Recent financial regulations have taken a bite out of traditional payment-related revenue streams for credit unions, and continuing uncertainty makes it difficult to plan for the future.
By now we’re all too familiar with the consequences of the Durbin Amendment, a provision tucked into the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which capped point-of-sale debit interchange fees for financial institutions with more than $10 billion in assets.
Just when we thought this was all resolved and we could move forward with at least a basic understanding of the impact of the regulations, a court ruling threw the industry into flux again, questioning the Federal Reserve’s rules and re-casting doubt across the industry.
We’ve already seen significant reductions in interchange revenue, even among credit unions which are largely exempt from the interchange caps. Despite the legislative exemption, market forces and other provisions of the regulations that empower merchants in terms of POS network routing are reducing interchange and, subsequently, a major source of credit union revenue.
Regardless of the outcome of the challenges to the recent court ruling, we can reasonably expect that there will be further downward pressure on payment-related fee income.
From a card issuer’s standpoint, processing and settlement of the standard debit transaction is destined to be a commodity service, generating essentially the same level of income regardless of network affiliation, and subject to the low-cost conscious machinations of empowered retailers.
What’s a credit union to do?
Clearly we’ll need to find more cost effective ways to expand services and identify new revenue opportunities while continuing to provide value to our members.
The good news is that emerging technology services and solutions, along with expanded use of some of our traditional delivery systems, can give your business a competitive boost.
Today’s consumer wants to conduct financial transactions anytime, anywhere – certainly not just at the branch or just during “regular” business hours. While research shows that younger consumers – that elusive target market for many credit unions – are leading the charge toward branch-free, on-the-go transactions, the increasing sophistication of mobile technology, ATMs and kiosks is fueling the demand for more convenience among all ages and demographic groups.
From using a tablet to buy goods, or a phone to exchange money, to banking via surcharge-free ATMs or conducting financial business by kiosk or on-line banking, credit union members are having a deep drink of convenience, and they clearly like the taste.
For credit unions, putting technology and partnerships to work to keep up with these consumer demands is essential.
While the labyrinth of mobile technology and applied solutions can be confusing, the growth and growing acceptance of mobile financial applications demands our attention. Industry sources estimate that Americans now own more than 125 million smartphones and 50 million tablets. While we’re barely at the infancy of the mobile commerce revolution, it’s a fast-paced environment and consumers are beginning to demonstrate real receptivity to the use of this technology.
Credit unions need to keep abreast of developments, gain an understanding of the practical uses and costs of fielding this technology, and begin examining the landscape to align with trusted partners who can serve as helpful guides to the right solutions.
While emerging technologies demand our attention, it is critical that we continue to use our mature distribution systems to support our members’ ever-present need for account access and service. It’s certainly not news that ATMs have become an essential component of the financial services delivery system.
In fact, credit unions have wisely capitalized on ATM technology by extending their reach through expanded network participation, and offering enhanced ATM service such as surcharge-free ATM access and deposit acceptance.
Credit unions can further maximize ATM revenue, and reduce costs, by leasing new ATM technology from a trusted partner. Small to mid-size credit unions in particular can use this outsource/leasing approach to expand their services, while eliminating large capital outlays and reducing operating costs by as much as 30%.
Given the changing and dynamic business environment, and all the uncertainties of regulation and emerging technologies, it is essential that credit unions explore innovative and cost effective ways to keep up with members’ demands for convenience, access and service. The creative and cost-effective use of technology – both established and emerging – is a key ingredient for continued success.