Some emerging options don’t generate fee income, but credit unions can still use payments to gain competitive advantage.
After many years of yielding reliable noninterest income for credit unions, the consumer payments infrastructure is splintering. Some payment methods should continue to generate income, but others won’t. Even so, payment systems experts say credit unions can successfully compete for a significant share of members’ wallets, while using payment-generated data to deepen member relationships.
We spoke with specialists from three companies that provide credit unions with card and payment services about how the industry can adapt to expanding payment options.
Pandemic Accelerates Shift to Remote/Touchless Payments
Use of digital payment platforms, mobile wallets and contactless cards had already been gaining on standard credit/debit transactions before the COVID-19 pandemic hit. Pandemic-related restrictions have accelerated that shift.
“The digital habits credit union members have adopted throughout the pandemic will continue. This is the new reality,” says Brian Scott, chief growth officer for CUESolutions Bronze provider PSCU, St. Petersburg, Florida. “It’s critical for credit unions to provide the newest payment options and technologies, to meet members in the channels they choose.”
Issuing debit and credit cards is still important, because those remain the favorite payment tools for most types of purchases consumers make, Scott notes. According to PSCU's 2020 Eye on Payments survey, more than 75% of credit union members choose debit and credit cards as their preferred payment method.
Credit unions can build more business from the cards they issue by making it easy for members to use them across all the ways they pay, whether that’s using their phones or shopping online. “Once people store a card in a digital channel, it’s likely they’ll keep it as the preferred payment method,” says Scott.
Digital Issuance Opens the Door
Scott considers digital card issuance a linchpin between plastic cards and such contactless payment methods as mobile wallets. Card issuers that have the capability to provision a card digitally can push card credentials to their customers’ mobile devices, he says, no plastic involved.
In addition to facilitating mobile payments, digital issuance gives members a platform on which to report the loss of a card, identify any suspicious charges and get new credentials provisioned to their digital wallet should they lose their physical cards or have their credentials stolen online.
PSCU is one of the payment providers that can give credit unions the ability to digitally issue card credentials to the three main digital wallets: Apple Pay, Google Pay and Samsung Pay. “This enables cardholders to continue making digital transactions, uninterrupted, even in the absence of their physical card,” Scott says.
Tech Partnerships Level the Playing Field
Cloud-based payment systems are helping credit unions of all sizes compete for a share of the options emerging in the payments space, says Bill Hampton, SVP/credit union division for CUES Supplier member FIS, based in Jacksonville, Florida.
“The cloud allows credit unions to modernize their infrastructure and viably compete with fintechs,” Hampton says. In-house card services can create back-office backlogs that staff must stop and take time to address, he adds, in contrast to cloud-based solutions that can free staff to focus on more member-centric tasks.
In addition to freeing staff, cloud solutions give credit unions more flexibility than on-premise hardware generally has for handling fluctuating data load demands. “Overall, you can reduce the cost of ownership for a card portfolio and, at the same time, increase your speed to market for new services,” says Hampton.
Another major advantage of working with a cloud-based provider is the ability to plug your payment channel data seamlessly into an analytics platform.
New payment options that don’t provide direct revenue to card issuers, such as real-time payments and buy-now-pay-later services, can still be valuable to credit unions that connect members to these services via mobile apps or other digital services. How? By leveraging the data from these transactions.
“It’s amazing what institutions can do with the data they collect every day,” Hampton says. “The challenge for credit unions is to find a practical way of gathering, accumulating, aggregating, managing and understanding data.”
Cloud-based data analytics solutions such as those offered by FIS allow credit unions to assess credit and debit cardholder data at both the individual member level and a macro level—and even to bring in external data that can help them see the big picture of payment trends, says Hampton. He recommends looking for an analytics solution that gives insight into an array of useful metrics: cardholder spending patterns; debit/credit product performance; network performance, including the health of your credit union's internal data systems; and fraud patterns and compliance risks.
