Credit unions have been trying a lot of different things in order to stay relevant, from embracing and upgrading their technology to making processes more efficient. Relevancy is just one of many reasons credit unions are looking toward partnerships with fintechs and other companies to help deliver the best experience possible for members. These partnerships may also bring more to credit union and its services than initially expected, such as bringing to light solutions that credit unions are not even aware of but have been used by the rest of the banking industry for years!

ModernFI CEO Paolo Bertolotti and Members Development Co. CEO Jeff Kline sat down with Host and Co-founder of The Credit Union Connection Sarah Snell Cooke to discuss their longtime partnership and how they’ve worked to address the various complexities of modern credit union operations. They also discuss the new Balance Sheet Marketplace as well as Kline’s upcoming retirement.

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Sarah Cooke 00:03

Alrighty. Hello and welcome everybody. I am Sarah Snell Cooke, your host of The Credit Union Connection. I am here today with two wonderful gentlemen. We have on my left, Jeff Kline, who is the CEO at Members Development Company. Welcome.

Jeff Kline 00:16
Good to be here. Thanks for the invite.

Sarah Cooke 00:19
Absolutely. And Paolo Bertolotti, I said it right a second time, wow, Founder and CEO of ModernFI. Welcome.

Paolo Bertolotti 00:27

Thanks, Sarah.

Sarah Cooke 00:29

And so I'm going to let you two introduce yourselves a little bit, your company and your backgrounds. Jeff, hit it off.

Jeff Kline 00:37

Great. Well, I'll keep it short, even though it's a long, been a long journey. My name is Jeff Kline. I'm the CEO of Members Development Company, or MBC. This month, in fact, any day now, I'm celebrating my 41st anniversary in credit unions, and I've been a I've been a CFO, I've been a chief retail officer, I've been a CEO, and I've been part of two CUSOs. I think my CEO, about 25 years ago said, You're making us crazy. You're a little too capitalistic and entrepreneurial. Can you please go start some CUSOs for us and so, manage the CUSO land, and been here ever since.

Sarah Cooke 01:21

And you. Paolo.

Paolo Bertolotti 01:23

Yeah. Thanks, Sarah. I'm the CEO and founder of ModernFI, and we help credit unions grow deposits and member relationships, so really just fitting into people's strategic priorities, helping them on the liquidity side with funding, and also helping them just grow their member base over time. So happy to get into that, but it's been a wonderful, wonderful journey with Jeff and the Members Development Company over time, a pretty incredible partnership. Before this, I was in academia doing a graduate study, so it's been an fun journey so far.

Sarah Cooke 01:56
Cool, yeah, well, welcome to the credit union world and Jeff, as you mentioned, opposite of Paolo, you have been in credit unions almost as long as I've been alive.

Jeff Kline 02:09

I do that a lot.

Sarah Cooke 02:10

I was like, but you look so young, so that's why I was shocked by it. But your CUSO is about finding innovations to solve real credit union problems, and so how has that evolved over those four decades?

Jeff Kline 02:27

It's funny, as I get closer to the end, how many conversations prompt something like, well, in the 80s, we used to do this, and it's, but it's, it's been really amazing to have that context and watch how, you know, I've been lucky enough that, literally, since I left public accounting to go to US Central and then on to other credit unions, I've been blessed to be in the C suite and see financial institutions from the top down, and watch credit union strategy and channels and products shift so much over that period of time. You know, we've gone from being, you know, pure retail operations to, you know, I can remember a day when we used to think car dealers were evil, and then somehow, five years later, we were deep in indirect lending. And then on to now fintechs, who we thought were our competitors 10 years ago, and we'll probably talk more about that, but, so to watch that evolution, for us, it's, it's been pretty amazing at MDC. I've been here 18 years. We're celebrating our 25th anniversary this year, and, and good, bad or otherwise, my first year was 2007 and we all know what happened in 2007, 8, 9, and so while all that was going on around us, we were going through a crisis ourselves, because as a new CEO, we didn't, we weren't sure even what our value proposition was. We had enough money to last maybe two budget cycles, and then we were gone, and we had no revenue model or anything like that. So we were going through this existential crisis of our own in the midst of this massive recession and, and, but it made, it was one of those great case studies of, sort of the, you know, necessity as the mother of invention, and we were desperate, and it forced us to really dig deep and, and so one of the subtle changes we made as part of that journey, and where we made a lot of not so subtle changes, was an emphasis at MDC of going from R and D to R for D, that we tried to really reinforce looking at things where we might be able to make a difference, not just learn something. I mean, sometimes we dig around and go, here's what we've learned, but there's no path to build or a solution. You know, we were looking at digital wallets. The two years before, there was this thing called Apple Pay, you know. And we kept looking at technologies and opportunities and learned a few things here and there. We go, here's what we've learned, but there's still no path. And literally, the month before Apple Pay rolled out, we shared all these technologies and said, we love this one, except that, we love this one, except that. We think Apple Pay is working on something, or Apple's working on something, because we see these signs and 45 minutes, you know, later in or 45 minutes into that fall's presentation, Apple Pay shows up on the screen. But you know, for us, it's about finding partnerships, or building partnerships or creating companies. And, you know, ModernFI is a great example of us finding this wonderful company out there that none of us had heard of on the credit union side, and now it's, we think it's going to be something very special.

