Roughly six in 10 consumers say it's important their financial institution offers instant payments.1 For Gen Z, that percentage jumps to 78%.2 Further, among all generations, Gen Z and millennials exhibit the highest risk of switching from their primary bank, even though their satisfaction levels are only marginally lower than those of older consumers.3
These statistics showcase the risk financial institutions can face if they don't heed the call of the payments now demands emanating from their client base. Creating this experience in the banking industry can be quite challenging, as it often involves navigating fragmented legacy systems and dealing with time delays in ACH and wire transfers.
With increasing competition from P2P providers and a growing trend towards 'always on' payments, banks and credit unions that overlook payments modernization may encounter several business challenges. These can include the risk of losing members to fintech solutions and potential impacts on revenue, as clients seek alternatives to meet their payment needs.
Understanding the Challenge
Desert Financial Credit Union, with $9 billion in assets and more than 500,000 members, understands the importance of real-time payments. The largest local credit union in Arizona with over 50 branches is proud of its member service culture and saw its ability to offer next generation payments as a key component of being and staying their members' primary financial institution.
But to do so, the organization had to move away from its fragmented payment systems to a unified approach that supports faster payments, new payment rails, improved visibility and scalable growth. Desert Financial also knew it needed to address several gaps in its payment offerings, particularly a lack of immediacy in payment transactions like ACH which often takes multiple days and wire transfer, which relies on batch processing.
In building the business case, the credit union gave a lot of thought to what success looks like and which metrics align with its strategic objectives.
Determining the How
As the credit union considered not only its payment needs but the needs of its members, a few "wants" surfaced:
- A single point of access with global reach
- Real-time cross-border and domestic payments solutions
- Services comparable to those offered by larger institutions and fintechs
- Lower-cost service options for the underbanked and underserved
Considering the Why
"Payments has a profound influence on a financial institutions' growth," explains Louis Ierino, Vice President, Payment & Account Operations, Desert Financial "Consumers will choose providers that allow them to access and move their money the fastest."
Desert Financial also views payments as a conduit to member financial well-being. "Money is emotional," explains Ierino. "Our goal is to be there in members' time of need and make personal connections with members through payment transactions."
He adds, "We are committed to creating financial well-being for members, whether they are consumers or businesses. We want to meet member expectations while preparing for what's next in payments."
For Desert Financial, any revenue they generate from payments modernization is a bonus. The real prize is enhancing member financial well-being and enabling members to fulfil their own personal financial journey. "We want to be our members' primary financial institution," states Ierino.
Taking the Journey
For financial institutions beginning a similar journey, Ierino offers this advice: Assess your current infrastructure and identify the barriers that prevent faster money movement or instant payments. Then, define a path to sunset current technologies that no longer serve your strategy.
It's tempting to simply layer new technology over existing infrastructure, but that would be a huge mistake, believes Ierino. Instead, run old and new technologies in parallel during the transition. This approach prevents compromising the integrity of the existing platform and can ensure a smooth migration that doesn't disrupt the member experience.
Selecting a Partner
Desert Financial chose Visa Direct for its journey to solve money movement issues that other real-time payment solutions could not. Unlike member-only closed-loop systems, Visa Direct offers a single point of access with global reach, connecting billions of endpoints and delivering real-time* cross-border and domestic payments solutions.
Ierino describes the impact in a single word: freedom. "With Visa Direct, we can support cross border payments, business disbursements and new account funding with far greater flexibility," he said.
Importantly, Visa Direct levels the playing field, empowering regional financial institutions like Desert Financial to compete with larger financial institutions and fintechs. "Members who once relied on fintechs to move money internationally can now complete those transactions directly through Desert Financial." For example, the Visa Direct partnership will enable the credit union to build payment products for the underserved and underbanked at a lower cost.
In short: The rollout of Visa Direct later this year is a crucial step in a multi-year modernization journey. "Visa Direct will enable us to develop new products that empower members to pay who they want when they want and take control of their financial well-being."
*Actual fund availability for all Visa Direct transactions may depend on receiving financial institution, account type, region, compliance processes, along with other factors, as applicable.
Partner Content Disclosure
This content was created in collaboration with Visa and published by American Banker. Desert Financial Credit Union has consented to the use of its statements and experiences in this article. The references to other sources provided in the content are accessible in the public domain. The information provided is for informational purposes only and should not be relied upon as legal, business, or financial advice. Product availability and actual results may vary by financial institution, market, and implementation. All information is provided "as is" without warranty of any kind.
[1] https://fedpaymentsimprovement.org/news/blog/financial-institutions-can-use-instant-payments-to-attract-customers-improve-satisfaction-and-lower-risk-of-attrition/
[2] https://fedpaymentsimprovement.org/news/blog/financial-institutions-can-use-instant-payments-to-attract-customers-improve-satisfaction-and-lower-risk-of-attrition/
[3] https://www.deloitte.com/us/en/insights/industry/financial-services/gen-z-millennial-digital-banking.html
