Changing member demands – especially among millennials – and the adoption of mobile wallets, person-to-person transactions, wearables and other forms of disruptive technology are transforming the payment model for credit unions.

For credit unions to take advantage of mobile payments, they need to understand how member behavior continues to reshape the market structure for payments and money transfers.

“Now is a pivotal time for credit unions to educate their members about new payment methods,” Cindy McGinness, manager of digital channels for the St. Petersburg, Fla.-based payments CUSO PSCU, said. “If we do not help members evolve and understand how things are changing, we run the risk of losing the transaction and engagement with that member.”

That understanding should start with how technology sets millennials apart from other age groups, according to a 2015 Mitek and Zogby Analytics poll, “Millennials the Next Mobile Disruptors.” The survey revealed 86% of millennials made purchases or conducted transactions from their smartphones.

Three in five millennials already feel comfortable using mobile devices for exchanging money, both sending (61%) and receiving (63%), according to the poll. When asked what they'd like to do in the future, 19% said pass funds among friends by taking pictures of their debit cards, and 21% said they'd like to establish a budget by taking pictures of their paychecks, bills and bank statements.

Digital disruption is in fact reshaping the entire payments industry.

For example, the PayPal-owned Venmo offers a P2P payment service that allows users to transfer money through a mobile device app or web interface. In just five years, Venmo's idea grew into a business that is expected to process about $4 billion in transactions this year. Venmo and comparable services trend high among millennials as popular ways to skirt ATMs or split a restaurant bill.

Other emerging payment vehicles include mobile wallets such as Apple Pay, Android Pay, Samsung Pay and the soon-to-come LG Pay.

“New mobile wallets are touting security as a key differentiator,” McGinness said. “But there is a lot of heavy lifting to be done to help members understand how new mobile payment technologies are more secure.”

Apple Pay has found itself well established among many credit unions after just over a year in the marketplace. PSCU also just announced two of its credit union partners, the $5.2 billion, Peoria, Ill.-based CEFCU and the $2.8 billion, Richmond, Va.-based Virginia Credit Union, launched Samsung Pay.

But mobile wallets still raise concerns, one being top-of-wallet positioning, as credit unions want their cards established as the default card within wallet programs.

“It is critical to highlight the value of payment methods utilized on a regular basis,” McGinness maintained. “Promote the convenience of mobile payments, for example, to help ensure your card is top of wallet for your members.”

Another issue is consumers are not yet buying the wallet concept. A mobile wallets survey by the Phoenix-based consulting firm CCG Catalyst found 51% of consumers prefer their own financial institution's payment wallet versus a third party's payment wallet, the latter of which requires financial institutions to serve as a funding source.

“The emotional component is the trust factor, the rational component is, my money is already there,” Ali Raza, principal for CCG Catalyst, said.

Other payment innovations and disruptors include biometrics, mobile remote deposit capture, blockchains and wearable technology.

Mitek Systems' Photo Verify, which ensures an authenticated ID is genuine by decoding enhanced security features embedded in most U.S. driver licenses, recently added facial recognition to its instant ID document verification solution.

“It could be used for high risk transactions or money transfers,” Sarah Clark, vice president of product at the San Diego, Calif.-based Mitek Systems said of the solution. “We see biometrics as something that is really going to ignite in terms of authenticating payments.”

The blockchain concept, first developed by Bitcoin, is a public ledger of executed transactions that run without a financial institution or another entity as its primary authority, and its proponents believe it could introduce trust and transparency into any online transaction. Nine of the world's leading banks recently partnered to develop advanced, distributed or shared ledger technologies.

According to the Framingham, Mass.-based IDC's “Worldwide Quarterly Wearable Device Tracker,” wearable device shipments will reach 76.1 million units this year. The Brookfield, Wis.-based core processor Fiserv is piloting several wearable devices and applications, as well as researching how consumers use these devices in their everyday lives. And, the $10 billion, Langley, British Columbia, Canada-based First West Credit Union recently introduced Dashband, which uses Visa payWave to enable mobile, contactless payments.

Two of today's biggest payments-related elephants in the room are government intervention and chip-based cards.

“Regulation continues to be a large concern across the board,” Raza said. “There is a view that sooner rather than later, some of this is going to make its way down into the world of payments.”

And while chip-based cards are out, their status is nebulous.

“We know the EMV transaction takes longer than the mag-stripe transaction,” said Jason Goldberg, director, business performance improvement – financial services for the Menlo Park, Calif.-based consulting firm Protiviti. “The card interaction is milliseconds longer and the actual human interaction with the POS device is longer, since the chip card requires consumers to put the card in, leave it and pull the card away when prompted. It makes the payment process longer and less favorable.”

As a result, Goldberg said he believes consumers are going to adopt mobile payments more rapidly. He added that when retailers start to see their queue lines increasing due to the added confusion, they are going to push mobile payments even more.

In its “2015 Consumer Banking and Payments Survey,” Protiviti also found a strong desire among accountholders to stay connected with local financial institutions.

“The biggest surprise to us was such a large percentage (84%) said they visit their primary banks frequently,” Goldberg said.

Credit unions can take advantage of that relationship by adopting various payments methods that drive the member experience.

“There is a fair amount of fragmentation in the industry, there is the established order and the new guys, the industry itself is going through a transformation, technology is rapidly racing forward and there is a lot going on with social media,” Raza said.

Consumers have said when it comes to money, they trust their financial institutions more than apps. He added fintech companies have to lean on financial institutions as an entry point into the financial services industry and to gain access to a customer base.

“To me it's part disruption, part complementary,” Raza said. “Time will tell where this all shakes out.”

Instant Insights /

Credit Unions Brace for Changing Payment Models

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