TAMPA, Fla.-Prepared to lose your credit union's interchange income? You had better be, according to one analyst.
Financial services include savings, lending, investments and insurance, but sitting in the middle of all those is payments. And it's the piece that is changing most quickly in some very fundamental ways.
"Payments has emerged as the glue that holds the whole thing together," said John Lass, SVP-strategy and business development with CUNA Mutual. "And many feel if we lose our grip here we are at risk of losing the whole spectrum. Once you get locked into many payment systems it is very difficult to get out of."
The payments space has seen a rush of new players, including non-bank competitors, retailers, platform players, alternative payments, and the telecoms. Lass told a CUNA Mutual-sponsored symposium here that 50% of consumers shop at Walmart at least once a week and that the company is now pitching its Bluebird card as answer to all those consumers' financial needs. It has also partnered with Target and others on the Merchant Customer Exchange initiative.
Lass used payments as a key potential threat to credit unions in the present and near future, especially as interchange is replaced by lower cost (and revenue) ACH and then ACH by something yet to come.
He pointed to the Red Card from Target, for instance, which is a decoupled debit card. Lass can use his Red Card to access his Summit Credit Union account. Summit sees no ACH interchange and may even pay an ACH outbound fee.
"What's happening is the transfer of funds from Point A to Point B is following the Principle of Least Action, that is the least cost in the least time," he said. "What we need to think about as a credit union system is that right now we generate about one-third of our income from interchange; it's going to go away, it's going to be 'competed' out of business. How are we going to replace this business?
For many retailers, said Lass, getting into financial services "is no longer ancillary; it's becoming core." Beyond those retailers, Lass pointed to other players, including Mint, LendingClub and Square.
Meanwhile, there are other threats, too. Including telecoms which are seeking to get into payments.
