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While FedNow, the instant payment system introduced by the Federal Reserve, was unveiled with much fanfare, it's important to put its launch into context. FedNow follows the footsteps of similar payment infrastructure programs such as FedWire, Automated Clearing House, and private sector offerings like Venmo and PayPal.
While the success of FedNow remains to be seen, there is no denying that consumer preferences for instant payments – domestically and globally – are on the rise. Credit unions have a unique opportunity to seize on increasing consumer demand and the momentum spurred by FedNow to reevaluate their global remittance payment infrastructure.
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Consumer Demand for Domestic and International Instant Payments
While instant payments are new in the U.S., Americans' need for speed is not – consumers have demanded faster processes for their goods and services since the dawn of Amazon's two-day shipping. These preferences have rapidly accelerated to overnight or same-day delivery expectations. Those that can deliver against these consumer expectations stand to gain valuable brand loyalty ground.
This insatiable quest for faster service also extends to consumers' relationships with financial institutions. According to a survey released by the Federal Reserve Banks, four out of five Americans are interested in faster options to pay businesses – and about 70% say having access to more immediate payment capabilities from their financial institution(s) is a critical satisfaction driver. With the continued consumer demand for quicker payments, it's no surprise that solutions like FedNow have surged onto the scene.
Though peer-to-peer (P2P) domestic transactions using services such as Zelle and Venmo have entered mainstream use and instantaneous domestic transactions dominate the conversation, the global remittance space is equally as compelling. This presents an opportunity for credit unions to provide a solution for a critical, largely unmet member need.
Global Remittances: An Essential Lifeline
Remittances, or fund transfers across national borders, play an indispensable role in the lives of countless individuals and families around the world. These transactions represent more than just monetary transfers; they embody the hopes, aspirations, and support of migrants and their families who rely on these funds for daily essentials, education, health care and accumulating wealth. According to the U.N., $647 billion in remittances flowed to low and middle-income countries in 2022 alone, building nations and empowering communities globally.
The ethos behind providing a global remittance solution aligns perfectly with credit unions' focus on personalized member services and a community-orientated approach. The urgency of remittances gains significance when considering the volume of remittances sent by members to family and loved ones living abroad. Credit unions have the potential to foster loyalty by providing a secure, prompt and cost-effective way of sending money around the world while influencing the financial welfare of recipients.
Reimagining Remittances as a Brand Loyalty Driver
In 2022, customers switching primary banking relationships cost financial institutions $80 billion in annual revenue, totaling $640 billion in customer lifetime value. By addressing the consumer preference for faster payments and acknowledging the critical role cross-border transfers play in the lives of their members, credit unions can capitalize on an opportunity to strengthen brand loyalty and attract new members to their institutions.
This renewed focus on global remittances isn't just about transactions; it's about understanding the emotions, stories and needs that underlie these transfers. With their strong community ties and member-centric values, credit unions are uniquely positioned to adopt embedded global payment solutions that offer the cross-border money transfer convenience their members highly value.
Hal Ramakers Hal Ramakers is SVP of the Atlanta-based fintech Brightwell.
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