If you’re building a Fintech, Insurtech, or similar service tech startup, credit unions may not be the first market you think of, but they should be. Beyond being valuable customers, they can also be an important source of investment capital.
Credit unions are not-for-profit financial institutions that are owned and operated by their members. Unlike traditional banks, they focus on returning value to members through lower loan rates, higher savings yields, reduced fees, and paying member dividends. Membership is usually limited to certain communities, like employees of a specific company, members of a labor union, or residents of a particular area (which credit unions call “field of membership”).
What Is a Credit Union Service Organization (CUSO)?
A CUSO is a business entity owned by one or more federally insured credit unions. It is designed to provide services that reduce operating costs, improve efficiency, or deliver innovative products to credit union members. CUSOs allow credit unions to collaborate and expand their offerings, especially in fast-evolving sectors like Fintech and Insurtech.
Can Credit Unions Invest in Startups?
Yes. According to the National Credit Union Administration (NCUA), which regulates credit unions, in 2021 there were over 1,000 active CUSOs that attracted more than $4 billion in investments and over $1 billion in loans. Those numbers highlight how engaged credit unions are in supporting innovation.
Why Are Credit Unions a Unique Market Opportunity for Service Tech Startups?
What makes this particularly attractive for Service Tech startup companies is that a credit union can be both a customer and an investor. When a product aligns with their mission to serve members, they may not just adopt it, they may help fund it.
What Are the Regulatory Requirements for Receiving Credit Union Investment?
There are some important federal regulatory requirements to keep in mind. The NCUA stipulates that, to receive investments from credit unions, the majority of your startup’s revenue must come from credit union clients. They also maintain a list of approved products and services that CUSOs can offer, focused on those that directly benefit credit union members. These include, but are not limited to, financial planning, investment, insurance, and mortgage offerings.
State chartered credit unions (as opposed to federally chartered credit unions) typically have their own state regulatory schemes they must follow. State requirements generally have similarities to federal ones, but present additional requirements state regulators find important in assuring a credit union’s overall financial health.
Is a CUSO the Right Fit for Your Startup?
Many startups choose to form a dedicated CUSO subsidiary. This structure helps meet the revenue and service requirements, operate within the regulatory framework, and build a focused channel for both revenue and capital from the credit union ecosystem.
