By Kent Potterton
Within the not-too-distant past, consumers were primarily paying each other with cash and checks and paying merchants with cash, checks and cards. Fast forward just a few years and the payments landscape looks much different. A class of fintechs has materialized with varying focuses ranging from mobile payments to loyalty, causing concern among many financial institutions.
Taking advantage of these shifts is where the industry is headed. When sizing up the competition, credit unions will see that big banks have deep pockets and seemingly unlimited resources. However, what the big banks lack is the ability to quickly innovate and adapt to the rapidly changing landscape. Credit unions are uniquely positioned to be more nimble and respond quickly in order to successfully compete against big banks in today’s evolving payments landscape.
Here are three key areas credit unions should consider when it comes to the future of payments:
Faster Payments
People all over the world are trying to crack the code of executing payments as quickly as possible. In the U.S., there are currently many different options for faster payments – including Same-Day ACH, Visa Direct, Mastercard Send, Zelle, Venmo, Square Cash, PayPal, and even Western Union. The Federal Reserve recently announced its intent to develop a real-time payment and settlement service, FedNow. The upside: plenty of options. The downside: credit unions are forced to choose whether to go all-in on the one or two options they think have the most potential or try to support all of them.
There are pros and cons when it comes to faster payments. From the sender and receiver standpoint, funds move instantaneously. However, credit unions should keep in mind risks including credential theft, address fraud, commerce fraud, non-fulfillment risk, payer error and administrative error. These risks put the burden on the credit union to take the appropriate steps to validate the sender and ensure funds are being directed to the correct recipient.
In-App Digital Payments
In-app digital payments are becoming more widespread as credit unions and banks seek to leverage the mobile wallets many consumers already have. This move directly supports the multi-channel strategy being deployed by major merchants while also offering consumers convenience and enhanced security.
By using the tokenized mobile wallets already found within mobile phones, in-app digital payments are ready to go without having to wait for NFC (near-field communication) or contactless-enabled terminals typically required for mobile wallet usage. This market is broader than just traditional retailers – hoteliers, airlines, sports venues and more could all stand to benefit – and some merchants are already seeing much higher spend per purchase on these types of transactions.
Retail Payments
On the in-store side of digital payments, the field is fairly even when it comes to mobile wallets. All the major players are utilizing tokenization through Visa and Mastercard. Biometrics such as thumbprints or face ID are used for authentication, as opposed to PINs. For a time, there was a bit of a debate over whether to utilize QR codes, but now nearly everyone except Samsung Pay has settled on NFC. It is now up to consumers to decide which option they want to utilize.
Amazon Go is an interesting example of retail digital payments. While locations are extremely limited for the moment, Amazon Go stores are automated, enabling customers to purchase products without being checked out by a cashier or using a self-checkout station. Another example is Uber Ride Now, which will look to see if users have a mobile wallet in their phones. If they do, it will ask which of those cards they would like to use for their Uber ride, eliminating the need to upload separate card information into the Uber app.
The Future of Payments
A great deal has changed over the last decade in terms of how we execute payments. However, because any card-based transaction still needs to be routed through a payment processor and ultimately to a financial institution, the key consideration for credit unions is to make sure they are getting the transaction. Regardless of the application being used to facilitate the payment, achieving top-of-wallet status should be the primary objective.
Kent Potterton is VP, Partner Channel Management for Solutions at PSCU. Mr. Potterson has been with PSCU for nearly 15 years in the areas of product management, new product development and solutions consulting. With nearly four decades of financial services experience, he interfaces closely with PSCU’s current and prospective Owner credit unions about PSCU’s card processing capabilities and is a frequent speaker at industry conferences and events.