The growth of digital channels – from mobile banking and P2P networks to mobile deposit – is transforming the payments industry. Financial institutions with large IT budgets and vast geographical reach are rolling out new capabilities and services to attract consumers, while new, non-banking competitors are aggressively offering alternative payment methods.

These competitors are positioned to circumvent the relationship members have with their credit unions by fragmenting their payments behaviors.

To provide members with a full range of payments options, credit unions will need to embrace the digital transformation of payments and the mobile channel revolution as an essential strategy to effectively compete with financial institutions of all sizes and with payments providers from outside the banking realm.

Rapid Adoption of Mobile Banking

In just the past few years, digital channels have become the preferred method for banking. In 2009, for the first time, industry surveys revealed that the majority of consumers said they preferred online banking versus visiting a branch. Just last year, the number who said they preferred Internet banking over other channels reached 62%.

Consumers are also adopting mobile banking at a fast pace. This year, an estimated 25 million households will bank via mobile channels, representing a four-fold increase in just five years. Fiserv research findings suggest that over the next two years, the number of mobile banking households will grow to reach 35 million.

This shows how enthusiastically consumers are embracing technology for financial services, from online banking and bill pay to mobile banking applications for smartphones, tablets and other devices.

Increasingly, consumers want the capability to interact and transact with their credit union on their own terms – that is, anywhere, anytime, in real time and with the device of their choice. This is especially true of Generation Y consumers, who are in the habit of checking their balances several times a day.

Credit unions that deliver a convenient user experience with comprehensive mobile functionality will drive usage and satisfaction among members.

Non-Banks Have Changed the Rules

The digital transformation of payments has been accelerated to a large extent by participants from outside financial services. The payments products offered by PayPal, Google and Square have hundreds of millions of users making billions of dollars of payments each year.

The telecommunications giants – Verizon, Sprint and AT&T – are also pursuing mobile payments strategies that put their brands and payments services front and center to capture payments transactions.

These payments innovators own the new product ideas, resources, large customer bases and powerful business incentives that have created widespread change.

As a result, the world of financial services is rapidly becoming a mobile-enabled ecosystem. Although these non-bank competitors do not aspire to be traditional financial institutions, they do seek to define and control the payments experience.

Their business models for payments have something else in common: the disintermediation of credit unions and other financial institutions. This challenges the survival of credit unions that have yet to formulate a mobile product plan.

A Matter of Trust

Credit unions do have one important advantage in this mobile battleground. Research shows that consumers prefer using their financial institution for nearly all payments activities.

That's true of traditional activities such as online banking, budgeting and financial planning, and bill pay. It's also true for emerging payments needs, including mobile.

The Fiserv 2011 Consumer Trends Survey found that 40% of consumers prefer their bank or credit union for mobile banking; that's more than PayPal, the credit card associations or other emerging players.

KPMG's 5th Annual Global Consumer & Convergence Survey, released last December, found that 56% of consumers said they trusted their financial services institution most to handle their mobile commerce financial data. Seven percent trusted retailers and only 6% said they trusted their mobile/Internet service providers.

Consumers are also increasingly wary about data privacy and security when it comes to mobile payments. The same KPMG study found the percentage of people worried about these concerns has risen from 75% in 2010 to 90% in 2011.

These findings confirm that when it comes to moving money and the security of their personal financial information, consumers overwhelmingly trust financial institutions.

Credit Unions Capitalize on Mobile

Despite the challenges, credit unions are well positioned for success. The expansion of mobile payments will build upon experience and trust where credit unions have a significant edge.

To seize this opportunity, credit unions must capture transactions occurring outside of primary DDA accounts. No matter what transaction members want to complete – to buy, pay, donate or request – members should be able to make that transaction through their account relationship.

This requires that credit unions build a mobile experience that complements their other banking channels – Internet, branch and telephone.

Credit unions looking to capitalize on high-demand, mobile payments networks should consider phasing in the program, to accommodate each credit union's diverse member base and to develop the stickiness necessary to enhance membership growth. Steps in this approach could include:

Test mobile payments systems with employees first; an ideal test segment and also an important way to generate internal excitement and awareness
Offer the services to a limited segment of members in a demographic most likely to adopt
Open up the offering to a wider group through more aggressive communication to members, using the website, email and statement stuffers
Leverage the mobile message to attract more consumers and small business members

This approach will enable credit unions to deliver greater service and value to members. It will help credit unions deepen relationships, expand services and retain the next generation of members.

The opportunity to build an enduring customer relationship by leveraging the mobile channel is within reach. But credit unions must act now, before their members direct their payments elsewhere.

Mark Sievewright is president, Credit Union Solutions, at Fiserv Inc. in Brookfield, Wis.

Instant Insights /

Mobile, P2P and New Competitors: Navigating the Transformation of Payments

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