Payments Trends Will Alter CU Business Model

Changes have the potential to alter business models dramatically over the next decade.

June 1, 2012

The credit union business model is in jeopardy.

The culprit? The payments ecosystem, says George Hofheimer, chief research and innovation officer for the Filene Research Institute.

He defines the payment ecosystem as “a network that moves money between consumer and merchant bank accounts using computers, software, and communication links.”

While the current payment ecosystem is essentially the same as it was 30 years ago, Hofheimer believes “we now stand at an inflection point, where a new wave of innovation is approaching that threatens to undermine the very financial intermediaries that made the payment ecosystem what it is today.”

Included among those intermediaries are credit unions. “In the short term,” he says, “the regulatory environment governing the payment ecosystem will have a sharper and more dramatic impact on credit unions—think the Durbin Amendment and the CARD Act. However, other trends have the potential to alter your business model more dramatically over the next decade.”

Hofheimer cites four major trends affecting the payments ecosystem:

  1. Consumers are going mobile. As of January 2012, 101.3 million consumers had a smartphone, reports comScore. These devices change how consumers pay for things.
  2. Consumers are always online. Smartphones and tablets far outnumber desktop computing devices. These mobile devices, paired with the ubiquity of online connections, transform the business model of payments and other facets of a consumer’s life.

    For example, one unique hardware/software solution, Square, allows merchants and consumers to use an iPhone as a credit card acceptance machine.
  3. Cloud computing. The cloud is a metaphor for a powerful new means of computing and conducting business, Hofheimer says. It enables rapid software deployments that may disrupt a traditional service business.

    “The next new killer app that radically changes payments can now be deployed with the simple touch of a screen by millions of consumers,” he says.
  4. Data mashups. Data hold tremendous value, especially when combined with other data sources. Pair the growth of powerful mobile devices with ubiquitous Internet connections and cloud computing and you’ve got an entirely new business model.

Google, Hofheimer adds, exemplifies a company that profits handsomely from data mashups. How should credit unions respond to these trends?