The mobile revolution is posing a big challenge for credit union planners. Some of the innovations and disruptions designed to make payments faster and more convenient—but still secure—could be opportunities. Some are threats. Faced with too many choices and an uncertain future, how can CUs craft a winning payments strategy?
Start by analyzing your own operations data, urges Nick Lane, contracts consultant at CUES Supplier member and strategic provider Cornerstone Advisors, Scottsdale, Ariz. Study reports from your card processors, and zero in on key drivers and usage trends. “The big three categories to watch are penetration, activation and usage,” he notes.
Also, use surveys to sound out member preferences. Some members won’t necessarily know what payments features they want until they hear about them or try them, Lane concedes, but there’s a general awareness of what technology can do—like “when you watch TV you see Discover Card commercials that tell you, you can turn a card on and off,” he points out.
And it’s definitely smart to encourage staff members to use innovative payments options the CU doesn’t offer yet and report back on their user experience. It’s even a good idea to cover the staff person’s expense for experimenting on behalf of the CU, he adds. It’s economical market research.
Knowing costs is critical. Most CUs are under-informed about how much they actually spend on payments, argues Jon Ungerland, founding partner of DaLand Solutions, based in Denver. Charting future strategy should start with discovering current costs and being able to compare them accurately to future alternatives.
Developments like electronic wallets and mobile pay solutions are causing some CUs to jump on board and others to wait, Lane notes. Even though member adoption has been slow so far, adding a mobile option can be something a CU feels it has to do, based on member preferences and what the competition is offering, he says. Signing up for fintech mobile payment solutions usually is not resource-intensive—it doesn’t take a lot of time or money, he observes, unless a CU chooses to pay for aggressive marketing. Other developments like same-day ACH are mandatory for every CU. (Read more about same-day ACH .)
What to Read
A lot of innovations are impacting the payments space, but there is also a lot of information out there describing those changes, notes CUES member Caroline Willard, CCE, EVP/markets and strategy at CUES Supplier member CO-OP Financial Services, Rancho Cucamonga, Calif. So keeping up with the innovations is feasible for even small CUs, but it takes work.
“Spend the first half hour every day looking over all the payments blogs and trade and industry dailies to find out what’s happening,” she recommends. “They know.”
Then read white papers from independent research firms, Willard suggests. “Those papers are objective and well researched—very reliable,” she notes. Many are written by former payments executives. Some are pricey; some are free. CO-OP Financial Services and CUES Supplier member TMG, Des Moines, Iowa, recently partnered with Mercator to publish research on blockchain, she notes. The research brief, “Are Blockchain Solutions Ready? Three Blockchain Solutions Put to the Test” is available free to CUs at http://bit.ly/blockchainbrief. A strategic decision framework developed by the three companies to help financial institutions evaluate the impact and implications of blockchain solutions can be found at http://bit.ly/blockchainframework.
When you’re ready to engage on the tactical level, call in your payments processor or processors for discussions, Willard recommends. “They can tell you what’s possible, what fits your infrastructure and what it will cost. And their advice usually is free.” Consultants (she mentions Cornerstone Advisors) can be valuable, especially for a complex strategy, she adds, noting the importance of paying attention to whether the consultant serves on the board of a vendor and making the appropriate allowances for possible bias. “There’s a huge amount of noise in the market now, and a good consultant can sort through it,” she observes.
Finally, consult peers selectively. “Peer input is great, but not all peers know all the niches,” Willard says. “You have to know whom to call, based on your questions.”
CO-OP Financial Services is taking the lead on the payments content that will be presented at CUES’s new Payments University. The program will zero in on cost and revenue drivers and how to plan for “the next big thing,” Willard reports, and be a blended offering, combining online coursework with an in-person event in April. Preconference homework will tackle such tactical issues as mobile wallets, real-time P2P payments and same-day ACH. Conference sessions will address broad strategic topics like heeding weak signals and achieving buy-in for payments decisions, says Sarah Bang, CO-OP Financial Services’ EVP/industry relations.
