represent that person in the room as a part of the discussion when you're doing those things. It's a great that's a great strategy. So what of the other areas you're focused on in terms of forging a different path than you know, maybe what is traditional for the Credit Union space move for you talked about fintech partnerships. Are there either other categories of what you're trying to do internally that you're focused on or their focuses for what you're trying to achieve in the context of partnerships with vintext that you think are kind of set you apart from the typical path kind of unions are walking down today. So we have actually I've started a little incubator program where we've reached out to some universities to have them as a as a cornerstone project for a group of Grad students or perhaps seniors, and it's four or five of them. We're doing our first kind of pilot now, and so we kind of put the question in front of them as to if we were going to go into the buy now, pay later. Space. What, you know, who should be a partner and why is this even? Is this even a space, you know, that we should be entry into? How would it benefit our membership? And and so we're doing that right now. I'll be curious to see what these, you know, these young innovative people think. And then we're about to start with a second and a third university and different, you know, slightly different takes on the same theme. As to your question, what should we be doing from an innovative perspective that would have meaningful impact on our members and, you know, not always feeling that we have all the answers internally, but we can reach out to kind of a broader community. We talked to our credit union peers all the time to see what they're doing, you know, what we're doing. What interest them, you know? Do they want to buy participations from us? Do we want to buy participations from them. You know, how are they approaching the market? How should we be approaching the market together? But right now, you know, the areas as discussed previously very much solar, electric cars. We were one...

...of the first movers with regards to Tesla's and that was the proposition for us. And now there's all sorts of other names of people are industry and we hope to it'll be able to expand some of our early success with Tesla and to other names and and you know, I'm just amazed the number of fin text that are out there and how they're they're approaching the world. There's not a day that doesn't go buy, where I don't have where I'm not on the phone with at least one Feda hearing about their story and how they're going to revolutionize the finance space. Yep, I wanted to get to this interesting concept. I mean, I know kind of unions have always been very collaborative amongst one another in a way that I think banks often aren't, and that's been ashing. But you talk about engaging universities. Can you tell me a little bit about like how you structure reach out, like really work with those institutions, because that's a different it's a different approach. I think is really fascinating. A lot of great thinking going on there, a lot, I mean, the future customers did you want to appeal to are coming out of those places all the time. But how do you think about engaging with an institution like that and structuring that so you kind of maximize the learnings? Sure so, the one that were pursuing right now and trying to learn more about the buy now, pay later space is University of Illinois Chicago Campus and fortunately we had recently hired a graduate from there and I brought the idea up to him and he said, Oh, I know exactly which professor you know to approach, so we did. One of my colleagues, Rob Perelli, is very active and alumni to Paul University of Chicago and very active with them and he is lining up kind of the next group for us to work with. And admittedly, Jeff, this kind of came to light because I have soon to graduate son from the University of Illinois was getting a master's degree and he was telling me about how he was doing a similar, similar type of project as as for one of his classes and it just seemed like there was neat talent to be had. That was, you know, they're kind of at our fingertips waiting for that phone call. And there's been great, you know, receptivity. That's gray. Oh it's now. What did I quoted this the day to somebody else. But like good, good writers borrow, Great Writers Teal like no shame and stealing a great idea when you come across it. You know, you think one of the great signs of innovators is the ability to not get stuck with like your own idea and when you see something great like take it round, with it in prove bit, you know, build on it. But that's that's where a lot of great ideas come from the then I'll come from inside. Yeah, no, I'm real excited about it, actually super excited about it. I assume, you know, we're going to get very divergent a very divergent viewpoint from the these younger people that are immersed in it. From an academic perspective. HMM. Yeah, it's a certainly an interesting perspective and I have certainly crossed the Rubicon a few times. I think one of them, you know, of being going from being the younger person to being in the old people's bucket. I don't like admitting that to myself, but I remember we looked at our conversion rates for our partners on mobile phones for sistest stop and first of all a surprise. Like half of the traffic to the application form came on mobile phones and I thought who does it? And they convert, they complete the form at the same rate as desktop and I kind of went, I would never do that. What kind of people are doing this? And I thought, Oh no, oh no, the younger generation is that I get, and I would never like I'm you know, you've got to check that personal bias of like who would do this at the door and lean into what that younger generation that's grown up with a different technology landscape thinks of to really sometimes see around the corner about what's coming. So one that was one of those where I went, there's no way they're finishing the application on the mobile phone like that. We would be crazy. And then I was wrong. I was very wrong, and that was a really interesting moment for me to realize how valuable that perspective from a younger generation can. All Right, Charles O, there I was as this towards the end of the is there anything you want to talk about or I should have asked her that I missed that you think would be forul...

