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Part 1: The case for upping your payments game
To win with modern members, we must focus on lifestyle AND life stage.
Payments: The $500 billion opportunity
The link between payments, deposits and lending
The power of a payments ecosystem
1 NCUA: "2017 Economic Outlook Report"
2 Boston Fed: "2017 Survey of Consumer Choice"
3 McKinsey: “Global Payments Report 2019”
4 BCG Global Payments Model 2019
5 Accenture 2019 Payments Pulse Survey
6 Boston Consulting Group
7 The Fed: "2019 Federal Reserve Payments Study"
8 CU Today; Data from CUNA Research Group
9 Business Insider: "The Global Neobanks Report"
10 Bain & Co.
12 PayThink:"Contactless Payments Must Evolve From How to Now"
13 Mastercard Global Consumer Study
14 Mckinsey: "Rewriting the Rules in Retail Banking"
15 Bankrate 2020 Consumer Survey
16 Harvard Business Review: “Kick-Ass Customer Service”
17 Bankrate: "63% of smartphone users have at least one financial app"
18 PwC: "Customer Experience is Everything"
Four winning payments plays
Leverage Data for Member Needs
Transparency and Control
Maximize the Member Experience
Upping your payments game
The Payments Playbook:
A credit union CEO’s guide to winning the payments game
Table of Contents
Foreword from Todd Clark, President & CEO
Members today have access to countless financial tools, services and products at their fingertips. What they don’t have, in many cases, is a primary financial relationship (“PFR”) with their financial institution to help them in both good times and bad. In an increasingly fragmented market for financial services, credit unions have a rare opportunity to step into this breach, by not only helping members bank better, but also by supporting their financial wellness.
Building a PFR is about giving members the tools they need to improve their daily financial lives. To begin, that means pursuing a multi-dimensional segmentation strategy that considers traditional demographics alongside needs-based segments that include life events, lifestyles and a mix of solutions that address both. Credit unions must dig below the surface by mining the relationship-level data at their disposal to truly meet their members’ unique lifestyle needs.
Credit unions must also evolve to offer members comprehensive, “lifestyle” financial products and services, with a particular emphasis on “active” solutions over traditional, “passive” offerings like deposit accounts and event-based loans. Payment products like contactless, P2P and mobile wallets drive more engagement, and form the heart of these active relationships.
Lastly, the pathway to primacy for credit unions will require accelerating investment in digital capabilities and bridging the gap between digital and non-digital channels. If credit unions invest in lifestyle banking product offerings, they can gain significant market share among both members and prospects.
The need for credit unions to play a bigger role in their members’ daily lives has never been more vital, and CO-OP believes the best way to do this is by leveraging day-to-day engagement with a strong payments strategy. By placing payments at the center of the primary financial relationship, credit unions can continue to be top-of-mind, maintaining the trust and loyalty of their members while fueling growth in every area of their business.
As you continue down the path to becoming your members’ PFR, leverage CO-OP as your payments and technology partner. We’re designing and building solutions that will give your credit union the scale, technology and resources to grow.
Todd Clark, CEO, CO-OP Financial Services
Payments represent 80% of member interactions with their primary financial institution.
The average consumer makes 70 payments per month.
Of the 20% of households that primarily use a credit union, 60% also use a bank for some type of financial service.
Take a minute to think about the financial journey of the average credit union member. She will likely start out with a checking account, adding deposits and withdrawing cash a few times a month. This would naturally include a debit card and on-demand access to funds whether at the ATM or a merchant location. Next, she may add a credit card or two and a savings account to start building credit and wealth. From time to time, she’ll turn to you, her trusted credit union, for help securing a loan for college, a new car or to remodel her home. And every now and then, she’ll call or visit a branch when there’s a problem with her account, like a lost card or declined transaction or to get the advice she needs to make good financial choices.
The above scenario represents the growth story of the credit union movement for decades: healthy loan volumes sustained with reliable deposits from loyal members. Credit unions have built long-standing relationships with members by fulfilling their financial needs at every life stage.
But today’s consumers are increasingly becoming digital nomads. They still love the lower fees and better service they get from their credit union, but they are also perfectly happy cobbling together their own suite of financial products and services and managing them from the comfort of their phone. In fact, of the 20 percent of households that use a credit union as their primary financial institution, 60 percent also use a bank for some type of financial service.
