Faster transactions are on consumers’ radar like never before.
In payments, fast can be defined in a single word: immediate.
“Consumers experience real-time transfers across a variety of fintech tools. That expectation carries over to their relationship with traditional providers, including credit unions,” says Tom Church-Adams, SVP/lead, payments solution line, for CUES Supplier member CO-OP Financial Services, Rancho Cucamonga, California. “And nearly everything is immediate, thanks to digital channels, faster network speeds and innovation in supply chain models.”
Church-Adams reflects on other areas of immediacy in our lives.
“In many cities, groceries are at your door in a matter of hours. In all parts of the world, doctors and mental health practitioners diagnose ailments in real-time from an iPad. We buy cars and homes in online marketplaces. Paying rent, getting paid for a gig, sending cash to a friend—these are everyday tasks consumers expect to be simple, seamless and speedy.”
From a credit union perspective, Zelle is emerging as the clear winner in real-time P2P payments. “And the platform’s rapid market penetration and credit union/bank ownership have propelled the payment app’s growth faster than many predicted, especially given the number of competitors in the space.”
In 2019, for example, Zelle reports that it processed $187 billion in payments on 743 million transactions. That’s a year-over-year growth of 57% in payment value and 72% in payment volume. By comparison, Venmo processed $102 billion in 2019, according to Forbes.
Don’t discount the Fed’s faster payments initiatives, stresses Church-Adams. “With the announcement of new leadership for the Faster Payments Council (to include former Walmart executive Reed Luhtanen), it’s possible we’ll see an acceleration in the planned execution of the council’s operating vision.”
Still, CUs should avoid a wait-and-see approach when it comes to providing better options for members. Church-Adams strongly encourages working toward greater integration.
“This can be via APIs (application programming interfaces) with fintech providers that share their value system and who can offer members the fast, secure, seamless experience they are demanding.”
CO-OP Financial Services has made technical integration easier through the launch of its CO-OP Developer Portal. An API management system, the developer portal houses CO-OP Financial Services’ APIs in a single digital library. It breaks APIs into smaller, reusable services to quickly add features and functionality into CUs’ own digital applications. “It also allows CO-OP to speed delivery time of its APIs, so credit unions can more quickly deliver new features and functions to members and keep pace with technology advancements and rising consumer expectations,” says Church-Adams.“It’s becoming clear that lifestyle, not just life stage, is the lynchpin of member loyalty,” Church-Adams adds. “And enabling faster payments is one of several ways to trigger daily interaction between a credit union and a member while furthering a credit union’s digital maturity and a member’s exceptional experience.”
What Matters Most to Consumers?
While speed is essential, there’s an equal need for transparency and simplification.
“And in today’s COVID-19 world, we’ve seen very clearly that technology, speed, convenience and communication all are necessities,” stresses Marvin Goldwasser, VP/marketing & chief of staff of CUES Supplier member Payrailz, Glastonbury, Connecticut. “Undeniably, if you can simplify someone’s life, they will come to you. And if there is one thing the COVID-19 crisis has reinforced for financial institutions, it is the need for innovative digital solutions, and to highlight that members need not go into a branch to take care of business. More and more, our thinking needs to be focused beyond the branch services.
“We must continue to ask how we can be more innovative,” adds Goldwasser. “Transparency is equally important as speed. Think of it as tracking a package. Consumers want visibility in every step of the process and notifications for assurance and trust; they don’t want to be left guessing. The consumer can’t manage what they can’t see. They want the reiteration that the payment has been transacted, is on its way and taken care of.”
The consumer is used to convenience as well as immediacy. With P2P tools offered by non-traditional banking players, credit unions got behind in innovation, Goldwasser notes.
“I foresee credit unions wanting to offer more products (like their own P2P solutions) over the next 12 to 18 months to serve their members better,” Goldwasser continues. “These offerings may include re-examining current bill and transfer processing solutions. There is a real need to make sure that the overall digital payments experience (credit unions are) providing is more engaging and proactive.”
With the Payrailz smarter payments offering, Goldwasser says CUs can leverage technology like AI and machine learning to deliver a more personalized member experience. They also have access to a CU-centric P2P product they can brand as their own. And they can leverage and incorporate the tremendous amount of data they already process about their members to deliver a more unified and personalized experience that members will appreciate and use.
“The key is for your member to turn to you first,” he stresses. “You’re already managing their accounts, fighting against fraud and insuring their funds. It only makes sense that your member relies on you for P2P, not a third-party vendor like Venmo.
“RTP (real-time payment) is continuing to roll out, and the Fed is getting involved to speed up the availability of payments. Meanwhile, the number of checks processed continues to go down. Another side effect of the COVID-19 pandemic may be the realization that B2B payments also need to be expedited electronically and faster.”
