Changing member demands – especially among millennials – and the adoption of mobile wallets, person-to-person transactions, wearables and other forms of disruptive technology are transforming the payment model for credit unions.
For credit unions to take advantage of mobile payments, they need to understand how member behavior continues to reshape the market structure for payments and money transfers.
"Now is a pivotal time for credit unions to educate their members about new payment methods," Cindy McGinness, manager of digital channels for the St. Petersburg, Fla.-based payments CUSO PSCU, said. "If we do not help members evolve and understand how things are changing, we run the risk of losing the transaction and engagement with that member."
That understanding should start with how technology sets millennials apart from other age groups, according to a 2015 Mitek and Zogby Analytics poll, "Millennials the Next Mobile Disruptors." The survey revealed 86% of millennials made purchases or conducted transactions from their smartphones.
Three in five millennials already feel comfortable using mobile devices for exchanging money, both sending (61%) and receiving (63%), according to the poll. When asked what they'd like to do in the future, 19% said pass funds among friends by taking pictures of their debit cards, and 21% said they'd like to establish a budget by taking pictures of their paychecks, bills and bank statements.
Digital disruption is in fact reshaping the entire payments industry.
For example, the PayPal-owned Venmo offers a P2P payment service that allows users to transfer money to one another through a mobile device app or web interface. In just five years, Venmo's idea grew into a business that is expected to process about $4 billion in transactions this year. Venmo and comparable services trend high among millennials as popular ways to skirt ATMs or split a restaurant bill.
Other emerging payment vehicles include mobile wallets such as Apple Pay, Android Pay, Samsung Pay and the soon-to-come LG Pay.
"New mobile wallets are touting security as a key differentiator," McGinness said. "But there is a lot of heavy lifting to be done to help members understand how new mobile payment technologies are more secure."
Apple Pay has found itself well established among many credit unions after just over a year in the marketplace. PSCU also just announced two of its credit union partners, the $5.2 billion, Peoria, Ill.-based CEFCU and the $2.8 billion, Richmond, Va.-based Virginia Credit Union, launched Samsung Pay.
But mobile wallets still raise concerns, one being top-of-wallet positioning, as credit unions want their cards established as the default card within wallet programs.
"It is critical to highlight the value of payment methods utilized on a regular basis," McGinness maintained. "Promote the convenience of mobile payments, for example, to help ensure your card is top of wallet for your members."
Another issue is consumers are not yet buying the wallet concept. A mobile wallets survey by the Phoenix-based consulting firm CCG Catalyst found 51% of consumers prefer their own financial institution's payment wallet versus a third party's payment wallet, the latter of which requires financial institutions to serve as a funding source.
"The emotional component is the trust factor, the rational component is, my money is already there," Ali Raza, principal for CCG Catalyst, said.
Learn more about changing payment models in the Dec. 9, 2015 print issue of Credit Union Times.
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Roy Urrico
Roy W. Urrico specializes in articles about financial technology and services for Credit Union Times, as well as ghostwriting, copywriting, and case studies. Also: writer/editor of a semi-annual newsletter for Association for Financial Technology since 1997 and history projects funded by the U.S Interior Department, National Park Service and Warren County (N.Y.).