...for us to cover in this discussion? That's you know, that is a great question, Jeff. I think we've covered a decent amount of ground, I think right. You know, I think if I leave you with something, it's that ntext bring some really really neat things, different ways of doing business, more efficient ways of doing business, ways of doing business that we shouldn't be scared of, and they also bring a willingness to change. They want to grow. A lot of them are very mission oriented and you know, teaming up in the credit union space can really bring together two parties that combine will, you know, will be very impactful. Yeah, we certainly agree with that. Well, I pretyciate. So I got three questions. I close out all these podcasts with, so I'm gonna I'm going to throw them at you now. I would say we're doing rapid fire, but I'm not going to rapid fire things we tend to talk about a little bit. But the first is, what's the best piece of career advice you've ever gotten? You know, I think it's that that she shall pass. So you know, when things seem dark, particularly for young people, when it doesn't feel like you're moving forward in your career like you want to or you had envisioned, and you know, you're contemplating jumping ship. I did a lot of that. I did a lot of that in my early days and I regret doing it. I think my friends that really kind of stayed the course all ultimately and whether the storm and waited for that, you know that do that to be reshuffled, ended up having more stability in their lives and ultimately a lot of career success. Not to say that I haven't, but there was a lot of one step forward, two steps back, and and so I would say this too shall pass, whether the storm and your opportunity will come, it's too shall pay you or the first to give me that particular piece of curavice. Fifty plus episodes in, you might you know, and I should look about jeff to see whether this is like someone one said. Hey, isn't that the slogan from alcoholics? Anonymous, I should look at a great riders Steal Outright, Charles, great riders steal out right. It's it's your piece of advice. Now, I'm sure, I'm we all. Most of our advice came from somewhere else. Sometimes we remember where and sometimes we don't, but I like that one. It's really interesting. Second question, what's the best piece of advice you've gotten about the consumer lending or consumer banking space in general? To be open minded, you know, really referencing back to just how the topics that we cover, to be open minded about possibilities, to not say this is how it has to this is how it's been done and this is how it has to be done, to be open minded to envision a future where where things are done differently and that differently does translate into better and that's a super interesting ones. I think that's particularly in the finance industry, an industry that's heavily regulated, which can tend to lead to just keep doing it the way we've always done it. That open mindedness to new ways of of accomplishing the same goal, maybe maybe better, as I think, is a critical thing. And my last question for you. What's one piece of bold advice? Are Enough people by? What's one bold prediction about the future? There were? Well, you want approximate future, or how far off. Can that? How far off in the future? v Yeah, you can make it a couple of years on me and put a hundred years off the one. I feel like a long way. I've had everything from like Super Bowl wins to, you know, drones running all underwriting and in ten years and commercial real estate. But I'm curious not running all, but being involved in all, but, you know, kind of anywhere in that medium to longer term. Fine Time. So I so I would tell you I think we will see the emergence of a centrist party in the United States, will see a third party emerge. The center is a sorely missed place in America and I do think that we will break out of this too party system and we will see a very strong centrist party emerge in the not too distant future. Now I really want to know what you decide. It was a time frame you had to operating, because that's a fascinating...

...prediction. I love it. But like what's the time for? And I would say that we will see. We'll see that party take hold within the next six years. Six years well, I mean I hope you're right. I certainly, as you mentioned, I have felt myself depending on the issue at hand, homeless in terms of a political party, because there's just extremes on both sides, depending on what you're talking about, and it's a lot of people that field the left right now. The extremes used to have their used to have their field day during the the primaries, and then we would all kind of gravitate back towards the center. But because of a lot of structural aspects of you know, how Congressional districts have been formed, that is that is not the case, but I think America is desirous of getting back to a more stable, central approach to politics. Well, I think you have delivered on bold for the not for the first time, but certainly as much as ever. I can say I hope you're hope you're right. That would be a certainly a fascinating evolution and overall it's Charles has really fascinating conversations. I appreciate your taking the time and join me today and sharing your thoughts and insights with our listeners. Great thank you so much. Joff upstart partners with banks and credit unions to help grow their consumer loan port folios and deliver a modern, all digital lending experience. As the average consumer becomes more digitally savvy, it only makes sense that their bank does to. Up Starts ailanding platform uses sophisticated machine learning models to more accurately identify risk and approve more applicants than traditional credit models. With fraud rates near zero. Upstarts all digital experience reduces manual processing for banks and offers a simple and convenient experience for consumers. Whether you're looking to grow and enhance your existing personal and auto lenning programs or you're just getting started, upstart can help. Upstart offers an into in solution that can help you find more credit worthy borrowers within your risk profile, with all digital underwriting, on boarding, loan closing and servicing. It's all possible with upstart in your corner. Learn more about finding new borrowers, enhancing your credit decisioning process and growing your business by visiting UPSTARTCOM forward banks. That's upstartcom forward banks. You've been listening to leaders and lending from upstart. Make sure you never miss an episode. Subscribe to leaders and lending in your favorite podcast player using apple podcast. Leave us a quick rating by tapping the number of stars you think the show deserves. Thanks for listening until next time. The views and opinions expressed by the host and guests on the leaders and lending podcast are their own and their participation in this podcast does not imply an endorsement of such views by their organization or themselves. The content provided is for informational purposes only and the discussion between the host and guests should not be taken as financial advice by companies or individuals.

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