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Most credit unions consider a recession among their biggest threats over the next two years, and list as their top to-do item adding real-time payments via the Federal Reserve's FedNow Service, according to a survey from Jack Henry & Associates.
The Monett, Mo.-based provider of core processing and other financial technology services surveyed 118 of its core bank and credit union clients from January to March with assets ranging from $500 million to more than $10 billion.
Its fifth annual Jack Henry Strategic Priorities Benchmark Study found credit unions were more worried about the economy than bank executives. More than half (53%) of credit unions listed an "economic downturn or recession" among their top three concerns over the next two years, compared with 32% for banks.
"An economic slowdown in 2023 will further slow payments growth and severely challenge the payments-based business models of direct-to-consumer fintechs and neobanks. One out of every four payments fintechs is projected to fail in 2023," the report said.
More than 90% of bank and credit union executives said they plan to add new payments systems in the next two years. The overwhelming preference from credit unions (72%) was the FedNow Service. It was also the top choice among banks (60%).
"Consumers and businesses must wrangle with different user experiences, multiple settlement times, and varying payment limits," the report said. "The challenge will be to streamline the payments experience in ways that reduce complexity and allow the consumer or business to choose who they want to pay—and how soon—without having to know or choose which method of payment is used on the backend to effect settlement."
Jack Henry said the July launch of FedNow will provide smaller financial institutions with an alternative instant-payments capability.
"Account-to-account transfers (A2A), also known as pay-by-bank, will also gain traction as merchants look for cheaper, faster ways to get paid in the downturn," it said.
"As momentum builds for simpler, faster, cheaper ways to pay, the challenge for banks and credit unions will be developing a payments strategy for the near- and long-term that keeps pace with innovation and evolving user expectations, especially around digital wallets," the report said.
For credit unions, the top strategic priorities over the next two years were leveraging data for strategic insights (42%), growing deposits (34%) with 34% listing increasing operational efficiency, improving member experience and attracting new members. These were followed by growing loans (32%) and adding digital products/features (29%).
Most banks (52%) considered building deposits as their number one strategic priority.
"In addition to being the most important strategic priority over the next two years, growing deposits is also considered the most difficult priority to achieve. In addition, the smaller the institution, the more difficult growing deposits is perceived to be," the report said.
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