The disaggregation of financial services in the lives of members has led forward-thinking credit unions to adopt a significant mindset shift:
By reorganizing our products and services around the daily lives of our members, we can build deeper relationships with them. And the way to do that is through payments.
The average consumer makes over 70 payments per month. Payments represent the vast majority (80 percent) of consumers’ interactions with their primary financial institutions. In aggregate, payments are the most effective way to engage with your members on a regular basis. And on an individual member level, payments are the key to becoming your members’ primary financial relationship.
Making payments the center of your growth strategy is critical. In the next few sections, we’ll examine why payments are the single most important revenue and engagement engine for credit unions and how to leverage payments to build deeper relationships with your members.
Payments have traditionally been a small part of a credit union’s business. But research indicates that credit unions are missing out on a huge revenue opportunity through payments, one that large banks are quickly seizing.
The previous graphic shows us that credit unions are missing out on close to almost $440 billion in credit loans by not increasing the payments side of their business. If credit unions increased that percentage by even 3%, they would see an additional $100 billion in revenue each year!
Research from Boston Consulting Group estimates that the total opportunity is even greater. They project payments revenue will continue to grow to about $2.5 trillion by 2028. Accenture predicts that over the next five years, over $500 billion in payments revenue is up for grabs.
Where is all of this growth coming from? The rise of ecommerce and digital payments have been significant contributors. Research from Boston Consulting Group found that in the last decade interchange revenue from ecommerce transactions grew nearly three times as fast as revenue from in-store transactions. At the same time, non-cash payments (debit, credit, ACH and check) have grown significantly, reaching 174.2 billion in 2018, worth over $97 trillion.
In short: the volume and frequency of payments has increased exponentially and that trend is expected to continue. Members are making multiple payments daily through a mixture of plastic cards, digital wallets, online retailers and P2P platforms. And while payments have traditionally generated smaller income than loans, the speed and frequency at which they are happening will quickly change that.
The other reason why payments are such a big opportunity is that they can fuel other parts of your business, particularly deposits and lending. While deposits and lending have been the bread and butter of most credit unions for many years, both areas are facing contraction due to market conditions and increased competition. For instance, in 2019, credit union loan balances increased just 6.6 percent, which represents a sizable decrease compared to double digit balances at least four years prior. Some of that volume loss is due to Americans simply buying fewer cars and homes than they did a decade ago. However, the bigger trend is that members today have considerably more options for storing their money and borrowing.
Think about how many digital wallets, P2P services and online banking accounts exist today specifically targeting digital-savvy members. An estimated 39 million users globally use “neo banks” that offer digital-only banking for direct deposits and money movement.
To combat this trend, credit unions must be more actively engaged with members through payments. By becoming the central hub for where a member spends and moves their money on a daily basis, it increases the likelihood that members will think of their credit union when a borrowing need arises.
Payments is fueling every aspect of our business. We want our members to think about us not only when they’re making a big decision like taking out a loan or investing but also through those little everyday financial decisions. That’s how you become more sticky with your members.
Chuck Purvis, CEO, Coastal Credit Union
The important thing to keep in mind is that even if lending and deposit activity increases in the short-term, credit unions can expect to earn less and less revenue from those parts of their business over the long-term. Focusing on payments enables credit unions to create a solid barrier against this trend while at the same time driving engagement with members.
While revenue and growth are important, payments are essential to what unites us as credit unions: promoting the financial well-being of our members. In order to do that, we must continue to show them that we are more than just an institution; we are their primary financial relationship.
There is no single provider today that meets the holistic financial needs of the modern day consumer. Despite the fact that 80 percent of consumers crave a one-stop shop experience, they are left to cherry-pick financial services from different financial institutions, all aggressively focused on owning as much mindshare as possible. Credit unions can offer something different. We are defined by the human-centered relationships we have with our members, offering only those products that enhance a member’s financial wellness. Payments are a natural extension of that relationship. They help us understand what our members need and how to help them better move, manage and budget their money on their terms. That is the key growth opportunity for credit unions.
Becoming your members’ PFR doesn’t happen on its own; it requires a focused payments strategy. In the next section, we’ll introduce four “plays” credit union leaders can make to design and optimize their payments strategy for success.