Consider Following Vendors’ Lead
The great simplifier in many cases is that CUs have to connect to innovative payment solutions, and those connections usually will come from such vendors as payments processors, core processors and mobile banking providers, and compatible applications offered by those vendors’ technology partners. Most CUs will be limited to commercially available components, so success lies in picking the right pieces and making them work together in safe, convenient, efficient ways, Ungerland says.
However, trusting vendors to scope out the new technology and then craft the best offerings may be too passive for many CUs, whose leaders will try to blaze a trail through the information jungle.
Is a payments vendor that is heavily invested in the status quo the best source of guidance for a forward-looking payments strategy? That’s hard to say, Lane suggests. Winning solutions may come from new vendors, some of them fintech firms, he agrees. But he cautions, “You have to ask if they are solving a real problem. I think the Starbucks payments app is a case where it does solve a real problem. Not only can you pay with the app, but you can order ahead and skip the line, which makes that solution popular and tough to compete against. Some of the others haven’t made the case.”
Adopting a progressive, forward-looking payments strategy may be easier than many CUs expect because they may already have the tech backbone of the future, thanks to investments they have made in their core systems, Ungerland suggests. “There’s a big buzz about ‘silver bullet’ solutions like blockchain,” he notes, “but there is no silver bullet.
“A lot of the noise, he explains, comes from the biggest financial institutions that are struggling to keep their 40-year-old payments technology alive with high-tech patches,” he says. “Many CUs, on the other hand, have implemented good core technology over the past 20 years that lets them react to marketplace demands and innovations.” Their core technology can interface with emerging systems; many cores allow CUs to transact in real time, he notes. They already have flexible technology they can leverage.
But not all core systems are created equal. “Some are struggling to catch up; others have great forward-looking solutions,” Ungerland notes. But always, when considering innovative transaction sets, talk to the core vendor first about what they can support, he emphasizes. Expect them to pitch their own solutions, and consider them, but look beyond what they offer. The vendor may be able to support better platforms using application programming interfaces, aka “APIs,” than the solutions they own, he reports.
If you think mobile payments are the key to a winning payments strategy, don’t expect to lean on your mobile banking provider, Ungerland cautions. “Most of our clients use a vendor other than their payments processor for mobile banking, but the mobile vendors are not payments experts,” he warns. “Their forte is letting members get balances and move money among accounts. Their innovation in the payments space will be slow and risky.”
And don’t rely too much on card processors when charting a shrewd payments strategy, Ungerland warns, because they’re really vested in old technology. “They’re wedded to their established rails and their 16-digit card numbers. That’s where their revenue comes from,” he notes. And they may have a role to play in 2017 but maybe not 2025, he suggests. “Their days are numbered. If you’re thinking plastic long-term, think again.”
Granted, there are too many fintech players and innovative payment options to consider each carefully. And granted, the outcome of all this innovation and competition is unclear. However, a CU manager can cut through a lot of the clutter by consulting a highly trusted payments vendor for free, or by hiring a payments consultant. Some decisions like offering same-day ACH are no-brainers; it’s mandatory. Others like blockchain are so hypothetical at this point that any decision would be premature. Ideally, a CU would craft a payments strategy that fits its membership and business plan and then pick the right pieces to build that strategy. However, in today’s fragmented, à-la-carte payments environment, it may be necessary to choose good pieces and link them into a sum-of-the-parts strategy.
But don’t downplay the power of change. Emerging payments technology should cause CU leaders to rethink their traditional strategies, says Monica Eaton-Cardone, co-founder and chief operating officer of Chargebacks 911, Tampa Bay, Fla. Many CUs expect to survive by emphasizing relationships, but that’s “a bad strategy,” she insists, “because members increasingly don’t like to come into branches. They want to escape relationships that bind them.”
Still, CUs need to hang onto members because they are a CU’s most valuable asset, she says. “The game will be all about monetizing a customer base, so loyalty and retention will be critical.” But it’s the members’ transactions, she insists, more than their deposits and loans, that will bring future revenue.
Richard H. Gamble is a freelance writer based in Colorado.