Compelling Positive Impact

When it comes to payments, consumers want it all. And, by the way, could they have it now? The growing challenge facing credit unions is how to deliver the innovative payment channels members have come to expect—and can increasingly find at non-financial institution competitors—while remaining relevant and profitable.

The payments landscape is rapidly evolving, and this is the time for credit unions to re-evaluate their payments portfolios, infrastructures and strategies. Clearly, new consumer behaviors and expectations, digital payment types, and competition from non-traditional payments providers are impacting the payments world in new and profound ways. Recent Fiserv research indicates that digital payments have hit a critical mass, with 60 percent of respondents making a payment at least once a month using a laptop or desktop computer. Thirty percent have made a payment using their mobile phone and 22 percent via their tablet.

Underlying every payments discussion is the safety and security of the payments ecosystem. New players aren’t necessarily bound by the same rules, so we’re left to wonder: How safe is the data they have and who has access to it? The industry is experiencing pressure from rapid technological and regulatory changes, as well as non-financial institution disintermediaries. Relationship building—the inherent strength of the credit union movement—has never been more important. Members continue to see their local credit union as safer and more trustworthy, and that’s where they prefer to do business.

Consumers have shown a preference for using payment services from their financial institution over third parties, and financial institutions can offer such distinct advantages as immediate funds access, heightened risk management capabilities and better, more integrated data. But credit unions now need to seamlessly tap into new and emerging channels.

To better compete against the growing number of established and start-up technology companies, big-box retailers, and even social media giants now vying for payments, a successful credit union payment strategy needs to meet members’ evolving expectations for faster, easier and more convenient transactions. Focusing on three pillars of payment success—real-time, mobile and social payment capabilities—can help credit unions capitalize on emerging technologies and changing demographics.

Members Expect Real-time Capabilities

From music downloads to real-time document sharing, people have grown accustomed to immediacy in all areas of their lives. Email now seems way too slow for most Millennials, who expect the real-time benefits of instant messaging, texting and social media. When members have access to real-time price comparisons, streaming movies and apps that instantly find an available cab, waiting for anything seems passé.

It’s not hard to see why they also expect the same real-time capabilities from their financial transactions and payments—the ability to pay and get paid without waiting. Yet members still experience wait times of one to three days—or more—for bill-payments, deposits, personal payments and even transfers to be completed. Increasingly, your members are looking for convenient, expedited options for sending money to a person, paying bills, moving money and getting paid.

How we define “real time” needs to be applied to the entire duration of the payments event, including movement of funds and funds settlement. As the payments industry transitions from an ecosystem built to authorize cards, payments success is now based on offering efficient, integrated multiple payments options that not only provide immediacy, but also meet regulatory standards.

Delivering real-time payment capabilities to members will help credit unions maintain a competitive advantage and represents a revenue opportunity. Members expect to pay for the convenience of wire transfers and out-of-network ATM services, and most in the industry believe they will pay for the same immediacy when it comes to other real-time capabilities.

Credit unions need to provide real-time availability and functionality that embraces current real-time technology to gain new account holders and strengthen relationships with existing ones. For example, Fiserv research shows that financial institutions that offer a real-time, person-to-person payment option in addition to three-day and next-day payment options could see markedly higher adoption rates among potential users of the service.

Day-to-Day Financial Activities Move to Mobile

Rapid technology advances and consumers’ growing desire to use their mobile phones for payments activities have set the stage for a shift in mobile financial services. Expect members to increasingly move day-to-day financial activities, including payments and transfers, to the mobile channel.

Why are people embracing mobile payment technology? A number of reasons, including time savings, convenience, and anytime, anywhere access. Investing in the four types of mobile payments—paying yourself, paying other people, paying billers, and paying merchants and retailers—is key to making mobile banking the foundation of future sustainability and profitability.

According to the 2013 Billing Household Survey done by Fiserv, mobile bill payments are made by 16 percent of online households, a number that doubled over the last year. Smartphone users lead the way, with mobile bill payments among this group jumping 150 percent during the previous year. In addition, one in four consumers who own a tablet paid a bill through a financial institution or biller site using it.

