At The GAC: A Banner Year For CDFIs While Blockchain Blooms

Federation credit unions told to tell the story, while blockchain pioneers paint a picture of potential.

What a difference a year makes. Last year, the Community Development Financial Institutions fund was facing extinction, and credit unions had no reason to know the difference between bitcoin and blockchain.

Fast forward to this year’s Governmental Affairs Conference. CDFI credit unions are marking a banner year, and a breakout on blockchain drew a standing room-only crowd.

The CDFI fund was on the chopping block in the first proposed budget of the Trump administration, allocated zero dollars, attendees at the National Federation of Community Development Credit Unions’ CDFI roundtable were reminded on Monday.

Vigorous lobbying that followed helped the fund secure a record $250 million in funding. Now, those 300 or so CDFI credit unions need to help spread that story of impact, says Mike Schenk, vice president of research and policy at CUNA. ContentMiddleAd

Also read: The WOW Factor Kicks Off The GAC

It’s shocking that in this time of the great and growing disparity in wages and household net worth, especially among people of color and in minority neighborhoods, that we have to explain to policy makers how important the CDFI fund is, Schenk says. But we must if we’re to do more than just continue nibbling around the edges of these huge systemic problems.

The fund provides grants to credit unions and other CDFIs that use the money to help build economic activity in their communities, leveraging the grants to provide $12 of private capital for every $1 of public investment, the Federation says.

Federation consultant Terry Ratigan told the room that member-owned financial cooperatives comprise 28% of the nation’s certified CDFIs but represent 75% of their assets. One in 10 credit union members belong to a CDFI credit union, he said, and last year those credit unions added 465,000 members.

CDFI credit unions also posted 12% loan growth in 2017, including an estimated 450,000 auto loans and $1.5 billion in small-business loans that helped create some 16,500 jobs. Ratigan said the Federation is currently working to better aggregate data that shows the scale of impact that CDFI funding has in communities across the country.

Blockchain Busting Out

A Monday afternoon breakout session on blockchain drew approximately 300 people. The session was led by John Ainsworth, the new CEO of CU Ledger, a blockchain startup sponsored by CUNA, Mountain West Credit Union Association, and Best Innovation Group.

If you walk away with nothing else but understand that blockchain is not bitcoin, then we did our job, Ainsworth said. Bitcoins are cryptocurrency created using blockchain technology and have become an object of global speculation that has seen their market value reach that of the world’s largest payments purveyors: MasterCard and Visa.

Blockchain, in which a digital ledger is used to record transactions chronologically and transparently to everyone in the secured chain, is already in use in some places, including by Walmart to track every touchpoint in sourcing merchandise from China, Ainsworth said.

Still, the real value of blockchain’s distributed ledger technology could be far vaster, said Ainsworth, comparing its nascent growth to that of the early days of the internet and the first websites.

Ainsworth cited several initial use areas for blockchain, including network applications, digital identifications, loan participations, loyalty/regards programs, fraud reduction, trading, and smart contracts.

CU Ledger’s first use case for blockchain technology is a just-launched service called MyCUID that gives users a lifetime portable digital identity they control. But Ainsworth sees even more global potential.

Give Billions A Shot

There are billions of people on this planet that can benefit from financial inclusion through blockchain as part of a digital strategy, and it really is a digital strategy, Ainsworth said. You need to think of it that way. I can see 400 million credit union members across the globe interoperating with any credit union anywhere anytime in this kind of convergence of AI, biometrics, and the physical realm. Citi can’t do it. Barclays can’t do it. But cooperatives have a shot.

Some have already begun taking that shot, including Virginia Credit Union ($3.5B, Richmond, VA), which has invested approximately $250,000 so far, said CEO Chris Shockley, a member of Monday’s panel discussion.

We see it as a great opportunity or we wouldn’t be using member money that way, Shockley said. The potential for member fraud losses has become so magnified that we felt we had to do something to try to stem the tide.

Another panelist, Ron Amstutz at Desert Financial FCU ($4.3B, Phoenix, AZ), sees the secure ID tools as a great alternative to managing a couple dozen passwords, and touted the immediate view a distributed ledger gives to a fraudulent transaction in the chain, as opposed to relying on a credit report that might pick it up in a month.

Blockchain use cases are still emerging and the best approach now is to think about how it might fit into a credit union’s digital strategy, the panelists agreed.

I’m not suggesting you worry so much about what to do with it today as much as recommend you start thinking about what you’re going to do about it in two or three years, Ainsworth said.

February 26, 2018

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