Hampton says credit unions have been able to use cloud-based data analytics to increase revenue by identifying inefficiencies and then streamlining/automating the identified processes. “You can also lower your member acquisition costs by using data to identify more economical consumers—so you can create a more efficient sales framework,” he adds.
Integrate Payments with Cloud-Based Fraud Prevention
After adopting competitive data analytic tools, the next major payments challenge for financial institutions is maintaining security for mobile, touchless and other digital payments, Hampton says.
Transaction security could be a key advantage for credit unions. Historically, members have trusted their credit unions more than bank customers trust their banks. And because the pandemic converted many consumers into using new payment methods, they may be especially attuned to security issues.
According to the PSCU survey cited above, four in 10 consumers surveyed in 2019 said they decide how to pay for something based partly on which method is the most secure, but in the 2020 survey, eight in 10 respondents said that.
Hampton notes that by using a cloud-based payment management platform, credit unions can more easily integrate with fraud awareness and prevention services that tie into worldwide merchant data. And this more than protects against financial losses to members and the credit union.
“Mitigating the risks of fraud and the associated losses … isn’t just about financial security—it’s about reputational security,” he says.
Educate Members About Payment Risks
Credit unions can enhance the trust members have in them by educating them about the risks within payment systems that operate outside the established payment rails built by the card industry, says Steven Ryniec, AVP/sales and channel partnerships for CUES Supplier member LSC, Naperville, Illinois.
For example, if your credit union partners with Zelle, Ryniec recommends making sure members are aware of that service offering and how it differs from other person-to-person payment systems.
Ryniec points out that members—especially younger members who are known to split the bill when dining out or to pay each other back for other purchases using P2P apps—may have hundreds of dollars in their Venmo or PayPal accounts.
“When they receive payments via these P2P providers, they have to manually create an ACH to deposit that money into their actual credit union account,” he says. “So, the money just sits there, and it’s vulnerable.”
Zelle transactions, in contrast, can route deposits directly into credit union accounts. And Zelle was built by traditional banking institutions, so it has the fraud protections that traditional payment rails have, Ryniec says.
Zelle has been active since 2013 but has mainly been available only to credit unions with assets of more than $2 billion. However, Ryniec says some card services providers have arranged to make it possible for smaller credit unions to offer Zelle to their members.
A key message to convey to members about P2P payments services is that, by using their credit union's services to facilitate these transactions, they’re protecting themselves from their own mistakes.
“If you send a Venmo payment to the wrong person by mistake, unless that person alerts you, that money is gone,” Ryniec says. “There’s no protection against that.”
Payment Insights Can Drive Card Strategies
Like Hampton from FIS and Scott from PSCU, Ryniec touts the capabilities of payment data analytics to drive credit/debit strategy. Ryniec says some clear patterns have emerged that may continue well beyond the pandemic-related restrictions that spawned them.
“Because of the pandemic, there’s been less demand for the popular travel rewards credit cards,” notes Ryniec. “Cardholders have become more concerned about paying down their credit cards.” If that’s happening with your members, Ryniec suggests helping them pay off higher interest cards with balance transfer offers for lower-interest, cash-back cards—a credit union sweet spot in many markets.
Consumers are likely to remain cautious about post-COVID-19 economic recovery, so they’ll probably continue to pay down credit card and other debt, Ryniec says.
A way to promote card usage—and therefore keep the cards you issue top-of-wallet for member payments of all kinds—is to position them as the best method for making recurring payments. He suggests offering cardholders points for making such recurring monthly payments as utilities and streaming video/music services. Members whose credit rating may have taken a beating during the pandemic can help repair it by putting monthly recurring payments on a credit card account and paying off the balance each month.
“This is a great opportunity to help people who are trying to pay down debt to save money, while you offer them some financial and security education at the same time,” says Ryniec. cues icon
Glenn Harrison writes for Credit Union Management from Stoughton, Wisconsin.