Sarah Cooke 05:36

Yeah, that's really apropos, because, as credit unions have evolved, there's so much technology that they can't be the experts on, so they have to bring in these partners, third parties, especially in the tech side, to help. And so Paolo, I'm going to go ahead and turn to you. Since Jeff teed you up, ModernFI is brand new to credit unions, and so are you. What has been your impression of credit unions and innovation as an outsider? Yeah.

Paolo Bertolotti 06:06

It's been, it's been very refreshing. And so I was, you know, in grad school, I was a on the other side, I was a user. Now I guess I'm a partner and supplier, if you will. But it's been, it's been wonderful how I would say welcoming, warm the industry is, and also how progressive and innovative the industry is. I think in general, the credit union space, because of the values, because of the member focus, because of the community focus, I think you have some really wonderful individuals at these institutions who are always thinking about, what could we do better, and how can we improve our institutions? And sure it's about differentiation, and sure it's about revenue and business models, but I have seen, and I believe that the main driver of the innovation is, what can we do to actually progress the mission and better serve the members and better serve the field membership, and that's been such a wonderful learning for us. And, this is not new to you Sarah, it's not new to Jeff, but there is very much a collaborative spirit in the credit union industry, where folks are talking to each other about good solutions. They're, you know, working with Jeff, and Jeff's working with them, and they're working with us on good solutions. So just building that dialog that's, I think that's a recipe for success, and we as a firm have always taken a very partnership focused approach and also a very value focused approach to building where it's all about trying to listen to the institution's needs and where their pain points are, and then seeing how if, when we can fit in to support. And the fact that credit unions have been so receptive of that has been, has been fun. And we get into, you know, the details of exactly what we do and how we help. But I think you take sort of that interest in innovation, that partnership focused approach, that value focused approach, and then you combine it with what we feel is just good timing about what we do, and also a pent up demand for what we offer. And that's why I do think the whole ModernFI, MDC partnership and the CUSO has really been so successful to date.

Sarah Cooke 08:21

For sure. I love the building something to actually solve a problem, as opposed, you know, to, and not to bust on academia, but, you know, it's not just an academic exercise. It's, it's, you know, actually solving real world problems. Now, if you could talk to the remote control guys, the guys who make all the little buttons that we don't know what they do, that'd be great. So Jeff, MDC has leveraged several FinTech partnerships to help credit unions serve, better serve their members, and that's something that's changed, as I mentioned earlier, tremendously over the years, from getting everything from one supplier a lot of times to a more of a plug and play, you know, as long as the cores let you plug and play. Oops, did I say that out loud? Um, so tell us how MDC has adapted along the way for that, and how that is affecting credit unions and what you expect to see going forward.

