Mapping the future of payments: On-site at PSCU's Member Forum
April 6, 2017 12:42 PM
Photographer: Denys Prykhodov
What will the future look like?
With rapid changes happening in the payments space and the credit union movement, speakers at PSCU's Member Forum, held this week in Palm Desert, Calif., highlighted a variety of topics to help CU leaders better navigate the uncharted waters ahead.
'Moving toward a cashless society'
According to PSCU CEO Chuck Fagan, consumers are “increasingly comfortable” transacting in an electronic way. “Your members are comfortable sitting in a car in the parking lot doing clicks while Christmas shopping. Electronic wallets will become increasingly convenient. I believe the definition of a PFI is payments. My daughters, who are 27 and 22, don’t talk about their checking accounts, they talk about their debit cards.”
Fagan cited several examples of how technology is rapidly changing consumer behavior. He noted Uber Eats delivers food. Postmates picks up stuff and brings it to you. At Amazon Go there are no cashiers, just scan the items you wish to purchase and your payment card is charged automatically when you walk out. Amazon’s Prime Now has one-hour delivery. “The attack on small-dollar cash payments is ongoing and will continue,” he declared. “Those small transactions are shifting to electronic.”
“We have to take control of all the ways members connect with their credit union: calls, e-mails and in-branch,” Fagan said. “Expect credit card growth to increase 9% annually. At least 50% of that is coming from baby boomers, who have built up lifelong savings and now they want to get out, travel, see grandkids and do all the things they have been waiting for. We are moving toward a cashless society, and credit unions have to be able to support that.”
Fagan cited several examples of how technology is rapidly changing consumer behavior. He noted Uber Eats delivers food. Postmates picks up stuff and brings it to you. At Amazon Go there are no cashiers, just scan the items you wish to purchase and your payment card is charged automatically when you walk out. Amazon’s Prime Now has one-hour delivery. “The attack on small-dollar cash payments is ongoing and will continue,” he declared. “Those small transactions are shifting to electronic.”
“We have to take control of all the ways members connect with their credit union: calls, e-mails and in-branch,” Fagan said. “Expect credit card growth to increase 9% annually. At least 50% of that is coming from baby boomers, who have built up lifelong savings and now they want to get out, travel, see grandkids and do all the things they have been waiting for. We are moving toward a cashless society, and credit unions have to be able to support that.”
The future is faster
Want to boost member engagement and reduce fraud? It’s time to figure out how to move money faster.
That’s according to Casey Merolla, principal with First Annapolis Consulting, headquartered in Annapolis, Md., which recently was acquired by Accenture. Merolla told attendees faster payments benefit both financial institutions and consumers. On the FI side, moving money more quickly increases engagement, reduces funds availability risks, reduces fraud risks and provides potential new revenue sources. Consumers, on the other hand, want payment speeds to be as fast as possible, enjoy payment certainty and transparency, find increased convenience at a reduced cost compared to other transfer methods, and believe faster payments helps them with budgeting.
There are a number of initiatives in development to effect same-day ACH. Some of these solutions are being developed by card processors, some by the card networks, and others by non-traditional/non-bank P2P providers, including PayPal, Venmo, Dwolla and Square. According to Merolla, some of the card processors are working to leverage the existing core banking infrastructure, while others are creating new networks between financial institutions. Card networks, including Visa Direct and MasterCard Send, are leveraging their existing infrastructure and cardholder base to enable “push” payments. The non-banks are trying to enable real-time payments outside of the traditional financial infrastructure.
“Faster payments will move beyond P2P,” Merolla predicted, describing P2P as a “test case” for faster, real-time payments. “If credit unions do not offer open bill pay – meaning real-time payment of bills – it might be an area where they lose members in the future. The Holy Grail is real-time POS purchases. Once consumers get used to sending money to their friends, and then paying their gardener, we see it as a slippery slope to expectations of real-time POS purchases. If a credit union is not offering the ability for members to make real-time POS purchases, and someone else is, that could mean the loss of the entire relationship.”
That’s according to Casey Merolla, principal with First Annapolis Consulting, headquartered in Annapolis, Md., which recently was acquired by Accenture. Merolla told attendees faster payments benefit both financial institutions and consumers. On the FI side, moving money more quickly increases engagement, reduces funds availability risks, reduces fraud risks and provides potential new revenue sources. Consumers, on the other hand, want payment speeds to be as fast as possible, enjoy payment certainty and transparency, find increased convenience at a reduced cost compared to other transfer methods, and believe faster payments helps them with budgeting.
There are a number of initiatives in development to effect same-day ACH. Some of these solutions are being developed by card processors, some by the card networks, and others by non-traditional/non-bank P2P providers, including PayPal, Venmo, Dwolla and Square. According to Merolla, some of the card processors are working to leverage the existing core banking infrastructure, while others are creating new networks between financial institutions. Card networks, including Visa Direct and MasterCard Send, are leveraging their existing infrastructure and cardholder base to enable “push” payments. The non-banks are trying to enable real-time payments outside of the traditional financial infrastructure.
