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Credit unions jockeying for position in crowded payments arena

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Note: CU Payz rebranded as CU Railz on Nov. 5, 2019.

Apparently the payments space is where the money is.

There have been a number of announcements about credit unions and others in the industry getting involved in payments in recent months. That’s in addition to the Federal Reserve finally unveiling plans for its long-awaited real-time payment service called FedNow last month.

Credit unions and others are interested in payments because it can help drive fee income and deepen member relationships.

“Payments is one of the most substantial product lines in the entire industry, and it is the link to the member relationship,” said Mark Sievewright, founder and CEO of the consulting firm Sievewright & Associates. “The member experience is everything. There is not a single one of my clients that is not focused on improving the member experience and dialing the friction meter down.”

There have been a number of new credit union entrants into the payments space over the last year.

In August, digital payments company Payrailz launched CU Payz, a new credit union service organization. VyStar Credit Union in Jacksonville, Fla., was also part of a $10 million capitalization of PayverisCU, another recently formed digital payments CUSO. Earlier this year Sherpa Technologies, also a CUSO, was formed to focus on payments innovations.

The same day the Fed dropped the news about FedNow, Member Access Processing, a Kent, Wash.-based aggregator of the Visa Debit Processing Service platform for credit unions, announced the formation of Payments Consultancy. MAP said this team of payment consulting firms will develop strategies and products to help credit unions deliver better credit card services to their members.

Goodbye legacy, hello future

There are greater opportunities ahead not only for CUs, but also for fintech companies if credit unions are able to embrace new technology, said Cyndie Martini, CEO and president of MAP. Fintech companies are moving legacy systems into the cloud, she noted, leading to cloud-based solutions that allow changes in 24 hours instead of months.

The payments products most CUs use today are legacy products that were launched 20 years ago and do not allow CUs to keep up with their bank competitors, said John Carew, senior vice president of strategy and product management for Georgia’s Own Credit Union in Atlanta.

The $2.4 billion-asset institution had been looking for next-generation technology to improve the member experience, which is why the credit union joined the CU Payz CUSO, Carew said. CU Payz will include consumer payments, business and loan payments, internal transfers, and deposit openings, all on one platform.

“We want to take it out of the home banking experience. We remove it from that corner and make money movement available to all members,” Carew said. “If the members keep more money in their checking account, that deepens the PFI relationship. It is a differentiator that does not exist with other payments solutions.”

Fran Duggan, CEO of Payrailz, said leveraging AI will lead to fundamental changes in the bill payment experience compared to what consumers have gotten used to over the past 15 years. He said the capability is coming soon to allow CUs to give members push notifications. For example, a member could get an alert that says, “You have three bills coming due next week. You get paid on Thursday. How would you like to set up those payments now?”

“Not only is this about simplifying the experience, the member knows, ‘the credit union is developing a digital relationship with me,’” Duggan said.

Martini said CUs are “slowly coming to terms” with the fact the old way of doing business is no longer an option. For instance, members are forgoing plastic credit and debit cards and instead are using digital wallets on their phones.

“To cover all bases, credit unions should still issue a plastic card, but the world is moving forward to a no-card experience,” Martini said. “It is about transitioning a whole generation of card users to make the change.”

As the payments space evolves, credit unions need to understand the importance of their debit and credit cards being top of wallet, Martini said. Members using debit and credit cards lead to fee income from interchange, overdraft and ATM usage. Credit cards can boost interest income. Offering strong loyalty and rewards programs and good interest rates is part of the solution.

“This is the time for credit unions to get very serious in creating top-of-wallet solutions with their members,” Martini said. “They have to create value in the minds of the members, because it is going to be dog-eat-dog in the future.”

Credit unions need to be aware of the convenience their nontraditional competitors are offering for certain products. For instance, consumers can get the Apple Card in 28 seconds.

But credit unions shouldn’t give up the payments space to disruptors, such as Apple, Sievewright said. They can compete by meeting four critical areas – ease of use, convenience, personalization and security.

“If you do all of those well, you offer a great member experience,” Sievewright said. “It is all about innovation, which can be accomplished by sharing resources through the CUSO model. The CUSO model shares resources and risk. There are 3,700 credit unions at or below $100 million in assets. That is a very tough road to keep up with. CUSOs give them a lifeline, an opportunity to stay in the game.”

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