Jeff Kline 09:19

Yeah, that's, that's, that's, well, I could probably talk about that for a couple hours, you know, watching the industry morph. At MDC, we've been talking about FinTech partnership for probably 10 years. And if I go back that far, most of us were talking about FinTechs as competitors. You look at your strategic plan and go threats: fintechs, and big and small, and you could sense a sentiment starting to shift. And maybe it was, maybe it was even had something with the evolution of fintechs themselves, but in the minds of credit unions, we could see them seeing more fintechs as potential partners, and fewer of them as threats. And and so we started seeing a gap in the market where, and we experienced it, because every time one of our credit unions would be talking to a Fintech, they'd say, fintech, they said, You need to talk to Jeff Kline at MDC. And so we were getting all these calls. And what we were sort of seeing this weird anomaly in the market where you might have a great FinTech who talks to the wrong credit union. You know, a FinTech calls a credit union and they say, Well, let me introduce you to my due diligence department. Wait, do you even know what I do? And so certain credit unions just weren't prepared to deal with these, we'll just call them small or less sophisticated, and I don't mean that trying to say the less sophisticated than a Fiserv, because I could argue the opposite, but, but, but, you know what I mean? Like, they just were small. They didn't have all the the heavy machinery behind them, if you will. And so there were all these dynamics, great FinTech, wrong credit union, sometimes, great FinTech, right credit union, but it wasn't on the credit union's roadmap for the next year, and so they send them packing. And so what we saw was, what can we do for fintechs, and what can we do for credit unions? And that's sort of how ultimately that led to the Circle Collective and the Circle Fund, was we needed money, so when a FinTech came calling for money, we didn't have to call 20 credit unions and wait for board meetings and all the things that a credit union needs in order to get permission to invest in a CUSO, assuming the FinTech even know how to spell CUSO, so you have, right, and so you have all of those issues. And so we said, Okay, if we can create a pile of money, that'll attract the fintechs more, and we can hire people who know how to talk to fintechs. We're talking about burn rates and all these things and credit, you know, we work off calendars, and sometimes fintechs are working with a stopwatch. And so again, just part of the cultural differences. And then the collective is there to go, Okay, this is, you know, Mr. Bartolotti, this is how you spell CUSO, and this is what it means. And, and how can we, oh, you need some pilot credit unions for your technology? Oh, you need clients. Okay, let me go talk to MDC, where you got 80 big credit, so we wanted to create this place that was safe for fintechs and credit unions to come together. And so that was, you know, part of that evolution. And so, we felt like, if we could create this place where everybody could come together, we could help expedite fintechs coming into the industry and create quality for them, which would bring better tools in the industry.

Sarah Cooke 12:30

Yeah, absolutely, absolutely and so, and one of those being your partnership with ModernFI, ModernFI. Sorry. And so, Paolo, you guys have partnered for this balance sheet marketplace. Explain a bit about how that got started, how it works. And Jeff, of course, you're welcome to add your perspective as well.

Jeff Kline 12:51
Well, maybe I'll jump in first.

Sarah Cooke 12:53

Okay, go for it.

Jeff Kline 12:55

Marketplace, for 60 seconds, we were looking, one of our dilemmas, we feel like, and again, having the luxury setting in a C suite of credit unions now for 40 years and set in Alco meetings that entire time, one of the frustrations is, as your loan to share ratio rises and fall, your capital ratio gets a little thin or a little tight, it starts affecting your product pricing and how you serve your members. And it's frustrating to us, going why does my balance sheet, balance sheet have to dictate how I serve my members? And so the oversimplified approach to the balance sheet marketplace for us is, how can we create a pipeline that's always open for credit unions to receive loans and to send out loans, or to receive deposits or send out deposits that the treasurer or the CFO could tweak those pipelines so the balance sheet can be more liquid, so they can continue to serve the members first and not let the balance sheet say it's time to raise loan rates. Why, my loan to a share ratio is too high! What a terrible reason to not serve your members. So that's sort of the essence of the balance sheet marketplace, and at MDC, we've been working on a loans in pipeline, which you'll hear more about in 2025 in the meantime, we said, well, let's talk about the deposit side. And we looked and looked and looked for solutions, and had a hard time finding, these banker solutions who really wanted to work with credit unions, and it was actually a loan FinTech who said, I heard you guys are interested in talking about deposits. I can't sell loans to credit unions because they have no liquidity. Can I introduce you to this guy named Paulo at ModernFI, and I said, sure, and we have this amazing first conversation that maybe we'll have time to talk about later, but that's sort of the context of the balance sheet marketplace, and how, how then and I met and and started this journey.

