CO-OP, Zelle partnership could bring P2P payments to small credit unions

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Credit unions have more peer-to-peer payment options than ever before, but many institutions are still watching the action from the sidelines.

A recent move from CO-OP Financial Services could change that.

CO-OP announced plans last month to give member institutions another P2P payments choice by partnering with Zelle. The Scottsdale, Ariz.-based fintech is a payments behemoth, having moved $133 billion on 519 million transactions in the first six months of 2020. That figure represents 17% higher enrollment than one year prior, according to a news release from the company.

CO-OP clients with the company's account-based technology in place will be able to offer the service within their mobile-banking platforms. The company said in a news release that the industry was well-poised for rapid adoption because thousands of credit unions allready offer that technology across all of the major core banking platforms.

Bruce Dragt, chief product officer at CO-OP, said the deal will help credit unions and consumers better adjust to the “new normal” brought on by the COVID-19 outbreak, including increased adoption of digital banking services.

But will credit unions get on board?

Tony DeSanctis, who runs the payments group at Cornerstone Advisors, has been working with a number of credit unions juggling whether or not to align themselves with Zelle. He said the bottom line is all the processors are enabling Zelle to allow for an FI-based P2P solution that can compete with Venmo and Square’s Cash App. But he said it is still very expensive, and adoption is “not massive” at this point.

DeSantis said Cornerstone typically recommends that clients examine their member data to determine current usage of P2P services and also listen to feedback from consumers in order to gauge demand.

“Markets with a heavy presence by the big five banks find it critical to enable despite the cost. Many others are taking a more wait-and-see approach,” he said.

One of those in the latter category is $744 million-asset North Country Federal Credit Union. Bob Morgan, CEO of the South Burlington, Vt.-based institution, said his shop continues to evaluate Zelle but for now is holding off on moving forward. He said the primary issues include cost and the level of interest from the credit union’s members.

“It is expensive to get on Zelle, and I have not seen compelling evidence that adoption drives share of wallet,” he said. “Also, many members prefer to use P2P solutions unbundled from FIs, [such as] Venmo and PayPal.”

Some credit unions previously expressed concerns about using Zelle. CO-OP works with thousands of credit unions across the country but said in its Aug. 6 release just three were currently live, though 15 more are said to have signed up.

One of those three adopters was $4.4 billion-asset Wescom Credit Union in Pasadena, Calif. However, some credit unions on the smaller side of the asset spectrum — with less margin for error — are watching the space closely.

Matt Selke, CEO of $79 million-asset Pinnacle Credit Union in Atlanta, said working with Zelle or another P2P payment option is on his to-do list for 2021. He said the credit union would have pulled the trigger earlier but there were implementation issues with its core processor.

“Our credit union actually tried to contact Zelle last year and, frankly, what we understand is they had bigger fish to fry,” he said. “Smaller credit unions or smaller data processors were not a priority for Zelle, which I understand.”

Selke said it now appears Zelle has either scaled up or made an internal decision to become more active in the credit union space. And the demand from Pinnacle’s members is there, although Selke said many of them are already using other P2P platforms.

Selke said he was unsure what the cost to Pinnacle would be but added that one nice thing about the credit union space is most have access to co-operative groups – such as CO-OP – that enable them to share the burden.

“My two cents is that smaller credit unions will only be left out by choice and not because there isn’t an option” he said.

Credit union consultant and former NCUA chairman Dennis Dollar said both banks and credit unions need to offer a solid alternative to Venmo in today’s market, and Zelle has become the primary player as that alternative. He said partnering with a respected credit union service organization with an industry-wide presence like CO-OP could help Zelle expand its potential credit union reach, although there are other players working the credit union market as well.

And there will be more. Credit unions, as well as banks, are moving into more fintech partnerships, he said.

“It is positive that credit unions and banks aren’t sitting around complaining about the fintechs,” he said. “They are getting into the technology game more and more themselves, and partnerships such as CO-OP with Zelle are a sign of what will almost certainly be more.”

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Payments Digital payments Digital banking CO-OP Financial Services Zelle