“Faster payments will move beyond P2P,” Merolla predicted, describing P2P as a “test case” for faster, real-time payments. “If credit unions do not offer open bill pay – meaning real-time payment of bills – it might be an area where they lose members in the future. The Holy Grail is real-time POS purchases. Once consumers get used to sending money to their friends, and then paying their gardener, we see it as a slippery slope to expectations of real-time POS purchases. If a credit union is not offering the ability for members to make real-time POS purchases, and someone else is, that could mean the loss of the entire relationship.”
Why history could limit your future
Some people fear digitization because it seems dehumanizing. They value the face-to-face contact of traditional business. But according to futurist Anders Sorman-Nilsson, millennial consumers do not have the same loyalties as past generations. Anders told the audience his mom sells formal clothing at a 100-year-old store in Stockholm, Sweden, that has been part of the family for three generations. “It is a business model perfectly constructed for a world that no longer exists. By being tied to history, she runs the risk of not having a future,” he said.
In his talk, titled “Weaving digital and analogue worlds,” Sorman-Nilsson said the world of the analogue and the world of the digital are not mutually exclusive – they can exist together. “Some of what was called ‘loyalty’ in the good old days can be partly attributed to lack of choice,” he assessed. “Today, if a company’s digital payment system has friction, people will go elsewhere because they have many choices.”
Those born after 1994 have never known a world without the Internet. Because more people these days do not use cash, Sorman-Nilsson said companies are having to build digital payment systems to cater to these digital natives. For example, Alipay.com did $100 billion in payments in less than 12 months. It is the biggest payment company in the world, but has zero branches.
“Payments are becoming seamless, and people are checking in to their hotel on their smartphones,” he said. “But even through digital interfaces, credit unions can create member loyalty. Studies have found the more digital channels members use, the higher the credit union’s Net Promoter Score. Members want their credit union to help them make smarter decisions. This means they can digitally recommend products and services."
In his talk, titled “Weaving digital and analogue worlds,” Sorman-Nilsson said the world of the analogue and the world of the digital are not mutually exclusive – they can exist together. “Some of what was called ‘loyalty’ in the good old days can be partly attributed to lack of choice,” he assessed. “Today, if a company’s digital payment system has friction, people will go elsewhere because they have many choices.”
Those born after 1994 have never known a world without the Internet. Because more people these days do not use cash, Sorman-Nilsson said companies are having to build digital payment systems to cater to these digital natives. For example, Alipay.com did $100 billion in payments in less than 12 months. It is the biggest payment company in the world, but has zero branches.
“Payments are becoming seamless, and people are checking in to their hotel on their smartphones,” he said. “But even through digital interfaces, credit unions can create member loyalty. Studies have found the more digital channels members use, the higher the credit union’s Net Promoter Score. Members want their credit union to help them make smarter decisions. This means they can digitally recommend products and services."
What 'Law & Order' can teach CUs about cybersecurity
“When facing upheaval, it is comforting to have things going on that make us feel a little more secure,” said Larry Clinton, president and CEO of the Internet Security Alliance. “Something we can count on: There is an episode of ‘Law & Order’ on air every minute of every day,” he said with a laugh.
Every episode of the television show “Law & Order” follows the same pattern: The Problem, Urgency, Barriers to Resolutions, the Champion, and finally, the Resolution. And, said Clinton, “Law & Order” can teach us a lot about cybersecurity.
“The ‘Problem’ is sophisticated cybercriminals who are using advanced technological methods to steal money and an antiquated police structure that cannot keep up,” he said. “How big is the problem? In the last minute, $4,400 was lost due to cybercrime and 832 new versions of malware were created.”
One of the biggest “Barriers” is that we don’t understand the problem, Clinton continued. “Too many of us are still worried about hackers, or just about credit cards and PII [personally identifying information]. People think criminals don’t care about their business because it is too small. If you think that, you are wrong: 70% of cybercrime happens at small businesses. Cybersecurity is not just defensive, keeping the bad guys out; you need to be proactive.”
In the financial services industry, too much time and money is being spent on compliance at the expense of resources that could and should be devoted to cybersecurity, Clinton asserted, pointing out there are more than 60 separate security standards just for FIs.
“Financial institutions are still using security models based on a perimeter-oriented outlook and safeguarding information in the back office. But attack models have evolved and changed,” he said. “The system is getting weaker thanks to the Internet of Things. Meanwhile, the attackers are getting much better. They are making hundreds of millions of dollars and reinvesting in their business. Attacks are so sophisticated, once they get in they clean up malware so when the financial institution does a penetration test it comes up clean. And then the attackers move.”