Paolo Bertolotti 14:45

Yeah, absolutely. And Sarah, I can, I can riff off of that, but it's, Jeff deserves, deserves the credit of, of making this happen. And I do think it's a good reflection and an example of why MDC is such a sort of value add, not just to the owners, but to the larger industry, because they're out there hearing about what's top of mind and then really taking the initiative to make it happen. And as Jeff mentioned, the balance sheet marketplace was a big initiative for them. And coming out of 2022, 2023 for the whole, for the whole ecosystem, liquidity, funding deposits, really was top of mind for a lot of folks. We saw a lot of deposit runoff. We saw some member runoff. And, yeah, funding, deposits, shares, first, second, third party for a lot of institutions. And we, early in our journey, we were focused on, you know, financial institutions across the board, so community banks and regionals as well. And Jeff called, and we started having a conversation, and we kept hearing from other wonderful institutions as well, on the credit union side. And we Jeff, you know, we had a wonderful conversation with Jeff, where we essentially said, this actually is a solved problem. There's a beautiful solution to this called a deposit network, and it's existed for banks for 20 years. Over 3000 banks use them on a daily basis. There's over 400 billion deposits in what are called these reciprocal deposit networks. They truly are foundational infrastructure for community banks. Why doesn't this exist for the credit union ecosystem? Started going down that path, and we became very excited. Our partners became excited. MDC and Jeff got excited. And I think we were pretty honest in the sense that we have the operations, we have the technology, but it takes a village. Networks are network, so you need like-minded individuals around the table. And you know, to Jeff's credit, he never, never wavered there. And we sort of got to work spinning up a CUSO that was going to be the sole distributor for the credit union industry. It's just a beautiful way in our mind to show alignment and, and get the right folks around the table. So the CUSO is MDC, it's Circle, it's 10 amazing institutions, AB and B, Ascend, Corporate One, Georgia Zone, Idaho Central, IHMVCU, Royal, Safe, Service and Suncoast, just some unbelievable partners making this happen. And obviously the partners that use the network as well. And to Jeff's point, folks can come to ModernFI to source deposits. They can come to ModernFI to sweep excess liquidity. And they can also utilize ModernFI to use what's called a reciprocal deposit, where they can essentially provide accounts with extended NCUA insurance to attract and retain large value members. So think of a savings account with 20 million of NCUA insurance. And why that's so valuable now is that an institution can bank small businesses. They can bank school districts. They can do public funds. They can do municipalities, nonprofits, higher net worth individuals, and yeah, that's why we love what we do, because, to Jeff's point, we fit really nicely into the Alco who's doing the balance sheet management, but we're also fitting very nicely into the institution's priorities around, hey, you know, how do we grow our services and our support of those folks in our community, whether it's the school district, or whether it's the individual and just sort of fitting in there nicely empowering that, that ecosystem has been, has been a joy, but yeah, all the credit goes to sort of Jeff and the MDC group.

Sarah Cooke 18:32

Now that sounds really awesome, as I mentioned, I talked to a couple of your guys last week, so Jeff, why hasn't this existed in credit unions? And from your decades of experience, but also, what are the implications now that we do have it?