Part 2: Four winning payments plays
Winning PFR status with your members through payments may seem like a daunting task and make no mistake: it is. We’re going up against not just the big banks, but companies like Apple, Amazon and big fintech players fighting for mindshare. But the right payments strategy and partners to help you activate can put you on the path towards payments success. Here are four plays to organize your payments strategy:
1. Focus on delivering an exceptional experience
When it comes to differentiating your payments offering, experience is a huge factor. We have Big Tech to thank for that – companies like Google, Apple, Facebook, Uber and Amazon – who have invested billions into creating consumer experiences that feel frictionless and seamlessly integrated. Think about how easy it is to use your Uber app to find a ride, text the driver, make a payment and even order delivery. Members expect that kind of experience with payments.
To keep up with that expectation, credit unions must focus on delivering a payment experience that is instantaneous, invisible and free (IIF) to the end user both during point-of-sale (POS) and digital transactions.
Achieving that type of experience means investing heavily in three aspects of your digital payments offering:
Mobile wallets – While mobile wallet adoption in the U.S. had been slow, the pandemic quickly changed that. According to data gathered by BuyShares, the global mobile wallets industry was expected to jump almost 50% amid the COVID-19 outbreak, reaching $1.47 trillion value in 2020. Consumers that had never before used mobile wallets were suddenly turning to them as a safer alternative for POS transactions and that trend has continued. If they haven’t already, credit unions will want to move quickly to capture more of their members’ mobile wallet share by ensuring they integrate with all of the major players – Apple Pay, Samsung Pay, Google Pay and Garmin Pay.
Contactless cards – Similarly, the pandemic has dramatically increased contactless payments adoption. In a March 3, 2020 survey, 38 percent of consumers indicated that having contactless capability on their credit card was a “table stakes” need, and according to a Mastercard Global Consumer Study, 46 percent of global consumers have swapped out their top-of-wallet card for a card that provides contactless functionality.
Person-2-Person (P2P) – P2P has seen exponential growth in adoption in the last few years. Appealing to members’ desire for real-time payments, P2P is an essential part of your mobile banking offering, with Early Warning’s Zelle® leading the pack in terms of mass adoption. Zelle® has also reported double-digital increases in enrollment during COVID-19, as more consumers used the service to send money to family members and friends and reimburse them for canceled events.
The importance of third-party integration
Bringing all of the features and capabilities your members demand from the payments experience is nearly impossible, even for the largest credit unions. It’s one thing to offer a digital wallet; but members expect the experience to feel seamlessly integrated with the rest of their banking experience. Any latency or issues within the experience will cause that member to simply uncouple the payment from their credit union.
We have de-emphasized in-house tech innovation. Instead we rely on strategic partners like CO-OP Financial Services that can help us bring incremental improvements at a rapid pace. We can say to them ‘our members want access to digital wallets or this P2P service’ and they figure out how to build and implement it.
John Janclaes, CEO, Partners FCU
Another approach would be to incorporate Application Programming Interfaces (APIs) into your digital strategy. APIs allow credit unions to quickly integrate new features or functionality into existing applications without having to recode everything. For instance, inside CO-OP’s Developer Portal is a library of APIs credit unions can tap into and allow members to do everything from self-report lost or stolen cards to set travel notifications.
2. Leverage data to understand and predict member needs
Having a strong payments offering is half the battle; but in order for payments to work their PFR magic, your credit union’s offering must be remarkable. In today’s digital-first environment, that means generating highly relevant, hyper-personalized experiences that go far beyond member expectations. It all comes back to showing members they are seen and that you have what it takes to keep their business.
In the digital age, where members aren’t actively telling us what they want or need, data is the key to understanding them. According to McKinsey research, 90 percent of banks’ useful customer data comes from payments. Payments tell us how and where our members are spending on a daily basis – data which can then be used to incentivize usage and engagement. And best of all: much of that data is already available to you.
Payments transaction data can also enhance the relevancy of other products and services across your credit union. Imagine being able to determine from a member’s spending patterns that he or she is thinking about buying a car and then recommending the most attractive loan terms to that member before they even ask. Fintech companies are in fact already doing this – but they don’t have nearly as much data about your members as you do. By analyzing your payments data, you can begin to gain intelligence to link those everyday lifestyle moments to bigger life stage events.
3. Invest in tools that give members transparency and control
Self-service has become an increasingly popular trend in the digital age. Seventy percent of consumers keep tabs on their checking accounts regularly by logging into their bank’s mobile app at least once a week (and 16 percent check it every day). Across industries, 81 percent of customers said they prefer to perform tasks by themselves before reaching out to a live support person.
