By Marcell King
Payments technology is a growing subject of conversation for credit unions searching for opportunities to combat the growing disintermediation of their members caused by nonbank FinTech companies.
There are a few important trends surrounding the payments industry that credit unions should consider: security, regulation, consumer trust, a saturated marketplace and consumer expectations. Credit unions should leverage security, regulation and member trust as key differentiators from nonbanks. At the same time, credit unions must actively work to meet member demand in order to stand out in the crowded payments marketplace.
Security and Regulation
Millennials are much more trusting than former generations when it comes to the use of technology and personal privacy. Security is not as high a priority for millennials when deciding which payments services to use, but with hackers targeting mobile devices at higher rates now than ever before, this will change over time. Additionally, security will likely become an even bigger topic in the payments sphere as less-regulated, more vulnerable nonbank payments technologies face more attacks and fraud risk from hackers.
Most conversations about regulation in the financial industry are how regulation constrains financial institutions, but when talking about security, credit unions can publically tout the positive benefits of regulation in protecting members. Credit unions can point to the strong security of their systems that comes from facing regulations as a differentiator.
When a member deposits or maintains cash at a credit union versus a non-traditional source, the NCUA insures these deposits of up to $250,000. Because of this, members are able to trust credit unions to keep their money safe, as can be seen here. Trust is a key attribute that credit unions need to leverage as a competitive advantage. This is made even more important as members’ interactions with their credit union shift beyond the branch to accessing accounts online and with mobile devices. With this in mind, credit unions need to make sure that their members’ digital experience is just as satisfying as their offline interactions with their credit union. Translating the trust members have in the credit union to their payments offerings is an important way to stand out in the marketplace.
A Saturated Marketplace
Articles about nonbanks capturing market share from traditional financial institutions are everywhere. These stories on the payments space often fail to contextualize just how divided the marketplace is. Credit unions, banks, nonbanks and even retailers are all vying to influence the payments space. The growing number of payments technologies has created an overwhelming variety of options for credit union members. However, credit unions have an existing base of loyal members, which is an advantage over nonbank payment companies. In order for credit unions to maintain that loyalty, they must offer competitive services to the nonbanks, or they risk losing that loyalty. This means that the credit union must have the right partners, technologies and services in place that allow them to compete. Subpar payments platforms will likely get lost in the shuffle. Credit unions need to reflect on how their payments offering can stand out.
Meeting Member Expectations
In order to be successful, a credit union’s payments offering must meet member expectations. In this crowded space, if a credit union’s payment services do not meet member needs, members can and will simply move on to something else. Members expect user experiences to be more convenient and easier to navigate, especially on mobile devices. Members also expect to be able to pay anyone, anywhere and at any time. Not long ago these expectations may have been considered niche, but today they are commonplace.
What started as the interest of millennials has become full-fledged consumer demand. Credit unions can compete with nonbanks, but they must critically analyze whether their payments platforms offers the complete user experience members want.
Navigating These Trends
Nonbanks are claiming that credit unions have failed to innovate. Traditional financial institutions are portrayed as resistant to change, and out of touch with the needs of their customers or members. Credit unions need to prove that message wrong. Credit unions must evaluate their current offerings and adopt technology that enables them to meet member expectations.
Credit unions need to reflect on their competitive advantages, such as security created by regulation, their existing member base and the trust they have built.
By leveraging competitive advantages with the right technology, empowered credit unions can stay relevant in the crowded payments space and best serve the needs of their members.
Marcell King is CRO of Payveris, a provider of the only open API cloud based digital payments platform designed to enable credit unions to deliver a full range of member and member business payment services from a single unified platform. For info: payveris.com