Threat From PayPal, Other P2P Providers, Underestimated By Many

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WASHINGTON-Watch out for PayPal, because eventually the company may begin stealing CU members.

That's why CUs viewing P2P payments as just a "nice-to-have" should reconsider that thinking, emphasized Scott Hansen, EVP of business development for Harland Financial Solutions. Soon enough, he cautioned, CUs may "need to have" a P2P offering to keep members in the fold.

"Think about the typical credit union relationship; a member has a checking account with the credit union and by virtue of that share draft account they consider the credit union their primary financial institution," said Hansen. "All of a sudden PayPal comes along and starts to provide a means for members to make payments to friends, other people, or small businesses that provide services to them-like a lawn care company or a housekeeper-without having to use the credit union's checking account directly."

Those sorts of transactions can begin to change the way members view PayPal and the credit union. "One thing leads to another once that relationship is established with PayPal," offered Hansen. "Who is to say PayPal will not start expanding into other relationships and before the credit union knows it the member is looking to PayPal as their PFI."

Hansen does not think PayPal is at the stage yet where it can truly threaten CUs for business. Yet, he acknowledged that members are always looking for ways to save time and make banking easier. "They are saying if PayPal wants to come along and provide their service for free, we will take it."

Quick Acceptance Curve

Talking to Credit Union Journal at Harland's Connections Conference here, Hansen said he believes CUs need to add P2P simply to keep members from looking elsewhere for the speed and convenience of P2P.

Harland recently acquired uMonitor, the well-known provider of online solutions for credit unions, and is expanding this acquisition. Harland has products in place and in development to help CUs enter the P2P space easily and inexpensively, Hansen explained. "We have a P2P model being used now by more than 100 financial institutions."

As PayPal's success builds, it could easily expand to offer deposit products, warned Hansen. "If you are maintaining a PayPal account and using them for payments, what's to stop them ultimately from gathering and storing deposits in the PayPal accounts? Maybe the money is uninsured, but does the average consumer care if the $1,000 to $2,000 they park in the transactional funds at PayPal is uninsured?"

But Leslie Ellis, president of Credit Union 1 in Anchorage, Alaska, is not as concerned about the threat of the non-banks, such as PayPal and Walmart, because CUs offer much more to members than these new potential rivals. "We form a relationship with our members, and they go to Walmart to cash a check. In our market these players are not affecting us."

Yet June Parent, EVP and senior retail banking officer at Camden National Bank in Camden, Maine, disagrees. "PayPal scares me. As we go forward with new delivery channels, financial institutions have to be gearing up for P2P. We have to have that delivery channel."

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