Disruption in Payments

Where will it come from and how will you prepare?

June 02, 2014
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Credit unions are experiencing pressure from nontraditional payment providers that are trying to position themselves between you and your members. These new payment players are coming up with completely new business models that threaten to disrupt existing business models and payment systems.

It’s not clear yet where the disruption in payments will come from. It could be a company that doesn’t exist yet, or it could be a consortium of existing players. Many companies are jockeying for position to disrupt the traditional payment model—Walmart, Apple, AT&T, Google, Isis, Paypal, Square, Facebook, and many others.

If you haven’t done so already, it’s time to re-evaluate your payment portfolio, infrastructure, and strategies. It’s time to come up with a “Plan B” for when—not if—a new payment model comes along and significantly disrupts your existing business model and interchange income.

Interchange income represents an important source of noninterest income for credit unions. And noninterest income represented 29.3% of total income for credit unions in 2013. Without fees and other income, credit unions’ return on assets (ROA) would have been negative 62 basis points in the year, according to CUNA’s economics and statistics department.

The potential of a significant disruption means relationship building—one of credit unions’ core strengths—has never been more important. High levels of member loyalty will be essential as new competitors offer your members attractive new payment options. Today’s challenge is to deliver the innovative payment products and channels members expect while remaining relevant and profitable. 

Members think of their credit unions as safer and more trustworthy than some of these nontraditional payment providers.

Financial institutions offer distinct payment advantages—immediate funds access, heightened risk management capabilities, and more integrated data. But that could all change—and change quickly—as innovative new start-ups reconfigure the payments world in profound ways.

Members’ expectations

To compete against technology companies, big-box retailers, and social media giants vying for a piece of the payments pie, your payments strategy needs to meet members’ expectations for faster, easier, and more convenient transactions.

Consumers—especially younger consumers—demand immediacy in all areas of their lives. Even email seems too slow for younger consumers. They’ve come to expect the real-time benefits of instant messaging, texting, and social media.

When members have access to instant everything, waiting for anything seems passe. It’s not hard to see why members expect the same instant capabilities—the ability to pay and get paid without waiting—from their credit unions and from payment systems in general. But members are still experiencing wait times of one to three days—sometimes longer—for bill payments, deposits, personal payments, and even transfers.


The definition of “real-time” needs to be applied to the duration of the entire payments event, including the movement of funds and funds settlement. The current payments infrastructure was originally designed to authorize plastic cards. As it migrates away from that model, success of the new model will depend on its ability to integrate multiple payments options that provide immediacy and meet regulatory standards.

Delivering real-time payment capabilities to members gives credit unions a competitive advantage, and it also represents a revenue opportunity. Members expect to pay for the convenience of wire transfers and out-of-network ATM services, and many observers believe they’ll pay for the same immediacy when it comes to other services.

Credit unions need to embrace real-time technology to attract new members and strengthen relationships with existing ones. Financial institutions that offer instant person-to-person payment options—in addition to three-day and next-day payment options—see much higher adoption rates among potential users of the service, according to research from Fiserv.

NEXT: Moving to Mobile

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