Credit unions must develop a digital strategy in order to keep up with the future of the payments space.
That’s the advice of two Visa and Mastercard representatives who spoke as part of a panel discussion during the National Association of Federally-Insured Credit Unions’ recent annual conference in Hawaii.
The physical card is “still the most important way for consumers to pay,” offered Neil Mumm, VP of corporate strategy for Visa. “For that to change there would have to be a massive infrastructure change by merchants and consumers would have to be comfortable paying with something other than a physical card. I don’t have a crystal ball to say exactly when that will take place. In Australia, 80 percent of functions are done contactless.”
Mumm said if CUs wish to build a 10-year strategy, it would have one pillar based on service, one pillar involving security and another being a digital roadmap making their payments platform ready for the future. “Credit unions are known for having the best service in the industry. Consumer preferences certainly are changing. They shifted to home banking, now they are shifting to mobile banking. More than 60 percent of consumers say home banking and mobile banking are going to keep them with whatever financial institution. Keep up with what your members want. Be smart on tokenization. Have flexibility to offer various digital wallet options that are emerging and will continue to emerge going forward.”
Ben Colvin, SVP of North America enterprise security solutions for Mastercard, said how consumers access their account is key. “Your card strategy should be two parts: one, making sure people feel absolutely safe and secure to use it. Prepare against mass attacks. Prepare to minimize fraud while minimizing false declines. The second part is, while thinking of your digital strategy, think about card storage.”
Colvin said having a digital strategy in place is not just for millennials, it is not just for tech-savvy members, it is core to a CU’s business on every level. “Not just on payments but how you serve your members. Make your mobile banking app more user-friendly. Even larger institutions do not have solid digital strategies with articulated digital roadmaps.”
To better secure their payment systems, Mumm said CUs need to start at the member level, where it is important to understand and react to account takeover. He said the goal is make sure there are no counterfeit cards being created or those that are created have less value. “Tokenization is valuable,” he said. “Visa and Mastercard have collaborated on tokenization to allow for standards that allow token to be turned off after a breach without having to reissue the card. In the future, tokenization could have a significant effect on card not present fraud.”
Colvin added digital wallets are not just another form of convenience for consumers, they are a fraud protection tool for card not present fraud. “They identify the consumer that is using the account.”
Mumm and Colvin were joined on the panel by Arkansas FCU President and CEO Rodney Showmar, who acted as a moderator.
How millennials pay
Colvin noted that the millennial demographic – which spans roughly consumers between the ages of 18 to 34 – isn’t a homogenous group, even if they often get lumped together as though they all talk and behave the same way. And, he said, when it comes to payments patterns, there are some key differences within that demographic.
Millennials can be split between those who are age 18 to 25 and those who are 26 to 34, he said, explaining that the younger set tends to be more “pay now” consumers, using debit accounts. The older millennials, who are beginning to be established in their careers, are seeing the benefit of having credit and rewards.
“Credit unions have a serious opportunity to attract millennials because they are socially responsible,” Colvin said. “Having a digital strategy is critical to addressing aging memberships. They use mobile wallets, they use their phones. Credit unions have to be relevant. There is always stuff to do and budgets cannot cover everything, but you have to address digital strategy to reach this group.”
Mumm noted millennials are spending a lot of time on their phones, but spending has not switched to mobile on a large scale…yet. “Once the experience is optimized and consumers wrap their head around it, there will be growth in mobile spending,” he predicted. “It is not only Millennials that are shifting to mobile.”
What to do about fintech?
Credit unions face the ongoing challenge of how to do with increased competition from fintech providers, but the panelist offered some comfort for financial institutions.
Asked how fintech is impacting traditional providers, Colvin said fintech can be good or bad, depending on the individual company and its solution. He said in many cases these startups tend to have a narrow reach that solves just one or two issues. “They can be an asset for credit unions if they bring a capability to the credit union that is aligned. It might be an affordable and quicker way to bring in enhancements if the credit union partners with the fintech company. Mastercard has a program to examine fintech companies to vet them and determine if they are viable. Don’t feel you have to do this on your own. Leverage your network.”
Mumm said Visa likewise talks to tech players every day. “We try to gauge their goals and aspirations, and many of them want to work alongside existing players. There is an overflowing graveyard of fintech players, so it is important to be diligent and monitor these companies while not getting too freaked out. Many never deliver what they promise.”
The panelists were asked: If you were a CU CEO, what is top of the to-do list?
Mumm said he could not narrow it down to one item, he would have to do two. “Having a digital roadmap is absolutely critical. Know what payment experiences your members want. Second is grooming the next generation of credit union leadership to make sure they know about the future of payments.”