As mentioned previously, an increasing number of non-traditional players have entered the mobile payments game, including big-box retailers, online payment services and social media giants. For now, however, consumers seem to prefer using their trusted financial institutions to make payments. According to a 2012 survey conducted by W5 on behalf of Fiserv, consumers prefer to make payments and send money to others using their bank or credit union, rather than a specialized third-party entity. As members move from information-based mobile banking activities, such as checking balances, to transaction-based activities like making payments, credit unions should leverage their existing advantages and assets to retain and grow their member relationships, including mobile payments.

We know that some interactions are shifting to mobile from other channels—such as balance inquiries that were once made via the higher-cost call center. Many of these inquiries are also incremental, representing additional transactions and interactions instead of simply changing habits. Users access balances via mobile banking more frequently than online banking, for example, due to the convenience and availability of their mobile device.

Tablets, with attributes of both PCs and smartphones, are growing in popularity. The number of U.S. tablet users is expected to reach 130 million people in 2014—a 61 percent jump since the beginning of 2013, according to a forecast by Parks Associates.

Although closely related to online and mobile banking, credit unions should consider tablet banking as a new, distinct channel that merits a strategic focus and investment. By optimizing tablet banking delivery with touch screen navigation, app-driven functionality and enhanced graphics, credit unions will be positioned to provide existing members with another engaging way to conduct financial transactions from anywhere, at any time.

In addition to tablets, new and emerging innovations continue to reshape the banking and payment experience. For example, mobile card payment solutions turn a smartphone or tablet into a point-of-sale terminal and business tool—enabling a range of small-business management and marketing functions that go far beyond payments. Other payments innovations, such as mobile check capture and prepaid cards with mobile loading capabilities, are enabling financial institutions to go head-to-head with non-financial institution competitors.

As members look for new ways to save time and frustration, innovations in mobile payments will continue to influence the industry, providing more and more choice in how the payment process is managed. With this in mind, it is an ideal time for credit unions to make some key decisions about their mobile payment strategies, including product implementations and marketing.

Social Payments Are Changing How People Pay Each Other

Despite the digital payments revolution, until recently there has not really been a practical way to send money to another person electronically. Person-to-person payments, or social payments, are changing that. Social payments enable users to send money to and receive money from friends, family and others they know or owe, using their existing bank account and an email address or mobile number.

According to Fiserv research, 88 percent of U.S. consumers have sent money to another person in the last 12 months, with 31 percent using an online method, such as a bank-based, person-to-person payment service or PayPal; 79 percent said they would be open to using a person-to-person payment service from their financial institution. People are using social payments for smaller payments like splitting the dinner check, but also for more formal social expenses, such as paying their rent.

More and more credit union members are moving to digital social payments to provide an easy and inexpensive way to pay someone they know, because members increasingly see more traditional forms of payment as cumbersome and inconvenient. As noted previously, research shows consumers would rather send money to other people using their financial institution, yet members will be tempted to use third-party services if they better fit their needs.

Social payments adoption rates are impacted by product, process and promotion. To be successful, credit unions should implement a person-to-person payments service with an extensive, reliable network and infrastructure. The service should deliver rich functionality that is easy to use, fairly priced and available to online and mobile banking users. Processes should be in place to address risk and security without sacrificing flexibility in transaction limits and member convenience.

Just as importantly, credit unions that strategically promote and merchandise such services as a competitive advantage will see higher adoption rates and greater profitability. Many financial institutions are marketing person-to-person payments as a value-added feature.

The evolution of the social payments category is far from complete, but there is no doubt person-to-person payments will continue to grow and thrive. Whether used for smaller transactions like tickets to a sporting event or for such larger transactions as the division of household expenses, social payments fill an important need in today’s increasingly digital world. Credit unions that offer and promote social payments will expand relationships and drive loyalty.

The Impact of a Changing Payments Landscape

The payments industry is undergoing a rapid transformation impacted by emerging technologies, new governmental regulations, and shifting consumer demographics, preferences and behaviors. These factors, along with the growing presence of non-financial institution competitors, are changing our industry and the way people move money. To stay at the center of members’ financial lives, credit unions must provide the ability to conduct any transaction—on any channel—at the speed your members expect in the digital age.

Credit unions that focus on real-time, mobile and social payment capabilities that meet exacting standards for integration and risk management will remain the preferred destination for members to pay and get paid.

Mark Sievewright is president of the Credit Union Solutions division of CUES Supplier member Fiserv, Brookfield, Wis.