Members have become more reliant on self-service channels than ever. Credit unions must continue to invest in digital self-service tools that members can use throughout their daily lives. When it comes to where to invest, credit unions should focus on the two areas members value most: security and transparency. Security is always paramount within the payments experience; but particularly now, as more members shift to online and mobile payments and their spending patterns change, the risk of card-not-present fraud is higher. At the same time, members are also increasing their usage of tools and services that not only help them track their overall spending but also improve it. It is perhaps why 63 percent of all smartphone users use at least one budgeting and personal finance app to help them manage their budget.
Credit unions can capitalize on both trends by investing in mobile card controls and alerts. Putting card controls into your members’ hands is more important than ever because it empowers them to monitor and control their spending while also protecting their cards when not in use. Simultaneously, encouraging your members to utilize fraud text and alerts keeps them engaged with their credit and debit spending and with your credit union. More importantly, card controls have helped deliver peace of mind to countless cardholders concerned about fraud or managing expenses.
4. Maximize the member experience when there’s a problem
Just as members value a good experience, they are more sensitive to bad ones. A PwC consumer survey found that one in three consumers would leave a brand they love after just one bad experience. This means that it’s more important than ever to ensure that you are equipped to do damage control in the event something goes wrong during a payments transaction.
According to a U.S. Consumer Banking Study, consumers reported the highest anxiety levels when a transaction is declined or when disputing fees from their financial institution. Notice that tasks like transferring funds, paying bills and reviewing transactions all ranked lower on consumer frustration scale, as they are things that most people can do on their own through a mobile banking app.
Disputes and chargebacks have become an industry-wide problem for several years and have only been exacerbated by the rise of digital payments. A survey of the 60 client credit unions that make up CO-OP’s Co-Creation Council, revealed disputes and chargebacks as the number one issue facing credit unions. A big part of the problem is the lack of uniform data and a streamlined settlement process. (In response, CO-OP is building an enterprise disputes and chargebacks system to help credit union mitigate this challenge).
Another big challenge occurs within the service channel. Members have much higher expectations for the service experience than in years prior. They expect around-the-clock support, faster response times, knowledgeable agents and more self-service channels. Above all else, they expect to be met with a representative who is friendly, reassuring and empathetic.
Research has shown that improving technology and service interactions in your Contact Centers can have a tangible impact on member service. Things like providing more training for Contact Center employees, interactive voice response (IVR) systems and improving first-contact resolution can dramatically improve members’ approval of the service experience. Coastal Credit Union, for instance, saw Net Promoter Score (NPS) score jump to 80.74 – nearly double the average NPS across financial services – after working with CO-OP to enhance operations within their Contact Center.
Fraud is another big area where credit unions can dramatically improve the member experience within payments. One way to do that is by leveraging advanced analytics and machine learning to help reduce the number of fraud instances as well as “false positives.” As fraud becomes more difficult to detect, showing members that you are proactively protecting their accounts and information is a powerful way to deepen relationships with them.
Bring the power of a robust payments ecosystem to your credit union.
Learn more at: visit.coop/PFR
Turning payments into a growth driver requires a robust set of payments solutions as strong as the credit union movement itself. That is exactly what CO-OP has built.
As the leading payments and technology partner to thousands of credit unions, CO-OP provides a fully-integrated ecosystem of solutions designed to help your credit union achieve Primary Financial Relationship status with modern members through its five solution lines built for credit unions:
Pay Empower your members to seamlessly and securely make payments anywhere, anytime, and any way they want to pay through a variety of open and private networks via holistic credit, debit and prepaid solutions, as well as payment instruments.
Integrate Leverage back-office tools that drive efficiency and enable you to deliver the features and solutions your members expect faster and more securely.
Engage Build deeper engagement with your members with the largest ATM and Shared Branch Network in the country, plus digital banking, loyalty and rewards programs and a full-service Contact Center.
Protect Safeguard your members and your credit union with agile, continuously evolving advanced fraud tools for authentication, transaction validation and risk assessment designed to reduce risk and impact.
Consult Strengthen your ability to meet member expectations today while managing ever-shifting industry dynamics by leveraging CO-OP’s expertise, consultative strategies, and innovative thought leadership firmly rooted in payments, technology and credit union DNA.
The goal: becoming your members’ Primary Financial Relationship
I hope this playbook helps you begin your journey towards mastering your payments strategy.
Download the Payments Playbook
Source: BCG Global Payments Model 2019