Credit Unions Dip Toes in RTPs, Crypto

With 2022 well underway, credit unions are finding that the need to introduce competitive products and services is stronger than ever – and that collaborative partnerships are a key to success when letting a new offering loose.

A new report from consulting firm Cornerstone Advisors, “What’s Going On in Banking 2022: Rebounding From the Revenue Recession,” outlined a number of U.S. community financial institutions’ priorities for this year, among them real-time payments (RTPs) and cryptocurrency services. Cornerstone based its report on a December 2021 survey of 300 senior executives at mid-sized financial institutions, 55% of whom were from banks and 45% from credit unions. While very different in terms of their end goals and implementation processes, both RTPs and cryptocurrency represent areas where credit unions are just beginning to test the waters – often with plenty of help from third parties.

Foes No More?

Credit unions may have once considered fintechs – a loose term referring to online technology-based products or companies working in or with the financial services industry – competitors, upon hearing about apps that threatened to entice members with offers of one-click loans, for example. Now, it’s safe to say fintechs are solidly in the “friend” category, with a few caveats. According to Cornerstone’s findings, most financial institutions are embracing fintech partnerships but still view some fintech companies as competitors. For its 2022 report, 48% of survey respondents said fintech partnerships were “very important” to their institution and 41% called them “somewhat important,” a jump from the 21% and 28% who agreed with those statements respectively for the firm’s 2019 report. However, 47% of respondents said they view fintech companies such as Credit Karma, PayPal and Square as significant threats in 2022, an increase from 36% in 2021.

Credit unions prioritizing fintech partnerships in 2022 may need to hire more specialists to ensure a successful journey, however – financial institutions with between $1 billion and $10 billion in assets have an average of 2.5 full-time employees dedicated to fintech partnerships, noted Cornerstone Chief Research Officer Ron Shevlin during a webinar presentation of the report’s findings. “I don’t see how you can identify, vet, negotiate, scale and manage any meaningful number of partnerships with two and a half people,” he said.

During the same presentation, Cornerstone President and Partner Steve Williams said out of the approximately 90% of respondents who said fintech partnerships are very or somewhat important to their institution in 2022, half are likely unclear on their strategy while others “are getting really real and gritty in new capabilities around niches and scaling national businesses.”

The RTP Imperative

Sixteen percent of credit union respondents in Cornerstone’s December 2021 survey said they have already launched real-time payments – fund transfers that can be initiated any time and via any channel that are also certified, final, immediately available, instantly settled and confirmed to the payee and payer – while 24% and 30% said they plan to deploy them in 2022 and 2023, respectively. However, 42% of credit union respondents said they haven’t determined an RTP strategy.

To gain admission onto the RTP train, a credit union must become a participant in the RTP network from The Clearing House, currently the only U.S. vendor enabling access to RTPs (the Federal Reserve Banks plan to launch their FedNow service in 2023, providing a second option for financial institutions looking to access instant payments). Credit unions can connect to The Clearing House’s network directly or by way of a third-party service provider; they must also tell The Clearing House how they plan to manage fund settlements – something that can be done through a third-party funding agent.

Currently, 30 credit unions and two corporate credit unions are connected to The Clearing House’s RTP network, and seven corporate credit unions are certified funding agents for RTP participants, according to Melissa Ashley, president/CEO for Corporate One Federal Credit Union ($6.4 billion, Columbus, Ohio). Corporate One has been one of the credit union industry’s RTP strategy leaders – it joined the Federal Reserve Faster Payments Task Force in 2015, is connected to The Clearing House’s network through its CUSO, Sherpa Technologies, and is a certified funding agent. Upon its connection to the network via Sherpa in May 2020, Corporate One’s 700 member credit unions gained the ability receive RTPs to their operating accounts, and the corporate is now piloting outgoing business-to-business RTP functionality with three member credit unions, Sherpa and payment solutions provider Juniper Payments. Juniper’s payment platform, which Corporate One has utilized since 2015, provides the front-end experience for credit union users of RTP via Corporate One and Sherpa.

Sherpa, whose RTP network connectivity services can be leveraged by credit unions nationwide, is also in the early stages of piloting Request for Payment (RfP) services, which will enable billers (including credit unions) to invoice eligible third parties (including members) and receive their payments as RTPs.

Ashley said among the three credit unions piloting B2B RTP send capabilities, preferred use cases have included indirect lending settlements, in which credit unions can pay auto dealers in real-time when an automobile is financed through the credit union, and mortgage settlements.

