Elevating Payments Data as an Asset: 3 Practical Steps for Credit Unions

At a time when data is considered a goldmine of business insights as well as the essential entry ticket into the world of artificial intelligence and machine learning, many lending institutions – including credit unions – are struggling to leverage their payments data to gain a strategic advantage.

That was a primary finding in a recent study on loan payment practices titled, “The Value of Payments Data,” in which researchers from Datos Insights conducted surveys and interviews with financial institution executives involved in consumer lending.

The study found that:

• Seventy-five percent of financial institution executives believe an increase in the types and amount of data, as well as better access to their data, would benefit their organization. However, most admit they are unable to use the data they already have.
• Sixty-nine percent don’t have the in-house expertise or budgets to collect and analyze data to improve the member experience.
• Seventy-seven percent said their organizations are not using data to train AI or ML models to assist in decision making, pointing to a lack of in-house expertise and funding.

Data may seem a “maybe someday” luxury for many credit unions whose IT experts already have a heavy load managing mobile banking processes, data security and more. However, data collection and analysis shouldn’t be viewed as an expense only; it’s also an asset that can enable credit unions to market the right services to the right members at the right time, identify which members are at risk of defaulting on a loan, and pinpoint when members are about to change jobs, move or make large purchases, among a multitude of other useful insights that can improve efficiency.

Kicking the can down the road will only create a larger gap between where you are and where the industry is headed. Setting priorities is the key to beginning to use data to drive better results for your credit union. Here are three foundational steps every credit union should prioritize to harness their members’ payments data to derive actionable insights to better (and more efficiently) serve your members:

1. Consolidate payment types onto one modern payments platform to better store, process and analyze the data. Credit union members want more options to pay their bills, including digital wallets (Apple Pay, Google Pay) and payment apps (PayPal, Venmo, CashApp), according to the loan payments study. The good news is, more than three quarters of financial institutions (77%) – including credit unions – are working toward that goal by layering payment platforms rather than integrating all payment types into one platform. The bad news: That may not be the most effective strategy to accomplish the right goal.

A less-than-optimal member experience often stems from the lack of seamless integration among multiple platforms. A multiple-platform strategy also increases the risk of data breaches and adds to a credit union’s regulatory compliance burden.

Additionally, managing multiple payments platforms presents challenges in collecting, consolidating, cleaning and analyzing payments data. These obstacles make it difficult to progress toward the goal of using data to enhance decision-making and elevate the member experience.

A more effective strategy is to consolidate all payment types into a single modern payments platform, allowing you to integrate once and subsequently add or remove payment types seamlessly. Ideally, your payments partner should also provide essential data analysis and insights services, reducing or eliminating the need to hire in-house data scientists.

2. Invest in data collection and management. The lack of usable data, and sometimes the absence of data, were recurring themes during our interviews with consumer lending executives. Less than a third (31%) said they have the capability and staff to manage and analyze their data to make it truly useful.

Payments data, when collected thoroughly and regularly, provides valuable information about what’s working and what’s not, so you can make process adjustments, set and track KPIs, and improve member engagement. For instance, if your data reveals a pattern of payment declines on a particular day of the week, you can test a subset of transactions to see if running them the following day would improve through-rates. Or, data can help you identify the exact place in the payments funnel where most of your members drop out, and institute improvements that will reduce friction and encourage payment completion.

Payments data also helps you answer important questions like: How can I improve self-pay? Who are the best candidates for auto-pay? And, what payment types are gaining in popularity?

Clearly, data is critical to making intelligent, strategic decisions for your credit union, but it requires an executive-level commitment to allocating budget and staffing resources. That investment may involve hiring a data-focused staff and building out a team dedicated to data management. However, considering the competitive hiring environment, as well as high turnover in tech professions, it may be more cost-effective to contract out to a payments technology company that can both help manage your platform and the data that comes with it.

Either way, having that data at your fingertips and democratized throughout your organization will instantly elevate your capacity to set and accomplish new goals.

3. Create a roadmap for AI and ML. We all know AI and ML have great potential for creating more efficient, personalized member service and enabling next-level automation that saves time and money. Yet fewer than two in 10 financial institutions (18%) are using data to train machine learning or artificial intelligence models to assist in decision-making, according to the loan payments study.

Respondents said they understand the value of applying advanced modeling to payments data to achieve process optimization, attrition funnels, collections insights and more. However, they face hurdles such as lack of resources, both in talent and allocated budgets.

As one executive put it, “We see great potential in investing in our data science capabilities; we just don’t know where to start and how to justify the expense.”

That’s where a roadmap is helpful – a long-range plan for integrating AI/ML into your payments environment. As we’ve discussed, that journey must start with creation of a consolidated, comprehensive data lake, continually replenished with your payments data, and the in-house or external experts to manage it. Then you can begin working with your team to explore where AI and ML would be most helpful for your organization, and laying out a timeline for when those tools can be deployed.

Keep in mind, you will need to put in place policies to protect data privacy, as well as procedures to frequently audit the AI/ML models to make sure the algorithms are working as intended and avoiding unintentional bias.

Having a well-developed roadmap empowers you to secure endorsement from executive leadership and the board, ensuring a smooth start to your plans.

From Data Deficit to Strategic Asset

Data is no longer a side note to the “real work” taking place at credit unions, it’s a vital component. When you collect data, analyze and mobilize it to perform advanced functions, you can attract and impress members with the payment types they now demand and a seamless payment experience. You can glean insights that lead to better business decisions. And you can apply AI and ML models that identify trends, guide advanced automation and enable a hyper-personalized CX.

The data deficit isn’t insurmountable, but it will take intention on the part of credit unions to recognize the problem and invest in the steps to solve it. The sooner the better.

Jill Conrad is the Senior Director of Sales at the Santa Clara, Calif.-based payments platform provider PayNearMe.