Two fintechs enable credit unions banking-as-a-service | Credit Union Journal

Two technology providers are working to adapt the banking-as-a-service model for credit unions.

The BaaS model enables third-party institutions to work with licensed banks to develop new services for customers. Mbanq’s credit union service organization will use application programming interfaces to take a similar approach for smaller credit unions.

“Credit unions are often stifled on their existing infrastructure because the cost of buying a new terminal solution exceeds their economies of scale,” said Vlad Lounegov, CEO of Mbanq. “But the way we proposed Credit Union-as-a-Service with Temenos is to offer customers services that work on the same basic technology and then work from there.”

Unlike a traditional credit union services organization, Mbanq CUSO is said to be broader in scope and handle technology, compliance and back office operations. According to Mbanq, the offer could also help de novo credit unions to be up and running faster.

Using the banking cloud technology from Temenos, based in Geneva, Mbanq will offer what Lounegov calls a “template approach”, which enables both providers to concentrate less on developing completely new core systems for each customer and more on themselves focus more on developing bespoke services to meet the desires and needs of each institution.

“You can focus very heavily on members representing a particular community, or you can focus on a specific profession, but at the end of the day the technology and distributed services work the same across different credit unions,” Lounegov said. “Ultimately, the wheel doesn’t have to be reinvented.”

Brad Smith, a partner at Cornerstone Advisors based in Scottsdale, Ariz., Said a CUaaS offering could potentially bring significant benefits to the credit union by lowering the barrier to entry for de novo credit unions.

However, government concerns about such a service will determine its success.

“Anytime you try to do the first in a regulatory environment, it takes a lot of work and the end result is not guaranteed,” said Smith.

The main advantage of “as-a-service” offerings that drive innovation is, in part, their transparency and openness. By opening up the application programming interfaces or APIs of an institution, it facilitates the integration of new services into the core platform of an institution.

A report by Cornerstone Advisors found that of 260 community bank and credit union executives surveyed in Q4 2020, 53% had APIs built into their organization.

“We have seen an increase in the number of credit unions coming into the market to solve specific problems they are having and while not all of them try to move their back office processes immediately, most of them want to improve their digital skills,” said Philip Barnett, Temenos President, Strategic Growth and a member of the Executive Board. “We talk a lot about how we’re working to improve banking, and we believe that every institution, regardless of size, should have the best banking technology available.”

As beneficial as the ease of integration is, it can similarly increase cybersecurity risk and make credit unions vulnerable to hacking attempts.

Salt Labs, a unit of Salt Security in Palo Alto, Calif., Released a report in July in which its researchers tested the online platform of an unnamed large financial institution that works with partner banks and financial advisors to offer API services.

Vulnerabilities found by researchers and then exploited allowed them to inspect customers’ financial records, delete customer accounts, carry out account takeovers, and carry out denial-of-service attacks.

Data from the Federal Bureau of Investigation’s Cybercrime Complaint Center has seen a total of five million complaints from citizens since its inception in 2000. About 14 months after last year’s coverage, it was a million more.

As cybersecurity becomes a bigger concern for financial institutions, Temenos will leverage the security built into its open cloud platform to protect partner institutions from hacking attempts and will continue to adapt the CUaaS program to meet the changing needs of consumers.

“We’ve been proactive with customers to test the service offering by doing some proof-of-concepts to get results while addressing customer needs in the marketplace,” said Barnett.

In addition, the board of directors of the National Credit Union Administration met this month to discuss cyber risks to the credit union industry, with the agency reviewing cyber crime statistics and how its Automated Cybersecurity Evaluation Toolbox could best serve the broader industry.

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