Are CUs in the EU Better at Payments?

Credit unions are a vital part of America’s financial fabric, but their reach goes far beyond the 50 states – credit unions are in at least 118 countries and serve more than 274 million people around the world, according to statistics from the World Council of Credit Unions.

And though the 85,000-plus credit unions around the globe may have similar missions, when it comes to payments technology and operations, there’s a world of difference. Variations between European Union and U.S. credit unions, for example, highlight that. In an interview with CU Times, WOCCU Vice President of Advocacy Andrew Price detailed a few key differences, the advantages those differences create, and where the next advances in payments and data technology could come from.

Where the EU Is Ahead

Three areas were top-of-mind for Price:

1. Technology Adoption Rates

“I think the payments system overall – when you include banks in that and the banks that operate in there – I think the European framework has been way more advanced,” Price said.

“The best example is the chip and PIN. The United States was, by far, behind the EU as far as the adoption of chip and PIN,” he said.

The fraud liability shifts that spawned EMV in the United States began five years ago, but the United States still lags behind Europe in EMV use. According to EMVCo, which is a global technical body that manages EMV specification rules and testing, about 59% of card-present transactions were EMV transactions between July 2018 and June 2019. In Europe, that number was well over 90%.

2. Privacy

Credit unions that do business with European Union customers, citizens or residents are now subject to the EU’s General Data Protection Regulation, which took effect on May 25, 2018. The GDPR oversees data protection and privacy for all people in the European Union, and it applies to the export of personal data. It also ensures there is a single set of criteria to protect individuals and help companies understand compliance issues involving personally identifiable information.

American credit unions may soon face similar rules, Price noted. “The new GDPR is now being copied in the United States in California – what they’ve adopted with the CCPA [California Consumer Privacy Act],” he noted. Other states have similar legislation pending that mirrors the EU’s GDPR and could shift control of personal data back to consumers, he added.

“The EU GDPR is light years ahead of privacy regs, but all that plays into kind of the payment systems and what you can and can’t do, and how you interact,” Price noted.

3. System Diversity

The European Union is an economic and political union of over two dozen countries that blanket much of the European continent. More than 3,400 credit unions called Europe home in 2018, according to WOCCU, and together they served more than nine million members.

Poland, which had 29 credit unions in 2018, is an example of the variety that exists in payments and operations systems among European credit unions. “Only Polish and Lithuanian [credit unions] enjoy direct access to the national payment systems maintained by their respective national banks,” said Rafal Matusiak, president of Poland’s National Association of Cooperative Savings and Credit Unions and vice chair of WOCCU’s board of directors. “Other European jurisdictions use commercial banks for accessing payment systems or established commercial companies for such a purpose.”

Where U.S. Credit Unions Are Ahead

Price noted American credit unions have two big advantages:

1. Size

American credit unions have more resources and there are more players in the market, he said. As a result, the number of credit union members in the U.S., as a percentage of economically active people between 15 and 64 is 55%, is six times higher than it is in Europe.

“The United States is by far the largest system in the world and the most sophisticated. It has the most by assets, and the largest credit union is in the United States,” he explained.

“Throughout Europe, and when you get to the EU, the average size of a credit union is under a million in assets. So they tend to be much smaller, less sophisticated types of credit unions. They’re definitely volunteer run, and employees are often volunteers,” Price added.

2. Integration

Transactions are often less complicated and less expensive. “The big advantage of the United States is you’ve got the entire United States – the 50 states are all an integrated market,” Price explained.

That’s not necessarily the case for all the countries in the EU, Price noted. “Credit cards are pretty interoperable, but things like cashing checks … or sending wires, you can get lifting fees going from each country and you never know how it’s going to be routed. So you don’t know how much it’s going to cost. You don’t have that in the U.S.”

What’s Next

Though many people may associate financial innovation with the United States and Europe, the future of payments in the credit union industry could very well come from somewhere else.

“I actually see a lot of incredible innovation that’s going around the rest of the world,” Price said.

“A lot of it is coming out of places where they’re doing it out of necessity. The technology they’re using Nigeria and Asia, Philippines and some of these other rural areas is incredible.”

New technologies for agricultural lending were one example. “They’re using mobile phones to take the satellite photos of crops so that they can see it as the crop growing their food and whatnot. And it helps with their underwriting,” he said. “It’s technology that they are using cheap. I don’t see that in the United States. And you’re just like, wow! Why don’t we do that here? That’s cool.”

“I’m not saying that everywhere else in the world is better,” Price said, “but there’s a whole lot more going on in the rest of the world that’s really cool and innovative too.”