Credit union members and business customers are adopting any number of new electronic payment alternatives to traditional payment options. These changes include new payment innovations driven by technology, the millennial generation, and the changing habits of credit union members.
These payment changes will alter the relationship between credit unions and their members, change the credit union’s role in retail payment transactions, and impact credit union daily operations and product offerings.
The core payment systems (cash, checking, debit and credit cards, automated clearinghouse) that have traditionally been the backbone of the exchange of payment for goods and services are now being disrupted by new payment instruments created by FinTech startups and established retailers.
It’s worth noting that with the exception of blockchain-based solutions like bitcoin, these new instruments ride existing payment rails but incorporate new interfaces that supersede the CU’s relationship with its member.
A prime example is Venmo (now owned by PayPal), which is very popular with twenty-somethings. Venmo moves money by ACH, but users perceive themselves to be transacting with a tech company rather than with a financial institution.
Innovations such as mobile payments that leverage mobile devices to simplify the payments process for consumers have wide-reaching implications that will challenge credit unions to evaluate the types of products and services to offer in a changing payments landscape, and how they interact with members.
As is the case with many such situations, this creates both an opportunity and a threat. Therefore, it’s critical for credit unions to think through their strategy to address this shifting landscape and position themselves for long-term success.
How can credit unions stay competitive in a changing payments environment and be at the forefront of these disruptive payment technologies? Follow these four steps:
1. Reach members outside of the branch. Payment evolution means that consumers will rely less on branches for regular transactions.
Seattle-based BECU, for example, has minimized its branch footprint and shifted to retail spaces that provide more financial than transactional services. This is a way to engage members based on its understanding of where, how and what services members expect.
2. Invest in analytics. The best way to add value and to create new digital experiences and data-driven products for members is to understand their spending and payment habits, and to use this information to create targeted marketing campaigns.
This is very important to capture millennial market share as the product, service, and financial information millennials want is not the same as members from other generations.
Millennials expect that credit unions will tailor campaigns and communications to their habits and needs, all of which is found in the data.
3. Move into the innovation sphere. Credit unions should provide venture capital to FinTechs and startups to create financial innovations that add value to existing products and services and enhance member digital experiences.
If possible, credit unions should explore investing in FinTech companies or co-ops in order to own intellectual property, opening a new revenue stream.
4. Establish an innovation budget to facilitate in-house product development or partner with other likeminded financial organizations to do the same.
While the shift from traditional payment instruments to electronic payment options will affect day-to-day credit union operations and member relationships, most of these changes are an evolution of traditional products and services.
Credit unions that invest in innovation, provide opportunities for member digital engagement that show members the value of the credit union relationship, and use analytics to understand opportunity will succeed in this new payments future.
JOHN BEST is president/CEO of Best Innovation Group, a CUNA consulting partner supporting CUNA’s efforts in advocacy, compliance and keeping credit unions informed.