Credit Unions Take Stakes in FinTechs to Control the Roadmap

Most credit unions don’t have the dollars, expertise or manpower to develop essential tools like digital wallets and artificial intelligence (AI) chatbots on their own, let alone to modernize their decades-old underwriting and fraud detection systems. So for years, when they needed a basic app or better software for mortgage data, they hired an advisor or wrote a check to a financial technology company, often a Silicon Valley startup. Those providers collected fees and left, often leaving a disjointed pile of software and systems that didn’t work smoothly together.

Abraham’s thought: What if his credit union set up an independent arm to invest in FinTechs and buy or license their financial services tools, “almost like a private equity sandbox?”

Credit unions sometimes join a consortium known as a credit union service organization, or CUSO, pooling their funds to invest in FinTechs, working closely with their developers and buying their digital tools, usually with a discount. More typically, like GLCU, they set up a solo CUSO.

A $1.4 billion institution serving northern Illinois and western Indiana, GLCU created a new holding company in 2023 to house its prior CUSO investments, including one in Interface.ai, a startup that several years earlier rolled out a consumer-facing artificial intelligence agent called “Olive” for the credit union. Last December, the new entity invested in LetMeDoIt, a financial planning app for people with disabilities, a 45-million-strong market Abraham called underserved.

The solo CUSO allows us to more easily “manage and deploy funds” set aside for investment, Abraham, the new entity’s CEO, said. It also has a board and employees dedicated to evaluating and deploying investment funds, “versus those items being part of someone’s job at the CU as an aside.”

The Credit Union-FinTech Love Story

More than 8 in 10 credit unions have less than $500 million in assets (JPMorgan Chase, the nation’s largest bank, has $3.9 trillion in assets worldwide and spends $2 billion a year on AI alone). That makes partnering with FinTechs—hiring them, investing in them and sometimes buying them—the credit union industry’s path to not just growth, but survival.

“Anything that automates any and absolutely every part of the process we work on is top of the list,” said Christine Blake, the CEO of Cardinal Credit Union. “Also, better member experience.”

Cardinal worked with Velera, a payments-focused CUSO, and Lumin Digital, a Velera-backed startup, to launch a new online banking platform in 2024, with personalized financial recommendations, a finance-tracking dashboard, real-time payments, automatic transfers and a real-time chat function with a live person. The credit union just tasked 10 employees with brainstorming use cases for AI and deciding in the next 12 months or sooner whether to partner with a FinTech or build in house, Blake said.

Recent data from PYMNTS Intelligence shows that more than half of credit unions say FinTech partnerships help them innovate at a much faster pace or bigger scale than what they could do internally—more than double March 2025’s level. Two in three say FinTech partners will power their mobile and digital payments within the next three years. Only 0.6% say they can innovate without the help of a FinTech.

 

They’re not Wall Street banks with giant technology budgets, but the nation’s more than 4,300 credit unions collectively hold $2.4 trillion in assets and serve 145 million individuals and businesses (called members because they have an ownership stake in the institutions). If they’re to survive, credit unions need chatbots, agents, better fraud-detection tools and cards with integrated rewards as much as the big banks do, especially for their Gen Z customers.

But there’s more than one way the credit union-FinTech love story can unfold.

‘Innovator’s Dilemna’

Nadim Homsany has sat on both sides of the table. Now the head of AI  and innovation at the $33 billion Boeing Employees Credit Union, he was a co-founder and CEO of EarnUp, a venture capital-backed platform that automates consumers’ debt payments. Last July, BECU acquired the platform’s generative AI technology and team to roll out mobile and digital debt management tools for BECU’s more-than-1.5 million members.

Homsany, a former McKinsey consultant, wanted to avoid the so-called “Innovator’s Dilemma,” when an organization’s size and bureaucracy—Seattle-headquartered BECU is the nation’s fourth-largest credit union—stymies the speed and disruption startups bring.

So he built a moat within BECU around EarnUp’s gen AI technology.

“We need to incubate it in an insulated part of the organization, so it doesn’t get caught up in the rest of the organization,” Homsany said.

