The growth of digital channels – from mobile banking and P2Pnetworks to mobile deposit – is transforming the payments industry. Financial institutions with large IT budgets and vastgeographical reach are rolling out new capabilities and services toattract consumers, while new, non-banking competitors areaggressively offering alternative payment methods.

These competitors are positioned to circumvent the relationshipmembers have with their credit unions by fragmenting their paymentsbehaviors.

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

Rapid Adoption of Mobile Banking

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

Consumers are also adopting mobile banking at a fast pace. Thisyear, an estimated 25 million households will bank via mobilechannels, representing a four-fold increase in just five years. Fiserv research findings suggest that over the next twoyears, the number of mobile banking households will grow to reach35 million.

This shows how enthusiastically consumers are embracingtechnology for financial services, from online banking and bill payto mobile banking applications for smartphones, tablets and otherdevices.

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

Credit unions that deliver a convenient user experience withcomprehensive mobile functionality will drive usage andsatisfaction among members.

Non-Banks Have Changed the Rules

The digital transformation of payments has been accelerated to alarge extent by participants from outside financial services. Thepayments products offered by PayPal, Google and Square havehundreds of millions of users making billions of dollars ofpayments each year.

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

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

As a result, the world of financial services is rapidly becominga mobile-enabled ecosystem. Although these non-bank competitors donot aspire to be traditional financial institutions, they do seekto define and control the payments experience.

Their business models for payments have something else incommon: the disintermediation of credit unions and other financialinstitutions. This challenges the survival of credit unions thathave yet to formulate a mobile product plan.

A Matter of Trust

Credit unions do have one important advantage in this mobilebattleground. Research shows that consumers prefer using theirfinancial 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 foremerging payments needs, including mobile.

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

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

Consumers are also increasingly wary about data privacy andsecurity when it comes to mobile payments. The same KPMG studyfound the percentage of people worried about these concernshas risen from 75% in 2010 to 90% in 2011.

These findings confirm that when it comes to moving money andthe security of their personal financial information, consumersoverwhelmingly trust financial institutions.

Credit Unions Capitalize on Mobile

Despite the challenges, credit unions are well positioned forsuccess. The expansion of mobile payments will build uponexperience and trust where credit unions have a significantedge.

To seize this opportunity, credit unions must capturetransactions occurring outside of primary DDA accounts. No matterwhat transaction members want to complete – to buy, pay, donate orrequest – members should be able to make that transaction throughtheir account relationship.

This requires that credit unions build a mobile experience thatcomplements their other banking channels – Internet, branch andtelephone.

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

• Test mobile payments systems with employees first; an idealtest segment and also an important way to generate internalexcitement and awareness
• Offer the services to a limited segment of members in ademographic most likely to adopt
• Open up the offering to a wider group through more aggressivecommunication to members, using the website, email and statementstuffers
• Leverage the mobile message to attract more consumers andsmall business members

This approach will enable credit unions to deliver greaterservice and value to members. It will help credit unions deepenrelationships, expand services and retain the next generation ofmembers.

The opportunity to build an enduring customer relationship byleveraging the mobile channel is within reach. But credit unionsmust act now, before their members direct their paymentselsewhere.

MarkSievewright is president, Credit Union Solutions, atFiserv Inc. in Brookfield, Wis.