Jeff Kline 18:44

So this, this project, has been a, an amazing sort of enlightenment for me, in that this thing existed on the banking side and nobody's talking about it on the credit union side. When we started talking about a deposit project, we probably had 20 CFOs, well, I'll say 10 CFOs, and 10 other maybe retail people across MDC credit unions going we'd like to be part of that project. And the CFOs in the room, probably half of them had been bankers before, and so they started talking about all these reciprocal deposit things. And were, what is that, right? And, and so it was, it was almost embarrassing again to be having set in Alco meetings for decades and never heard of these things, was like, How is that a possible? And to drill down into maybe even a more of a microcosm of this conversation, something that's haunted me since we discovered this, and I've been trying to figure out if those are other applications or other examples, but if you just go down into commercial banking, inside credit unions, most of those people by, almost by regulation, had to be hired from banks because you have to bring in expertise. You can't just take your consumer loan officer and make them the head of commercial banking. So to, we've always said, Okay, we're good at commercial CRE loans, and we do some operational business loans, but we don't tend to be successful on the deposit side. And all I ever heard was, well, we don't have Treasury services, or we don't have certain skill or asset or tools that they need. And no one's ever talked about the competitive disadvantage they have trying to compete with the local bank when the local bank could insure this account up to 10 or 20 or $50 million, I'd never heard of that. And what I what I believe, is that it was such a foregone conclusion that no one ever, like it never comes up in strategic planning, or it never gets raised, MDC is, what's keeping you guys awake at night, partly because commercial is such, not a, such a relatively insignificant asset to our business. But also I think it was just like, well, we can't do anything about it, so why are we going to complain about it? And so it was like, when we uncovered this, and went, Wow, are there other problems inside credit unions that no one's talking about because we're just throwing up our hands and because there's no answer? And so I don't know how to hunt for those, but it sort of went, where's that other nugget like this that just no one's even talking about. So, so I can't answer directly, answer, you know, why it hasn't existed. It's just other than pure ignorance, or, you know, or these, again, the bankers come over and they know about it, and CFOs come over, but they know there's no answer. And most likely those CFOs, if you will, the ex bankers, probably talked to those other entities about it, because we did too as part of our deposit project, when it's brought to our attention, we talked to those bank networks about starting a credit union network, and they flat out had no desire to talk to us. So when we when I met Paolo, I was like, let's talk. And to their credit, you know, we talked through this, and I listed out three or four sort of structural here's something we would need to talk about. Here's something we would need to talk about. Great to meet you, Paolo, hope we get to talk again someday. Hung up the phone, and three days later, he sent me an email. Here's how we're going to solve those things that you mentioned on our call, and so and we were off to the races. So I mean their responsiveness, just, I mean it this exists because they were such great listeners, and they were so responsive and saw the opportunity to work with credit unions.

Sarah Cooke 20:42

Yeah. It's also entrepreneurial too. I mean, obviously you are an entrepreneur, but you know, to your point, CFOs knew about this, but they weren't trying to do anything about it, necessarily. It just didn't, didn't exist. So, you know, always good to get fresh blood and fresh ideas into any any type of businesses, but credit unions are at our hearts, of course. So yeah, that's, that's super interesting. I love, I love the idea of it. And honestly, I had no idea it even existed for banks either beforehand. And I've been doing this 25 years, you know. So, yeah, I think it's great that we are starting to get, we, we need, we need to, something that made a lot of people poo poo that bankers are entering our industry. It's not all bad, it's not all bad people, because that's certainly something that helps you better serve your members. It's not, you know. So, so Jeff, I have one additional question for you, sir. You will be retiring in May. Congratulations, first off, but also, what's in your future? What are you doing with your retirement?

Jeff Kline 23:45

Paolo and I were just having this conversation yesterday. It, I know what 2025 looks like. I'll be 65 on Sunday, and I've spent pretty much the last 50 years just head down, moving us forward as fast as I can. I mean, in high school, I was working a job and playing sports and studying. In college, I was working and studying, and then I went to work in public accounting, where they worked our butts off. I went to US Central, where they worked our butts off. And I, you know, spent the rest of my career, okay, what's our next goal? What's our next challenge? How are we going to be successful and, and it just in the last year, as I've thought about this question you just asked, I realized that either A, I really love working, or B, I have no idea how to do work, life balance. I don't know the answer to the question. And so one possibility is that in 2025 I'm going to jump over on the other side, and I'm going to play 100%. I'm just going to retire, and I may find out I love that, and I may find out, it wasn't a work life balance problem. I just love working. But I don't, but I want to play long enough that I, that I know I miss it.

Sarah Cooke 25:09

Right.

Jeff Kline 25:11

And I don't want to say yes to too many opportunities that somehow I get the frog in the water concept and end up back working 60 hours a week when that wasn't... So I haven't you know you, if you said, What's your hobbies, I'd say I haven't touched my golf clubs in seven years. I can see a lake right there, and I have a boat at the marina on the lake, and I probably used it four times last year. In 1995, I had a pickleball court in my backyard, and I haven't played pickleball three times in the last 15 years. Those are my hobbies. So, so I'm going to go revisit all of those and see if I really ignored them because I love working, or I or, you know, if I just didn't like them. And I'm going to keep, come back and work. So, so that's what 2025 looks like, and 2026 will be dictated by how 2025...