People are always looking for new ways to pay, and payments are a pain point, concludes Goldwasser. “Don’t wait for your members to ask for P2P or a better digital payment experience. Educate yourself on the faster payments landscape and examine your options. Continue to ask how you can enhance and simplify your members’ lives. Because ultimately, that will deepen member relationships with your service values and brand promise.”
Does Real-Time Keep Customers?
Will members leave you for more speed?
Possibly, says Keith Riddle, president/CEO, Sherpa Technologies, Columbus, Ohio. “Payment processors must be a resource for their financial institutions and proactive technology providers,” he notes. “According to a recent ACI Worldwide payments study, 33% of consumers said they would change financial institutions for access to real-time payments, reinforcing the desire for greater speed and convenience in payments.”
Payment solutions must offer the consumer real-time payment options, and there must be fluidity, he continues. “When it comes to secure money-movement solutions, the consumer wants speed, convenience and simplicity.”
Flexibility in the digital experience—giving members the ability to choose the channel through which to pay is also a necessity. So is being able to view the details of the obligation, such as the payment amount, due date, interest rate and amount outstanding.
“A consumer’s preferred payment method is through biller-direct websites (utility company, merchant, retailer, etc.), occurring more than 70% of the time,” adds Riddle. “This shift in consumer payment preferences was the driver in developing the Payigy payment platform, which leverages biller-direct best practices with the ability to deepen relationships with indirect channel members.”
This biller-direct-like experience within Payigy also allows the CU to stay at the center of the process. It can act as the biller with flexible payment methods, notifications and messaging. Citing an ACI Speedpay Pulse survey, Riddle notes that almost 36% of consumers visit a biller’s website to make an urgent or same-day payment. Here, the debit card is the primary payment method (57.5%), and a deduction from a checking account the second most used (29.4%).
“Speed is necessary,” he explains, “but the consumer requires acknowledgment of the payment within the experience. This transparency makes an essential difference.”
Members want to know their transaction occurred, and the payment was pushed to the biller in real-time.
PYMNTS.com reports that 85% of technology firms and financial institutions will implement real-time payment functionality in the next three years. Riddle surmises that these increased RTP capabilities will impact other areas, such as indirect lending.
“The benefits of using an RTP product would be many. For example, credit unions could disburse funds to dealerships and place loans on their books in real-time. It would also provide members a digital experience while submitting payments in real-time. The entire payments ecosystem evolves and serves the consumer better.”
What About Instant Gratification?
“Not only do consumers expect real-time payments, what they’re really seeking is instant gratification,” adds Norman Marraccini, SVP/group executive retail digital payments, ACH and real-time payments, for CUES Supplier member FIS, Milwaukee. “This sentiment encompasses billers, technology providers to individuals. Depending on the network, payments can still take 24 to 48 hours for electronic transactions and up to three to five business days for checks—which is not acceptable for the consumer. Whoever your processor is in partnership with will dictate payments fluidity.”
FIS has a direct partnership with The Clearinghouse, so in the near future, payments handled by FIS will occur in real-time or near real-time. It is also collaborating with Zelle, boosting instant P2P payments for more than 300 partner credit unions and financial institutions.
At FIS, 82-85% of bills go electronically through its bill-payer system. ACH payments are all electronic and go the same or the next day. “However, the future will require that these payments be dramatically faster, and once the ACH is fully on board with RTP, settlements could take two minutes or less, even as low as 30 seconds.”
With these payments on the cusp of real-time, Marraccini foresees movement finally happening in the B2B and B2P space, where more payments will become electronic and instantaneous.
“This will be seen in large batch payments, for example, by governmental municipalities, insurance payouts and more,” he notes. “ACH files could also be converted into an immediate electronic payment representing hundreds of millions of dollars. Batch data would then be sent to individuals via an email or text message with a claim code for the funds. The consumer would choose his or her preferred method (ACH, debit card, PayPal, prepaid card) for instant payment.
“The COVID-19 crisis has brought to light the necessity for most payments to become electronic, made in real-time,” adds Marraccini. “Banks are already doing this in a beta environment, but it won’t be long before electronic payments to consumers and businesses become ubiquitous.”
Increased transparency won’t just assist C2B; watch for it to impact B2B and B2C payments as well.
“With a business able to see the movement of payments (a trail), it will become much easier to transition a business to real-time payments,” he continues. “Look for businesses to take cues from the marketplace and disruptors. We’re about 12 to 18 months away from the real-time network infrastructure to accomplish this at the business level. It will also necessitate automated software solutions as well as onsite monitoring or the outsourcing of this monitoring—which, at FIS, we’re prepared to take on.”Marraccini says that CUs must eliminate the mindset that real-time payments won’t happen.
What are the Risks?
What do members want most from their financial institution? An instantaneous, seamless experience, answers Libby Calderone, president/COO for CUES Supplier member LSC, a partner with the Illinois CU League, Naperville, Illinois.