Inside that protected bubble, Homsany’s team began using the acquired technology to build “Becca,” an AI financial adviser aimed at middle-income savers and the 67% of Americans living paycheck to paycheck.

Other credit unions effectively team up to date FinTechs. In October 2024, North Carolina-based Coastal Credit Union joined a CUSO formed by Prizeout, a FinTech with cash back, digital gift cards and rewards programs for financial institutions. By investing in the Prizeout Partners CUSO, more than 40 credit unions and related organizations typically receive a 20% discount on licensing the startup’s technology.

“What we learned here at Coastal was that one is we can’t afford to staff and manage development,” said T. J. Wyman, the chief digital services officer at Coastal Credit Union, a $6 billion institution. “So if we’re not going to do that, we’ve got to find partners.”

Today, it manages a portfolio of roughly $20 million, spread across investments in more than a dozen startups via a separate investing arm. Coastal doesn’t have to hire the developers; it just owns a piece of the companies that do.

Who Wears the Pants?

Most FinTech partnerships focus on improving what’s already in place. More than six in 10 credit unions work with FinTechs to bolt new features onto existing products, PYMNTS data shows. Nearly two in three introduce new service channels or delivery capabilities for existing products and services.

 

Prizeout’s CUSO allows its roughly two dozen credit unions and related organizations to integrate cash back, rewards and other loyalty features directly into their existing systems. Because the credit unions invested dollars in Prizeout, they get a say in how its technology is built. When one credit union complained recently that its existing rewards programs weren’t tailored to the industry, Prizeout built a “rewards on a credit card swipe” feature to fill the gap.

“We have a round table twice a year with our partners where we talk about, hey, what are your challenges? What are you looking for? How do we inform our roadmap to build things?” Prizeout Co-founder and Chief Strategy Officer Matt Denham said. “They get to come to our round tables and obviously influence where we’re going.”

Blake Woods, a senior vice president of strategic transformation at the $1.5 billion orsa credit union in Michigan, said credit unions could drive FinTechs, not the other way around.

“You might gain a board seat or sit on an advisory board for said FinTech if you make a certain level of investment, so you get to help steer the company,” Woods said.

He said orsa was making an undisclosed investment in Larky, a startup that makes push notifications. Orsa members at, say, a Detroit Lions football game will receive mobile alerts for Orsa products whose rates rise 25 basis points when the team scores a touchdown.

The Tortoise and the Hare

Unsurprisingly, for an industry known for friendly in-person service, lower borrowing costs and higher interest rates on certificates of deposit, the pillar of credit unions is high touch, high service. This creates a challenge in preserving that community feel in an era of agentic AI.

The marriage between the “move fast” culture of FinTechs and the “safety first” ethos of credit unions is rarely smooth.

Sometimes, it starts with a pitch that sounds too good to be true. Abraham recalled a time when a FinTech entrepreneur pitched him a solution for sharing mortgage data between the bank’s core system and third parties.

Functionally, it was perfect.

But when the credit union’s team looked under the hood to see how the software was built, the deal collapsed. The entrepreneur had built the code in his basement, likely using off-the-shelf AI tools like ChatGPT or Claude, without the rigorous infrastructure required to protect sensitive personal data.

“The infrastructure that was built on had no real ability to demonstrate data integrity … It wouldn’t meet the minimum barrier regulatory scrutiny,” Abraham said. “That’s kind of a non-starter.”

There’s also a timing disconnect.

Credit unions operate on annual budget cycles and consensus-building. In contrast, FinTech startups live on a runway measured in months.

Prizeout’s Denham said that while a typical software sales cycle might be six to nine months, credit unions often approve new spending only once a year, in October or November. If a startup misses that window, they’re often told to wait until next year.

Only 22% of FinTechs say their innovation projects for credit unions go according to timeline, according to PYMNTS Intelligence. Coastal’s Wyman said it talked to Prizeout “for the better part of two years” before joining its CUSO. Said Cardinal’s Woods: “FinTechs don’t realize the depth of regulatory and compliance issues until they start working with a credit union.”