The bad news: you cannot “solve” the cybersecurity problem. The good news: you can manage your cyber-risk. “No one lives germ free – we are under attack all the time. But with good hygiene and good medical care, you can manage your health.”
Solutions need to be enterprise-wide, credit union boards of directors need to be involved, and there needs to be an understanding that cybersecurity is not all about IT, Clinton said. “Cybersecurity is a continuum – you are never completely secure. There is not going to be a magical widget invented to solve the problem, or an overarching cyber-regulation that will make everything secure, we all need to work together.”
Every episode of the television show “Law & Order” follows the same pattern: The Problem, Urgency, Barriers to Resolutions, the Champion, and finally, the Resolution. And, said Clinton, “Law & Order” can teach us a lot about cybersecurity.
“The ‘Problem’ is sophisticated cybercriminals who are using advanced technological methods to steal money and an antiquated police structure that cannot keep up,” he said. “How big is the problem? In the last minute, $4,400 was lost due to cybercrime and 832 new versions of malware were created.”
One of the biggest “Barriers” is that we don’t understand the problem, Clinton continued. “Too many of us are still worried about hackers, or just about credit cards and PII [personally identifying information]. People think criminals don’t care about their business because it is too small. If you think that, you are wrong: 70% of cybercrime happens at small businesses. Cybersecurity is not just defensive, keeping the bad guys out; you need to be proactive.”
In the financial services industry, too much time and money is being spent on compliance at the expense of resources that could and should be devoted to cybersecurity, Clinton asserted, pointing out there are more than 60 separate security standards just for FIs.
“Financial institutions are still using security models based on a perimeter-oriented outlook and safeguarding information in the back office. But attack models have evolved and changed,” he said. “The system is getting weaker thanks to the Internet of Things. Meanwhile, the attackers are getting much better. They are making hundreds of millions of dollars and reinvesting in their business. Attacks are so sophisticated, once they get in they clean up malware so when the financial institution does a penetration test it comes up clean. And then the attackers move.”
The bad news: you cannot “solve” the cybersecurity problem. The good news: you can manage your cyber-risk. “No one lives germ free – we are under attack all the time. But with good hygiene and good medical care, you can manage your health.”
Solutions need to be enterprise-wide, credit union boards of directors need to be involved, and there needs to be an understanding that cybersecurity is not all about IT, Clinton said. “Cybersecurity is a continuum – you are never completely secure. There is not going to be a magical widget invented to solve the problem, or an overarching cyber-regulation that will make everything secure, we all need to work together.”
Leadership lessons from the most popular pilot in America
Also on-hand was Chesley B. Sullenberger, better known to the world as “Sully,” who in 2009 famously landed an airplane full of passengers on the Hudson River.
Sullenberger told the PSCU audience a federal investigator who heard the cockpit voice recorder said, “That guy has been training for this his entire life.”
Indeed, said Sullenberger, the combination of his upbringing and his training with the U.S. Air Force helped him immensely in his time of emergency. His grandparents were born in the 19th Century, and his mom was an elementary school teacher for 25 years. “Education was valued in my family,” he recalled. “As an adult, I decided to keep learning and keep growing. The pace of change is only accelerating, so we must keep on going, stretching ourselves, reinventing ourselves. Innovation means change before you are forced to. The more you are able to change the more you are able to improve without being forced to by crisis.”
Sullenberger said his grandparents and parents believed in service above self, had a sense of civic duty and believed in doing their jobs. He said on the day he landed the crippled plane, he was doing his job. “Today, civic virtues have been lost in the noise. Many people think they will never have to demonstrate a sense of duty, or courage. We owe it to each other to be informed citizens. We must be scientifically literate. We must be a good enough citizen that we can make important decisions based on facts, not fears or big lies spoken loudly and often.”
Sullenberger told the PSCU audience a federal investigator who heard the cockpit voice recorder said, “That guy has been training for this his entire life.”
Indeed, said Sullenberger, the combination of his upbringing and his training with the U.S. Air Force helped him immensely in his time of emergency. His grandparents were born in the 19th Century, and his mom was an elementary school teacher for 25 years. “Education was valued in my family,” he recalled. “As an adult, I decided to keep learning and keep growing. The pace of change is only accelerating, so we must keep on going, stretching ourselves, reinventing ourselves. Innovation means change before you are forced to. The more you are able to change the more you are able to improve without being forced to by crisis.”
Sullenberger said his grandparents and parents believed in service above self, had a sense of civic duty and believed in doing their jobs. He said on the day he landed the crippled plane, he was doing his job. “Today, civic virtues have been lost in the noise. Many people think they will never have to demonstrate a sense of duty, or courage. We owe it to each other to be informed citizens. We must be scientifically literate. We must be a good enough citizen that we can make important decisions based on facts, not fears or big lies spoken loudly and often.”