“According to eMarketer.com, nearly 80 million U.S. adults used P2P payment services (as of late 2018), a year-over-year increase of 24%. In this evolving payment ecosystem, providing instant settlement of payments in real-time is reflective of consumer expectations.”
As a result, real-time processing, same-day ACH, P2P providers and fintech players have all emerged offering solutions—including digital payments platforms and international money transfer. “An interesting trend is the use of application programming interfaces to connect legacy systems to cloud-based platforms for real-time payment services,” notes Calderone. “This use of third-party APIs largely depends on a credit union’s policies around data sharing with partners, and the sharing of customer data has privacy and proprietary implications that need to be resolved first. Governments must also have a say in this process.”
There is no doubt that better technology brings opportunities to better serve members. For example, Calderone says a credit union could leverage the data available on member transaction patterns to offer an enhanced user experience, providing products and services customized for each member. Coupling these offerings with real-time settlement speed could make for a more compelling user experience.
An Ernst & Young Report projects that real-time payments in the U.S. will grow from $6.8 billion in 2018 to $25.9 billion by 2023.
“These emerging trends include real-time payments at the point of sale,” adds Calderone. “POS capability could reduce costs for providers and merchants with the consumer benefitting from potentially lower prices.
“It will be interesting to watch the development and rollout of FedNow, the real-time payments solution offered by the Federal Reserve,” she continues. “However, faster payments don’t come without some risks, especially since interchange income could be dramatically reduced if payments move from the traditional processor rails to real-time.”
Heightened fraud risks are another possibility. “Convenience, speed and the irrevocable nature of transactions are the mainstays of faster payments, but they also mean less reaction time for a credit union to prevent fraudulent transactions,” she continues. “Credit unions offering faster payment technology should consider investing in artificial intelligence and machine learning tools to reduce fraud and use the data to understand and effectively combat emerging fraud trends. Members expect credit unions to protect their funds, but how effectively can credit unions do this when money is moving instantly? Fraud risk is prevalent, and how a credit union handles fraud can lead to reputation risk if the member blames the credit union for losses.”
Desiring ubiquity for faster payments will also require CUs to choose how they engage in faster payments. Will they participate with Zelle, The Clearinghouse or FedNow? Will they allow Venmo to access member accounts? How much member data are they willing to share? Making the right choice in partnerships will be challenging.
Faster payments are coming, and they’re coming fast, Calderone says. Credit unions will have to make decisions on how they participate. “Sitting this one out is not an option—members will expect faster payments or may move their money elsewhere.”
Is There Pent-Up Demand?
Payments modernization is a global movement that continues to gain momentum, with faster payments inching closer to real-time and instant payments quickly, says Scott P. Young, VP/innovation for CUES Supplier member PSCU, St. Petersburg, Florida. He points to the early days of P2P, when its rapid adoption proved the market had pent-up demand for real-time and instant payments.
“As consumers get even more accustomed to these payment methods, payments systems and providers must deliver instant, on-demand and seamless transactions,” he says. “Worldwide, people are trying to crack the code of executing payments as quickly as possible. This evolution of payments is occurring rapidly, bringing with it the need for industry collaboration to provide a system, technologies and tools that deliver safety and security—as well as flexibility—to accommodate faster payments.”
In North America, there are many options for faster payments—including same-day ACH, Visa Direct, Mastercard Send, Zelle, The Clearinghouse, Venmo, Apple Cash, Square Cash, PayPal and Western Union. FedNow may be ready to launch by 2023 or 2024. These offerings will continue to evolve toward the goal of real-time payments.
“Currently, credit unions have the unique opportunity to identify the products and services that will best support their members as expectations and needs change,” continues Young. “For more efficient and faster payments solutions, consider which rails transactions are processed and how quickly the funds are available to the receiving bank or credit union.”
Faster payments have also been evolving around the world for years—all with different approaches. “For credit unions and credit union service organizations, the focus will be on innovations that drive efficiencies, security and faster money movement in a landscape that will become overwhelmingly digital,” he continues.
“PSCU, for example, is developing a real-time payments strategy by collaborating with consulting firms, technology providers and processing vendors. We’re also excited to be a founding member of the U.S. Faster Payments Council, representing our owner credit unions as this vital work continues.”
Young believes we’re only at the beginning of a phenomenal shift that aligns with the real-time expectations of emerging generations.
“Credit unions should remain committed to payments-related strategies to respond to the changing demands of members and keep pace with technologies that are reshaping the member experience,” he says. “Collaboration for this work is essential for the benefit of all. As faster payment options emerge, the time is now for credit unions to build definitive plans to go to market with new payment methods, focusing on the needs of current and future members.” cues icon
Stephanie Schwenn Sebring established and managed the marketing departments for three CUs and served in mentorship roles before launching her business. As owner of Fab Prose & Professional Writing, she assists CUs, industry suppliers and any company wanting great content and a clear brand voice. Follow her on Twitter @fabprose.