What is your credit union’s payments strategy?
Ten years from now, Americans will not be using plastic cards for payments in the same way we do today, and people will struggle to remember how they used to pay for goods and services without technology.
That was the message from Mark Sievewright, founder and CEO of the Sievewright and Associates consultancy. The former MasterCard executive spoke Thursday as part of CUNA Mutual Group’s online DISCOVERY Conference.
According to Sievewright, several factors are working together to shape the future of payments – from technology to regulations to changes in consumer behavior. He said credit unions need to understand the trends and track the dynamics.
“I walk into many credit unions and ask for their payments strategy, and I am told they do not have one, or it is a general part of their strategic plan,” he reported. “Credit unions need to have a payments strategy. They need to analyze what their credit union is doing and engage their members.”
Mobile payments will become more mainstream as the value proposition improves, Sievewright said. He noted since he emigrated to the United States in 1997, as many credit unions have disappeared as there remain in business today – and he expects consolidation to continue.
“Today we are a hyper-efficient industry, and that is because of consolidation,” he assessed. “Not only will the number of credit unions continue to shrink, there will be consolidation in banks and in the payments industry. Consolidation in payments will drive revenue.”
Elsewhere in the conference, CUNA Mutual Group Chief Economist Steve Rick touched on consolidation across the credit union movement and offered a way to predict how the industry will continue to shrink in the years ahead.
P2P success story
PayPal is one of the few true success stories in the payments space, Sievewright said, adding not many other fintech companies have stolen market share from CUs. He said fintechs are trying to change the very business model of payments, with the goal of frictionless usage by consumers.
Companies that have made a bit of a name for themselves include Square and Venmo. Sievewright said Square has had an “on again/off again romance” with being a bank, but he is certain it eventually will refile its banking application. Venmo is popular, but he said the company has yet to make a single dollar in profit.
Zelle is an emerging point-to-point payments system. Sievewright praised CUs for joining the consortium that runs Zelle, describing it as a counter to Venmo.
What worries Sievewright is Target’s Red Card, which offers users 5 percent discount on purchases. He said the popularity of this card is taking market share from CU debit/credit cards, and therefore interchange income.
Changes coming soon
Many changes are on their way to the payments space, Sievewright said. Rewards are very popular – ranging in form from cash back to air miles to discounts – but redemption often remains rooted in paper. He expects electronic redemption of rewards will change the way rewards cards are used.
Regulations also are changing. Sievewright pointed to the introduction of the Open Banking Model in Europe, sometimes referred to as PSD2. “This gives consumers power over the information financial institutions have about them. The information no longer belongs to the financial institution, it belongs to the consumer.”
The United States is trying to build a ubiquitous, real-time payments system. According to Sievewright, advances in technology will help make this happen, starting with increased use of artificial intelligence. He explained AI essentially is a way for computers/machines/software to replicate human thought, and do so incredibly fast.
Perhaps surprisingly, where AI has made some of the biggest news has been surrounding board games. In 1996, IBM’s Deep Blue famously defeated chess grandmaster Garry Kasparov in a rematch, six months after the human easily bested the computer. “Deep Blue learned from its mistakes and beat the best chess player in the world,” Sievewright recalled. More recently, an AI program defeated the best human player of the Chinese game Go.
“Artificial intelligence is now part of the offerings many institutions are doing around the world,” he said. Examples include Tandem Bank in the U.K., which offers AI financial planning, and Royal Bank of Canada, which has AI financial management. “Technology is informing the customer in those cases. There are no humans involved. We are moving toward a digital concierge.”
Data analytics is a fast-growing industry. Sievewright said the oft-heard phrase “big data” means having the “right” communication with members at the “right” time in the “right” context.
“Most big banks are at the predictive analytics level, which means they have a high degree of confidence at getting a response. We are not there yet,” he said of credit unions. “The top level is prescriptive analytics.”
Biometrics is another emerging technology that will shape the payments space. Sievewright noted many CUs are already using fingerprints and facial recognition for verification of mobile banking transactions. He expects the next big push to be in voice recognition. There are 40 million U.S. households with voice-enabled devices. Capital One Bank allows Amazon Echo users to initiate voice banking.
There are demographic shifts coming, as well, Sievewright said, joking “We all love millennials, but they are not the only game in town.” He noted Visa recently said it expects the majority of payments growth to be from consumers 45 years or older.
“Don’t build a payments strategy around one demographic segment, build a payments strategy to attract all ages,” he advised. “Don’t forget older users. Even octogenarians are adopting mobile banking, and mobile banking is a precursor to mobile payments. Those older consumers can be great grounds for growth.”