Invisible payments, new competitors, and a shifting consumer mindset are threatening payments revenue, which is made up of interchange, interest income, overdraft and other fees.
Because of this, preserving—and even growing—payments-related revenue is a top priority for high-performing financial institutions.
While payments revenue may not be as high among credit unions as the nation’s major banks, one fact is certain: credit card programs are typically the dominant revenue engine inside a cooperative’s payments programs. At close to 2.5%, they generate the highest return on assets across U.S. retail financial products.
Lost income is not the sole worry for credit union leaders strategizing for the future of payments. Just as important is lost data.
Because they provide a view of spending patterns and behaviors, credit cards and other payments data files help credit unions develop and deliver additional value to their card-holding members.
Today’s best-in-class financial institutions are capturing and analyzing payments data that goes beyond the number of transactions or the volume and frequency of spend. Data scientists and portfolio experts are using data trails to determine with whom card holders are transacting and through which channels.
The analysts are then overlaying demographic data from a variety of sources to analyze their card holders’ behavior across segments. It’s all done in the name of personalizing the card holder experience.
The complete data picture allows the credit union to pinpoint the most receptive set of card holders for campaigns promoting everything from reverse mortgages to merchant discounts.
The shrinking value consumers perceive from their traditional credit cards is already changing their behavior. Now is the time to pump up that value and promote it like there’s no tomorrow.
Today, credit cards are the primary vehicle enabling digital payments, whether they're through the online or mobile channels or the Internet of Things. In the digital realm, powerhouse merchants that have earned consumer trust offer to store card credentials for a “frictionless” payment experience.
Brands like Amazon and Apple then provide the kind of one-click transactions consumers have come to love. In addition, they are offering advanced security, striving to achieve broad acceptance across point-of-sale channels, and partnering with financial institutions and global card networks to leverage the existing payments infrastructure.
Their future plans include loyalty rewards and broader shopping-related services. Their go-to-market and user-experience expertise, combined with deep funding and a strong drive to expand their broader ecosystems, will help them succeed in spurring adoption.
This presents best- and worst-case scenarios for credit card issuers:
Best case: Your card holder has stored your credit union card with the merchant, and you are capturing the sales volume and interchange revenue (albeit it at the expense of brand reinforcement).
Worst case: The card holder has stored a competitor’s card with the merchant, causing you to lose both the sales volume and interchange revenue—with an added negative—the total annihilation of any would-be brand experience.
Minor adaptations can bring about great results, which means credit card portfolio optimization should be near the top of every credit union’s list of goals for the remainder of 2016. At the same time, larger conversations about the future of payments and the value they will deliver to the tomorrow’s consumer must also start now.
Luckily for credit unions, you are a part of a larger movement that is already having these discussions. In other words, you are not alone.
Take advantage of the expertise found in league, association, and consultant circles to prepare your payments programs for what’s coming.
Their help, combined with your rich understanding of the members you serve, will inspire consumer excitement today and well into the future.