Here’s a quick look at interesting and potentially disruptive moves by players in the payments space.
This is bonus from “Winning the Payments Game” in the upcoming September issue of Credit Union Management magazine.
Credit unions have to compete for payments business. Traditional financial institutions vie head on with credit unions for member credit and debit card accounts. Retailers try to negotiate an ever-bigger chunk of the available interchange income. And now some fintech companies are looking to cut credit unions out of the payments business altogether.
Venmo started out as a P2P payment service that helped people “split the bill” using their smartphones. What makes this company more of a competitive threat now is that it is starting to strike deals with merchants to accept Venmo payments—replacing card payments and reducing credit unions’ interchange income.
Fintech company Affirm takes that dynamic one step further, basically emulating a credit card with a revolving balance. Let’s say a consumer walks into a furniture store and decides to buy an $800 couch. Using the Affirm app, she can request approval for the purchase to pay off the couch over time—through a loan with Cross River Bank, a New Jersey financial institution that makes all Affirm loans. The transaction is powered by a real-time lending decision engine.
Affirm has partnerships with retailers ranging from apparel to consumer electronics to auto parts. Through some of these alliances, the company offers no-interest payments for up to six months on purchases; its annual percentage rates on other instant-issue loans range from 10 to 30 percent, depending on the customer’s credit score. None of these partnerships, at least in the current lineup, is likely to have a huge impact on credit unions’ relationships with their members, but it’s worth watching how Affirm grows its business.
Then there are the stores aiming to remove all intermediaries from their customer interactions. Not content just to shave pennies off interchange fees, some big retailers are looking to cut credit union debit and credit cards out of transactions entirely. Amazon has offered its customers a 2 percent bonus for buying gift cards with electronic funds transfers directly from their checking accounts, which they can then use to pay for their own purchases.
The online retail giant is also looking into offering its own checking account product. Just think for a moment about the scale of consumers locked into Amazon as Prime customers, and then imagine what might happen if checking accounts become part of that package. That’s a further—and potentially monumental—disruption in the payment space.
Tony DeSanctis is a senior director at CUES Supplier member and strategic provider for technology Cornerstone Advisors, Scottsdale, Ariz.
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