By Ray Birch
ST. PETERSBURG, Fla.—Will credit unions someday distribute loans through a member’s debit card?
Brian Scott, SVP of sales and solutions consulting at PSCU, believes that’s just what the future holds, saying a lot of companies, such as fintech lenders, are considering that option today. For example, Scott pointed to one recent move.
Visa recently announced it is partnering with Ingo Money to launch a product for merchants and banks to quickly get onto the payment network's systems allowing fast digital payments to customers.
It’s just another sign of the rise of push-to-card payments, where companies use existing card networks to push money to customers, reversing the traditional flow of dollars, noted Scott.
Like a Merchandise Return
“Visa is using functionality similar to that of you returning merchandise to a store and getting the immediate credit back to your account,” explained Scott. “They are essentially using that same function to allow money to be funded onto a card.”
Scott described how a credit union might use the service.
“If I get a loan from a credit union, they could actually fund the loan by sending the funds to my card and then allow me to use the card to buy whatever I was taking the loan for,” said Scott. “A similar situation could be me wanting to pay a friend. At some point in the near future, I could send money to their card from mine, essentially in real time.”
Scott emphasized that the ability to use the major payments rails in this manner has been around for a long time.
“It’s just a different use for an existing technology,” said Scott. “But I think a lot of financial institutions, loan companies and insurance companies will start adopting this.”
Scott argued that push to card payments could be considered a move toward faster payments.
“This is a signal to the market that Visa and Mastercard have the technology to move to real-time payments if we just utilized their rails,” he said. “Of course Visa and Mastercard want to promote that they have functionality already in place for faster payments, so let’s not wait for the Federal Reserve and a bunch of other companies to build a faster payments system.”
Scott believes credit unions may eventually adopt the approach for small-dollar loans, possibly even car loans. But he also believes pushing loans to a credit card would be unlikely, and that debit would be the plastic of choice for this purpose.
“And if you put money on someone’s debit card, say for a car loan, you would have to have some tracking in place to make sure the money actually went to buy a car. And there are certainly some issues around fraud here to address,” Scott said. “But from a consumers’ perspective this is a great thing, very simple and easy. I could see it used a lot for lifestyle loans, I think this could work there well.”
Scott noted lifestyle loans continue to grow in popularity.
“The credit union puts this loan on my card and I get what I need,” he said, adding that it makes home equity lending simpler, as well. “I want to make a home improvement with my home’s equity; I can now just go to Home Depot with my debit card and get what I need.”
Outside of member convenience, another reason to push loan funds to a payments card is the credit union gets the interchange income from the transactions, and that “xould be significant here.”
“So this is another source of income from the loan,” Scott said. “ It will be interesting to see in the coming year how this shakes out. I don’t think this is something a lot of credit unions now are on board with, but they certainly should be considering it.”