Crowd-sourced innovation is picking up steam with credit unions as they look to compete with larger banks in developing new payment technology. One payment fintech, Prizeout, has seen an influx of interest in the last month.
Many banks partner with or acquire fintechs to launch new products or upgrade technology stacks, but credit unions, which can sometimes lack both capital and human resources when compared with larger bank, pool resources by using Credit Union Service Organizations, or CUSOs.
Payment fintech Prizeout last month added three new credit unions to its CUSO, called Prizeout Partners, including $19.6-billion-asset Golden 1 Credit Union, $4.7-billion-asset Coastal Credit Union and $4.2-billion-asset Municipal Credit Union. Prizeout offers credit unions a
CUSOs are a legal entity that allows a single or several credit unions to invest in fintechs, similar to a special purpose vehicle. Credit unions by law are allowed to invest 1% of their assets into different CUSOs, and can either create CUSOs to invest in a fintech, or the fintech can directly become the CUSO.
The three new members marks 20 total credit unions that are part of the CUSO, more than double the number of credit union investors when the CUSO launched in February 2023, and represent an additional 2 million members it can offer its product to, according to Prizeout CEO David Metz. Prizeout has more than 41 financial institutions using its platform.
"[The CUSO] is one of the reasons we've been able to scale so quickly," Metz said.
Credit unions that are part of the CUSO benefit in three ways, Metz said. First, they gain equity in the company, although Metz declined to comment on how much. Second, they get discounts on the products, which "could be north of $1 million, depending on the credit union," and they get a seat at the table to help drive new product development.
For credit unions, investing in Prizeout's CUSO means they can make inroads into new payment products as well as earn payment revenue where it otherwise could not.
"Credit unions [are] probably behind the times when it comes to payments," said T.J. Wyman, chief digital services officer at Coastal Credit Union. "[The CUSO] gives us something as a small financial institution to compete with the larger ones, because we don't have a development team behind the scenes that can do that, and quite frankly we don't really have a leadership team that can just focus on payments."
Credit unions generally skew heavier on debit payments rather than credit cards, which also complicates payment innovation, Wyman said.
"What's hard about debit is giving debit rewards," Wyman said. "Most of us, like Coastal, have special interest-bearing checking where we give high interest rates on [members'] checking accounts, and so being able to do additional rewards on their debit spend is already eaten up by the interest rate on their checking account."
Credit unions are also able to bring their merchant clients into the equation and earn interest income, said Dustin Luton, senior vice president at Sacramento, Calif.-based Golden 1 Credit Union. "[The CUSO] is kind of a trifecta in that the merchants win because they get additional sales… members obviously get to spend less, save more… [and] from a payment rails perspective, we get a percentage of every transaction, and that percentage is generally more than we would get on an interchange transaction either debit or credit."
Prizeout's platform also helps give members a reason to engage with the credit union digitally and gain exposure to the various products the credit union offers, he said.
The ability to offer debit card rewards and gain additional interchange revenue was also the reason that Stanford Federal Credit Union joined the CUSO in June 2023 when it heard about the program through word of mouth, said Paul Jockisch, chief financial officer at the $3.9-billion-asset credit union.
"The reason [joining the CUSO] made sense is that they were trying to solve a payment engagement initiative that is pretty universal… It's giving rewards to people to use a debit card, which doesn't exist in banking because it's really expensive," Jockisch said.
"We're still in the transaction and the member still uses us for their financial business," he said. "In some cases, these merchants are [offering] a 20% reward because they're trying to bring on new customers to Sephora, or Uber is trying to bring in new people so they're offering 15%. No credit card in the world is getting you 15%."
Controlling payment outflows from credit union ecosystems is the topic of conversation that Prizeout has with all of the CUSO members, said Matt Denham, co-founder and chief product officer at Prizeout.
"$86 billion left the credit union industry last year from paychecks that went in. It goes into credit card payments, it goes out to loan payments, it goes out to P2P," Denham said. "You have money in two places, either where it gets put in or where you use it. They have where it's in. They need to make sure they are where [members] use it."
To be sure, CUSOs have been around for decades, said Golden 1's Luton, pointing to Origence, which has provided indirect auto lending rails to auto dealers and credit unions for 30 years, and Velera, a payment processing CUSO that was formed in May 2024 when
All three credit unions are investors in other CUSOs, they said. Golden 1 and Stanford both
Coastal has invested in a real estate company CUSO they are 100% owner of, a title agency they are part owner of, and Velera, through which the credit union processes all of its debit and credit card transactions, Wyman said,
Still, Golden 1 is looking to other CUSOs to further drive payment innovation, Luton said, specifically in P2P.
"There's a huge opportunity in the payments space in building an ecosystem similar to Zelle around FedNow. Those may be the type of CUSO that you start to see form," Luton said.
Fraud analytics is also another area Golden 1 is interested in, he said. "Those are things that individually, credit unions probably can't do. But if we can come together, we can do something much more substantial."
