VP Product Development,
Credit Union Resources, Inc
Your list of issues for consideration in strategic discussion is probably long – declining non-interest income, potential margin squeeze as market interest rates rise and liabilities reprice faster than assets, mining loan demand from aging members and attracting younger members to fuel future growth. Add to the list a likely disruptive force in the payments arena.
In case you haven’t heard, Apple introduced its latest iPhone in mid-September. The new devices, which come in regular and super-sized versions, reportedly have a faster processor, longer battery life, a better camera and visual display, and what some say could be a game-changing mobile wallet called “Apple Pay.” Think Apple Pay is not a big deal? Consider how many of your members (and their children) have an iPhone. Consider how music and video is delivered today. How many people actually have a camera that is NOT a feature of their phone? Find someone from Kodak and ask about digital photography or a Blockbuster employee who still thinks streaming video is not a threat.
But, Apple Pay is not the only game in Payments Town. There is also EMV (Euro MasterCard VISA), the little chips that are going to replace magnetic stripes on all forms of plastic cards, saving us from “card present” transaction fraud. For “card not present” transactions like those late night purchases from Amazon and Zappos, TOKENIZATION promises to foil the fraudsters.
And then there is the ongoing battle between merchants and financial institutions about who pays for the payments infrastructure. I am old enough to remember when merchants had to collect on hot checks – they did it by taping returned checks to the cash register in the checkout so friends and neighbors could see that you couldn’t take care of business. Today, merchants accept debit payments that are online, real time and guaranteed payment and they begrudge the cost of the process.
Enter MCX, the Merchant Customer Exchange, a consortium of 60+ merchants including Walmart, Southwest Airlines, Lowes, Sears, 7-11… that is exploring options to move debit transactions onto ACH rails just like Walmart started doing years ago when it converted personal checks to ACH items at the cash register. MCX’s motivation is improved profitability. On average, a merchant pays $2.80 in interchange for every $100 debit payment. The average cost for a $100 ACH payment is approximately $0.06.
How much income does your credit union derive from debit interchange? How much do you stand to lose if / when MCX and other merchants hop the debit tracks and move to ACH? What will the change mean to your operating procedures?
Today, the payments revolution is being led by big players like MasterCard and VISA, and non-traditional players like Apple. Credit unions will need to get on board or be left behind. Ask yourself, where would you be today if you had failed to issue debit cards or provide on-line / mobile transaction services? How many share draft accounts would you have? We are all chasing “younger” members who hold promise as future borrowers. Will Gen X, Y, or Z choose a credit union that does not provide the payments services they want?
Your credit union needs a payments strategy and a mobile strategy. If payments and mobile are not on your discussion list, they should be.