We’re very aware we’re making these VC investments with our members’ deposits. If we can’t get a meaningful return, then the risk isn’t worth it. This means we have to do a lot more diligence on the company’s operating practices, tracking sales targets and attainment, and helping drive the company’s credit union industry strategy for success.
Service Federal Credit Union ($6.6B, Portsmouth, NH) has long served a membership that spans time zones and territories — from New England to Germany and beyond. That footprint, rooted in the credit union’s origins as Portsmouth Air Force Base Credit Union in 1957, has pushed it to invest early and often in digital capabilities that can keep pace with a far-flung field of members.
Through Service Ventures, its fintech holding company, the cooperative looks to back tools and partners that strengthen both operations and the bottom line.
Brian Regan, general partner of Service Ventures, shares how that approach takes shape in practice.
How does Service Credit Union approach fintech innovation and investment?
Brian Regan: Service Credit Union, specifically our CEO David Araujo, has a long history of working with fintech startups in the credit union industry. David was an early partner to names like Posh and Sandbox Banking.
When David and I started talking about a CUSO investment opportunity almost two years ago, his goal was to use investments in fintech companies to drive the strategy of Service forward: efficiency, best-in-class member experience, and opportunities for financial returns to fuel growth and returns for our members.
That’s where the idea of Service Ventures came from. The holding company was started to separate the financial aspects of running a venture capital fund from day-to-day operations of the credit union. To date, we’ve invested in eight early-stage CUSOs.
How are credit unions approaching fintech investment? Future Bets explores how leaders balance immediate needs with longer-term bets, evaluate potential partners, and define success alongside mission and member value. Read the series today.
When choosing what to invest in, how do you balance your day-to-day business needs with longer-term strategic goals?
BR: Service Ventures’ primary goal is to expedite the execution of Service’s strategy. This means internal buy-in to the solutions we invest in is a requirement. This buy-in can be around a current pain point like lending growth, fraud, and card services, or it can be around a future business need we see coming, such as blockchain for operational efficiency.
I don’t see any competition between these two points — we spent the majority of our first fund solving critical needs of the business. Now that a lot of those are in progress, we’re starting to shift focus to longer-term roadmap items we think are coming in the next five to 10 years. But we’re also constantly looking at internal operations and meeting with companies that solve current pain points.
Our internal C-suite is the Service Ventures board. This team helps prioritize business areas where we need to identify solutions. This partnership is critical for the business to be aligned on the fund’s direction and for me to know what types of problems need innovative solutions. Without strong internal support, this initiative would provide minimal value.
What does success look like for a fintech investment? How does purpose play a role in your definition of success?
BR: We measure success across a few different vectors of value. We look at internal efficiency and income generation — how is this partnership driving value to the credit union by solving critical problems? That could mean reducing the cost to acquire loans, increasing interchange income, or lower expenses by reducing fraud.
We also look at the direct value to membership — how is a solution providing value to our members? For example, ScribeUp is a subscription manager that helps members discover and cut unnecessary recurring charges.
And then there’s asset investment, where we measure the success of the company through a traditional asset lens.
The biggest difference between investment partners and normal vendor relationships is that Service Ventures’ goal is to make money through our investments, so this is a sustainable practice that drives meaningful returns on risky venture capital investments.
We’re very aware we’re making these VC investments with our members’ deposits. If we can’t get a meaningful return, then the risk isn’t worth it. This means we have to do a lot more diligence on the company’s operating practices, tracking sales targets and attainment, and helping drive the company’s credit union industry strategy for success.
What’s one lesson you’ve learned about bringing along internal teams?
BR: Everyone’s roadmap is full. Everyone is resource constrained. The best thing to do is to work with internal teams and portfolio companies to minimize the work to prove the value of a relationship.
How do you get started without an integration? Without marketing emails or member communications? Can we get feedback from members before doing any planned work? These steps seem simple, but I’m always trying to find ways to prove the value of a relationship before disrupting the roadmap.
CU QUICK FACTS
SERVICE FCU
HQ: Portsmouth, NH
ASSETS: $6.6B
MEMBERS: 383,839
BRANCHES: 52
EMPLOYEES: 952
NET WORTH: 11.8%
ROA: 0.95%
What’s one thing you’ve gotten wrong or would do differently if you started over today?
BR: Playing off the last question, it’s not focusing on the time to value. If an investment takes X months of planned work before presenting value, that’s a big risk to the organization.
Partnering with the business to make sure “perfect” doesn’t get in the way of quick business value is a critical step we didn’t push on early enough. That’s important for Service Ventures’ investment but equally so for early-stage companies trying to find product market fit.
What’s one thing fintechs consistently misunderstand about working with credit unions?
BR: Credit unions are a collaborative group. If your company can solve a tier 1 credit union problem and prove the business value with a handful of customers, there is a high virality factor within the industry. Stay incredibly focused on the first two to three clients, prove value quickly, and the business case will drive substantial growth.
What’s one piece of advice you’d give a fintech about how to partner with credit unions?
BR: Do your research on the industry, the operating metrics, and the differences between banks and credit unions before putting together a credit union strategy. For example, understanding that the majority of credit unions have less than $250 million in assets, how does that change your sales strategy?