Sarah Cooke 26:03

How 2025 goes. That's awesome. Congratulations, and enjoy that boat. My husband is probably very jealous, so we don't mention that to him. And Paolo. How about you? How's your retirement going to be?

Paolo Bertolotti 26:18

We have some work ahead, but we are, yeah, we're, we're excited. We're excited about the opportunity. It's, you know, we're in a very fortunate position and to have the partners that we do. And, yeah, I'm, I think, on Jeff's side, it's very well deserved. So some, some, some family time there for him. And we'll, we'll see if we can, we'll see if we can keep him busy and engaged, but I want to be respectful of, you know, any late night emails moving forward.

Sarah Cooke 26:48

Yeah. You have to learn personal boundaries. All right. So as I offer all my guests, I always provide an opportunity for final thoughts. And Jeff, I'm going to start with you and let Paolo wrap it up. So Jeff, what are your final thoughts for our audience?

Jeff Kline 27:03

So we talked about fintechs a little bit here and, and I think for me, as we lean into these, you know, collaborations like this one with Paolo, I think we have to realize that we've evolved a lot as an industry, you know, over the 40 years, going from 40 years ago, trying to learn what it meant to be a retail bank. You know, we were these little, oh, I need branches, and I need tools. And we started doing that, and somehow we started buying all these indirect loans. And now we buy all these loans from fintechs all over the place, and all of a sudden, I'm starting to look at credit unions, sort of like a Rubik's Cube, where you have, you know, this three dimensional thing of many products and many channels and many market segments we're trying to serve. And if you think of the intersection of each of the little cubes on the cube, each one of those is almost like a business of its own. You know, how do I make car loans to millennials over a phone? How do I, you know, do CDs to a, you know, a baby boomer on the website and on and on and on? Well, every one of those little cubes probably has two or three or a dozen fintechs working in that space, because they tend to focus on a problem. They tend to think, I have a problem, and I have a solution, and eventually, then they learn how to add products or add channels or add market segments, right? We cannot, we are not Chase. We can't have a department focused on each of those little cubes, but we've got to find partners like ModernFI, who can help us. We can focus on some of them, but we can't be world class at all of them, so either need to get out of some of them, or we need to find partners to help us with a cheat code and how we can get better at each of those lines of business that we're in. So, you know, for me, I think that's the takeaway as we look, you know, as we look ahead to this is, how do we get, and are we even measuring the performance of each of those businesses? Do we really have a financial statement and of an income statement balance sheet for indirect loans, for each FinTech loan? You know, do we just have one big balance sheet? And how do I know how to flip the levers and do all those things? Sorry, that's a second conversation for another time, but in order to make wise decisions about whether we should or shouldn't do those things, we need to be able to measure them, and then we need to be able to say no to something which in my 40 years we haven't been very good at. We just need that.

Sarah Cooke 27:38

And your turn, Paolo.

Paolo Bertolotti 29:06

For sure. On our side, I just think we are incredibly excited about the credit union movement, and also the credit union momentum and everything that we've seen, the tailwinds, but also our belief in our ability to accelerate some of that. So, you know, over the past 10 years, we've seen credit union assets double across the industry, and Jeff sort of touched on it, but there's also so much more appetite to do new business lines and not just do retail, but also do businesses, and also do public funds and also do nonprofits and some higher, higher net worth as well. And that ambition, that excitement, is really exciting, right? Because for a school district in the area, makes all the sense in the world to bank with your local credit union, or for the small businesses in the community, it makes all the sense in the world to bank with your local credit union. But to Jeff's point about the CFOs not always talking about these things, or not always knowing the solutions were out there, in order to make that match, you do need products and services like, like the ones we're talking about today, and so we're just incredibly excited about that trend growing, but also ideally being the catalyst for that trend. So credit unions now really can do public funds for the first time in history with ModernFI at their side, and they really can do commercial banking for the first time with ModernFI at their side. So you know, if we look back in five years, having grown the entire sector and building something that is just really, we often like to say that what we're doing here is foundational. And so if we look back in five years having achieved those, you know, we'll be we'll be very grateful to have played a part in that.

Sarah Cooke 31:21
Excellent. Well, thank you all for joining me today. I appreciate it. Have a great rest of your day.

Paolo Bertolotti 31:25

Thank you, Sarah.