How Credit Unions Can Shift to a Cardless World

The business of consumer credit is on the verge of a seismic shift and credit unions need to prepare for the massive changes that are just around the corner.  Digital payment systems are growing in popularity with both merchants and consumers alike, slowly but surely driving the physical credit card to extinction.  Credit unions have long relied on credit cards as an important tool for competing with banks. Historically, they have offered far better interest rates than banks, while also offering more consumer-friendly terms, in order to attract new customers and build loyalty with their existing ones. How can credit unions adapt with the physical credit card in likely terminal decline?

Not necessarily. Credit unions can leverage their existing strengths – their networks, customer bases and brands – while adopting new technologies, to secure their place in the digital world. The key to maintaining their brand advantage will be to find new ways to deliver immediate, measurable value to customers.   Here are some ways to stay ahead in this brave new post-plastic world:

1)      Options. The first step is for credit unions to offer their customers digital payment options. As online financial services like PayPal become more popular, it is more important than ever to develop online tools that make it easier for customers to shop, bank and pay their bills online.  Mobile digital wallets are also becoming increasingly common, as companies like PayPal, Google Wallet and Starbucks offer apps that allow customers to pay directly from their smartphones. Credit unions should invest in Web and mobile infrastructure now in order to offer their customers payment tools and apps that integrate with other providers' digital offerings that are quickly becoming a part of daily life.

2)      Differentiation. Many customers choose credit unions specifically because they are more intimate and community-oriented than large banks. In the digital world, credit unions should play to this strength by offering an even greater level of personalization. One way to do this is by integrating location intelligence technology into customer interactions. When customers “check in” to a given location, there is an opportunity for credit unions to present them with relevant, location-specific offers. For instance, when a customer checks into a local café or restaurant, the credit union could offer a discount that would be activated through the use of its digital payment system. Customized promotions build loyalty, making customers feel that their credit union understands and responds to their specific needs. It also helps to build and strengthen relationships with local merchants, who could be potential customers at some point down the line when they are in need of financial services or loans.  Credit unions should also invest in providing customer support on the mobile channel, through mobile chat or self-service, to offer their customers the same high level of service on digital channels that they are accustomed to receiving in their in-person interactions with credit unions. 

3)       Safety. There has been a steady growth in credit card theft, with the U.S. Department of Justice showing a 31% increase between 2009 and 2011. In fact, credit card fraud is now the most prevalent form of identity theft in the U.S. In the past, credit cards would be blocked at the first sign of fraudulent activity, which could be very disruptive to consumers. There are now more accurate and efficient ways to protect credit card users and credit unions need to be at the forefront of adopting this technology. Through a combination of smartphone encryption and geographic information systems, credit unions can confirm cardholders' identities by verifying a phone's GPS coordinates with a shopping location. This allows a credit union to reach out in real time in the case of discrepancy, protecting both the cardholder and the merchant.  In the next few years, increasingly more sophisticated identity markers will enter the market, including retinal scans, voice recognition and fingerprinting. Credit unions must show that they are invested in their customers' security by keeping up with these latest safety measures and incorporating them into their digital payment systems.

4)      Partnerships. Since credit unions tend to be smaller than banks, with fewer ATM and branch locations, they have fewer opportunities to promote their brand. In the past, customers' frequent use of the physical credit or debit cards served as a branding opportunity, introducing merchants and other consumers to the credit union's logo. In a post-card world, credit unions can strengthen their brand recognition through partnerships with other companies. Credit unions should use location intelligence to identify current customer shopping patterns and connect with local merchants to offer joint promotions. For instance, at local sporting events, credit unions could advertise discounts for purchasing tickets and concessions using their digital payment system. If their customers visit the local farmer's market, credit unions could work with local vendors to set up a branded digital payment system at their stands at a reduced cost.   

As smartphones and tablets continue to become part of the fabric of society, it will not be long before business culture becomes completely card-free. Credit unions must harness new technologies to protect their relationships with customers. By thinking strategically about how they can continue to provide their customers with value and convenience in a world of digital payments, credit unions can ensure that the disappearance of the credit card does not weaken the brand. 

Berk Charlton is global portfolio director, Customer Data & Location Intelligence, for Pitney Bowes Software, part of Pitney Bowes Inc. of Stamford, Conn.