“[Indirect lending settlements] has been a great use case – think about credit unions using checks or ACH to pay dealers and there potentially being a lag in payments. This accelerates the payment to the auto dealer, making the credit union more competitive to work with and helping them with cash management,” she said.

Credit union participants of the latest Cornerstone survey listed account-to-account transfers as the most important use case for their credit union’s RTP strategy. In compliance with The Clearing House’s rules, Corporate One’s member credit unions leveraging RTP via Corporate One as a network participant are limited to B2B use cases.

Both Ashley and Sherpa CEO Keith Riddle emphasized the need for credit unions to implement RTPs to stay competitive, citing December 2021 research from PYMTS that found access to RTPs is a determining factor in choosing a financial institution for 30% of consumers.

“If that statistic is going to get toward a third, you’re going to have an issue as a credit union if you don’t offer immediate access to funds or real-time payment functionality in some form,” Riddle said, noting that implementing receive-only RTP functionality is a good place to start. “Because all the fintech platforms like PayPal, Venmo, Grubhub and others have already integrated it, if your checking account is not tied to that fintech wallet, you’re disadvantaged.”

They added that the 42% of credit unions in the Cornerstone survey who said they had not determined an RTP strategy should take advantage of the free educational resources targeting credit unions interested in learning more about RTPs. Corporate One has set up an online resource center, including a listing of in-person RTP forums starting in March. In addition, Alloya Corporate Federal Credit Union ($7 billion, Naperville, Ill.) launched an educational community, “Alloya Insights: Faster Payments,” on Feb. 15.

Now Trending: Crypto

Some credit unions have big cryptocurrency dreams for 2022: Nine percent plan to offer crypto investing/trading services this year, according to Cornerstone’s report. Five percent of credit unions plan to offer custody/safekeeping services for crypto; other possible crypto use cases for financial institutions include USD settlement for crypto firms, rewards programs and lending. Currently, 1% of banks and “virtually no” credit unions offer the service, it said.

One credit union in that miniscule minority is Idaho Central Credit Union ($8.3 billion, Chubbuck), which began offering members the ability to buy, hold, sell and manage bitcoin through the credit union’s digital banking platform last month. ICCU’s journey began when Alkami, the provider of its digital banking platform since 2016, teamed up with bitcoin company NYDIG in June 2021 to bring crypto services to its bank and credit union clients. Integrated into ICCU’s mobile banking app is a crypto widget through which members can manage their bitcoin transactions, access an onboarding experience and educational content, and view their bitcoin balance, market value and activity, according to Alkami Chief Strategy and Sales Officer Stephen Bohanon.

On ICCU’s end, the preparation process included creating explicit terms and conditions for the service, performing risk and legal reviews, ensuring the solution met or exceeded all compliance requirements for ICCU and its partners, performing quality assessments on the technical solution, and developing necessary policies and procedures, ICCU Chief Technology Officer Mark Willden explained.

Willden said a growing number of ICCU members had demonstrated an interest in cryptocurrencies such as bitcoin, and cited the results of a 2021 NYDIG survey – which found 22% of Americans hold bitcoin, 81% of bitcoin holders would store it with their financial institution if offered and 51% of non-bitcoin holders are interested in accessing it through their financial institution – as evidence of the consumer demand. “This integrated bitcoin solution will provide ICCU a unique opportunity to provide a cutting edge, value-added product to online and mobile banking, Willden said.

He noted while it’s too early to share adoption rate stats among ICCU’s members, the feedback so far has been positive. “People love the ease of getting involved in the buying and selling of cryptocurrency through our mobile banking app,” he said.

Bohanon said the benefits of offering crypto services include the opportunity to generate non-interest income, and retain and grow members and deposits. He also pointed out that traditionally, crypto end-users have been required to establish new financial relationships to manage their holdings – often with unregulated entities – strengthening the case for credit unions to hop on the crypto bandwagon.

He referred to the same NYDIG survey results as Willden, adding that the company found 71% of bitcoin holders would switch banks for one that offered bitcoin products. “These stats present a powerful case for banks and credit unions that want to remain competitive, harness the growing demand for crypto currencies and help their clients achieve digital banking success,” Bohanon said.

A Cornerstone survey of U.S. consumers also indicated an existing opportunity for credit unions in the crypto space – 60% of crypto holders said they would use their financial institution to invest in the asset, the firm said.