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The heralded shift in consumer payments from paper-based transactions to electronic form is gaining momentum, with help from two fast growing transaction types. For years, financial institutions and businesses have enjoyed fast and inexpensive fund transfers using the Automated Clearing House system. Consumers are now being enabled to tap into this system and the changes in behavior are dramatic. Similar behavior changes are happening at retail cash registers with stored value card products. Retail businesses have finally developed a transaction processing system that is faster and more convenient than cash. The stored value card has reduced the time that consumers spend paying for goods from the 15 seconds that a cash transaction requires to a mere seven seconds. It has also eliminated the need to carry cash. These two consumer trends are the focus of this piece and something I believe CUs need to be on top of. First, let’s look at what is happening in the world of ACH. The original impetus for the ACH system was the rapid growth in check volume. In 1970, a group of forward thinking California bankers formed a task force to explore the operational and legal issues necessary for an automated payments system, and from that the Automated Clearing House was born. For three decades the growth in ACH volume has been slow and steady, with businesses, financial institutions, and government doing a fine job of implementing process improvements to eliminate paper checks and transfer funds electronically. During that time, a legal and operational framework was developed to govern all aspects of financial transactions conducted by ACH participants. That process development has created a payment system that is fast, inexpensive, and well controlled. It has evolved into the most efficient payment system in the world today. ACH will be the payment system of choice for business and consumer transactions for many years to come. I also believe that the volume of ACH transactions will exceed check transactions within the next four years. The emerging trend that will make ACH the dominant payment system is the empowerment of consumers. As payment systems develop and improve in the United States, the common theme is low cost, control, and safety. Businesses, consumers, and financial institutions demand these features as a condition to use a payment system. The ACH system meets all three requirements better than any other system. This conclusion is supported by the trend among developers of new payment types such as electronic bill payment, lock box check conversions, and Internet auction payments. All of the fastest growing transaction types in the United States are supported by ACH settlement of the payment. What does this mean for your credit union? Credit unions are well positioned to take advantage of these trends, with a long history of participation in the ACH system. However, our systems have been developed to support business and government uses of ACH. Forward thinking credit unions are developing consumer-focused ACH systems that enable members to use their credit union as a base for ACH transactions. To the extent that credit unions can make it easy for members to send and receive ACH transactions, they will gain market share. I believe that members want full access to all of the information that is contained in an ACH transaction, and to have the ability to generate ACH transactions at will. Consumers understand routing numbers, account numbers and electronic payments, and want the ability to self-direct payments. If we trust a member enough to loan them money, we should trust them enough to generate ACH transactions. As a strategy, I recommend that credit unions plan for a robust ACH infrastructure, and partner with a service provider that can deliver the most flexible and full-service solution possible. Corporate credit unions have made great gains in ACH processing technology in the past two years to prepare for this environment. Value of Stored Value Stored value cards are another payment trend I believe will have a great impact on member behavior. This payment type is related to ACH, as a growing segment of consumers are funding their stored value cards with self-directed ACH transfers. I believe this combination of services will make stored value cards a portable payment device that is independent of the member’s primary financial institution relationship. The basic definition of a stored value card is a plastic card that can be used by consumers to make payments for goods and services. Cards can be private labeled and issued by retailers such as Starbucks, or they can be branded with a Visa or MasterCard logo and issued by financial institutions. The primary difference between stored value cards and credit cards is that the stored value card is preloaded with cash, and in most cases provides a more efficient payment process at a retailer’s cash register. Consumers are embracing stored value cards at a remarkable rate. Two leading retailers (Starbucks and Target) have reported annual growth rates of 33% and 27% in the past year. The appeal of a stored value card is simple – it is a more convenient way to pay for goods and services. The value to the consumer is that the cards are low risk, easy to use and reload, provide anonymity, and allow the consumer to travel without cash. The stored value card is a consumer friendly alternative to the hassle involved in starting a new banking relationship. Most stored value card programs do not require lengthy forms and disclosures for the consumer to complete. It is indisputable that these cards are the fastest growing segment of payments today. From a strategic perspective, full-service credit unions must provide a robust stored value product to their members. There are over 100 vendors that can provide your credit union with a stored value program. Choosing the right vendor will determine the long-term success of your service offering. While there are very few programs that offer cash-back or user rewards, it is a matter of time before stored value cards take on the same promotional characteristics of credit cards. I like providers with as many service options as possible and with a product that provides portability among financial institutions.

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