EXCLUSIVE: “Small but mighty: the rise of Atlantic Canada’s credit unions” – Carrie Forbes, League Data and Fernando Zandona, Mambu in ‘The Fintech Magazine’

When Mambu was offered the seemingly mindboggling task of introducing a core banking system to 40 autonomous financial institutions simultaneously, it jumped at the challenge. Carrie Forbes from League Data and Mambu’s Fernando Zandona take up the story

Consumer priorities are changing and people across the world are increasingly putting purpose above profit. But while banking boardrooms might only slowly be waking up to that fact, credit unions and co-operative banks were founded on the principle. They exist in almost every country in the world and are particularly popular in North America, the Caribbean and parts of Asia.

In Canada, a third of the working-age population is a member of a credit union, so their heft in financial services and the wider Canadian economy can’t be underestimated.

The sector has racked up an impressive number of technology firsts there, too: they were the first financial institutions to offer full-service automated banking machines; the first to have fully functional online banking; the first to do cheque imaging… but, because of their relatively small size individually, they’ve never made global headlines. Until now, perhaps.

“What makes a credit union different is it’s owned by its members, so you’re not a customer, you have a share, you have a say, you have a democratic vote in how that organisation goes forward,” explains Carrie Forbes, CEO of League Data, a cooperative itself, which provides banking solutions to more than 40 credit union members in Atlantic Canada.

“Credit unions came to be more than 100 years ago, as we were moving from the agricultural era to the industrial one. People were being left behind in the economy and so the question was, ‘what can we do, locally, to build our own economy?’ And that’s still their role today.”

If anything, in a post-pandemic world, disrupted by global issues such as climate change and conflict, where technological advances and socio-economic imbalances have prompted many to rethink where they put their money, that role is even more important. “We’re back to that real need again, all around the globe,” agrees Forbes.

Indeed, one survey by Mambu, one of League Data’s key technology partners, showed that nearly three-quarters (73 per cent) of consumers worldwide are now more likely to use a financial services provider that puts purpose over profits.

FREEDOM TO EXPAND

Credit unions were historically embedded in and bespoke to specific communities – hence their smaller size. But in Canada, they were also prevented by legislation from expanding outside of their state boundaries until 2012.

And even after that, technology constraints made it hard for them to take advantage of the prospects for growth. But now, with the advent of open banking and a new core banking system going on line for League Data’s members, there’s not just a country-wide opportunity for them, but even a global one, according to Forbes. League Data has been providing banking technology – from core systems to networks to cybersecurity – to its members since 1975. By aggregating IT resources, they kept the costs low.

“Credit unions and fintech are like peanut butter and jelly. Credit unions don’t have scale to in-house develop, but partners make that happen“”

Carrie Forbes, League Data

“The difficulty for these organisations is that technology changes so fast. Having the right people, with the right skill sets to drive forward; keeping up with really expensive cybersecurity, which takes your innovation dollars away; being able to partner with the right organisations, and knowing where to go… it just gets more and more challenging,” says Forbes. “Costs are huge, risk and liability are huge.”

With the regulatory landscape changing, League Data decided to replace its members’ core banking system in 2021. It knew that would involve not just a change of technology, but a change in the way the businesses operated. It therefore wanted a long-term technology partner rather than a vendor who was ‘going to walk out at the end of the project’, says Forbes.

“You need somebody with you on the journey, because you’re going to have to solve things together as you retool the business model,” she explains. “So we went looking for someone who was going to be aligned with us and also keep up with all of the very different changes. It’s complex… 40 institutions, all doing things in different ways and our region is very unique.”

Mambu’s philosophy and use of cloud-native, API-driven and therefore highly flexible, solutions really resonated with League Data, and Mambu CEO Fernando Zandona also saw huge synergy in working with credit unions.

“At Mambu, we believe that banking and financial services can change the world for the better,” he says “We wanted to bring innovation and simplicity to the credit union segment. And we are with them, every step of the way.” Being a single platform – ‘the same Mambu that is running in Asia, is running in EMEA, is running in America’ – and configuration based: “You just click buttons, and build products in minutes, instead of months, because you don’t have to code,” says Zandona. “It’s a unique perspective and customers just love that.”

Transforming one credit union is hard enough, transforming 40 over the course of a single year, all wanting to exercise slightly different choices, according to their business model and appetite for new technologies, was an extraordinarily tricky project to manage. While not all of them chose to exercise every digital choice, as Mambu and AWS’s implementation partner, Persistent Systems, put it at the time, it opened the credit unions’ eyes to the art of the possible. And for League Data and its members, it’s been transformational in all senses of the word, says Forbes.

“In order to make an integration into an old system, we were looking at a very rigid, long timeline, and extremely expensive. We were kind of forced to use Band-Aids and tape to make it look elegant and you never really get the true end result, it’s often disappointing, it’s not delivering that experience they want.

“We wanted to bring innovation and simplicity to the credit union segment. And we are with them, every step of the way”

Fernando Zandona, Mambu

“With the composable system we have now with Mambu, we don’t have that barrier of code. We can go in and, within days, create products that would’ve taken us an 18-month cycle. That is such a game-changer; we can’t wait to see what’s going to develop.”

EMBEDDING COOPERATION

Mambu isn’t League Data’s only technology partner. “Credit unions and fintech are like peanut butter and jelly,” says Forbes. “Credit unions don’t have the scale to in-house develop, but partners make that happen.”

And they’ve come together at just the right time as the Canadian market enters into open banking, which will enable consumers to follow in the footsteps of their UK, European and Australian counterparts and gain access to services such as account aggregation, faster loan and credit application processing and personalised budgeting tools, among others.

Forbes observes, “We knew this is where we’d have to go. We need a flexible system that can adapt quickly, so our credit unions aren’t left behind – not just in terms of having to meet the open banking regulation, but in terms of the opportunity it can bring them. It’s all about speed, flexibility and the ability to collaborate, which is what cooperatives do.”

What will perhaps come as a surprise to some is that the legacy systems between Canada and the US are so different that it’s been easier for Canadian companies such as League Data to work with providers in the UK and Europe, as the systems are similar. But another benefit of moving towards a more API-based environment such as that provided by Mambu is that geography will become less important and Atlantic Canadian credit unions should soon be able to work more meaningfully with their US counterparts.

“That’s really cool, especially in the global cooperative movement, because overall, although our regions are slightly different, often the things we’re trying to solve are quite similar,” observes Forbes.

When it comes to her credit unions’ future, she believes the world is now their oyster. While there remain challenges in blending a traditional high-touch model with the digital world, the opportunities for expansion will be there once the regulation is. ‘Consumer-driven banking’ legislation, as open banking is termed in Canada, was originally scheduled for 2023 but the realistic target now seems likely to be 2025.

Once that happens, “I really think credit unions in Canada are poised to go global,” says Forbes. “Because now they have the tools, they’ve got the smarts, they have the heart, they have a lot to offer.

”There’s a lot they can learn from other regions, she adds, but now, with flexible technology, they can shape their offer in line with their principles.

“I think we’re about to make a shift in our thinking about what we can do and not get so tied behind ‘we have to chase what banks are doing’. And that’s exciting.”

The very first credit union, set up in eastern Europe in the mid-19th century, asked members to commit to two things: live a moral life and plant two trees every year in their parish. Perhaps if it had gone global, by now it would have solved one of the world’s biggest problems. Perhaps League Data’s credit unions still could.

This article was published in The Fintech Magazine Issue 31, Page 52-53