Transforming Transactions

closeup of Benjamin Franklin on 100 dollar bill covered in digital 1s and 0s
Celia Shatzman Photo
Writer & Editor

14 minutes

Successful competitors in today’s payments world emphasize personalization, ease of use and the right technology.

Four experts weigh in on the disruptive, always-changing payments space—and their recommendations for how to capitalize on it.

Payments Personalization

From Amazon suggesting your next buy before you even realize you need it to Netflix making movie night easier with its curation algorithm, we’ve come to expect the places where we do business to predict our next move. That’s also true for consumers’ financial partners, which is why PSCU has taken a page from tech giants to develop expert customization. 

“There is an increasing demand from members for the flexibility to personalize their payments preferences,” says Brian Scott, chief growth officer for CUESolutions provider PSCU, St. Petersburg, Florida. “In PSCU’s 2022 Eye on Payments study, we found that personalization was one of the four key factors driving consumer payments preferences and behaviors. In fact, nearly eight out of 10 survey respondents agree … that they want to do business with a financial institution that knows them personally. While convenience and security consistently rank in the top four, we are seeing overwhelming growth in personalization.” 

Buy now, pay later in its myriad forms is one of the most popular changes Scott has noted lately—both for online or point-of-sale purchases—that play into the personalization trend. According to Aite-Novarica Group, BNPL retail e-commerce volume was approximately $500 billion in 2020, up 28% from 2019. At the end of 2020, BNPL spend in retail e-commerce was projected to grow to more than $1.2 trillion by 2024, a 25% compound annual growth rate. 

“In actuality, total BNPL spend by that point is likely to be even higher than originally projected when considering the recent expansion of BNPL offerings,” Scott adds.

There’s also been an increase in person-to-person transactions, as well as consumers wanting to be able to customize their payments experience using all the options. 

“For example, a consumer may want to use their credit card for part of a transaction, debit card for another part and a BNPL option for the remainder,” Scott says. “The way in which people choose to pay is becoming a bigger, more relevant trend.” 

To accommodate these changes, PSCU has looked for ways to allow members to customize their payments’ timing as well. 

“Members want to make purchases and then decide how to pay for them later,” Scott says. “This will make it easier to use your debit or credit card to make purchases initially but decide later which avenues you’d like to use to pay for it, taking the pressure off from having to make a decision in the moment. The preference toward this type of offering has become abundantly clear with the quick rise in popularity of BNPL offerings.”

The biggest lag in credit unions trying to keep up with current consumer demands is enabling personalization and self-service, according to Scott. It follows then that these trends present the biggest opportunity. He points out the mentality among credit unions that they should talk to members—in person or over the phone—to maintain control, but members often see the need for a customer service phone call as a mark of failure. 

“Increasingly, members want the ability to quickly and easily take care of all their financial needs online—mark a card lost or stolen, digitally access cards or activate them immediately, among other activities,” he says. “By enabling these self-service options, it puts the control in the hands of the member for a more positive experience. It’s important to note that these self-service features are available for credit unions to use—they just need to be willing to activate them.”

How will the payment space be disrupted next? Scott suggests watching what happens with cryptocurrency and online gambling. 

For example, he says it’s worth paying attention to the number of transactions from credit unions currently going into cryptocurrency. Around 8% of one credit union’s transactions are currently from members using credit or debit cards to buy cryptocurrency, and that’s expected to increase, he notes. 

“The prevalence of online gambling and the volume of transactions going into it is increasing rapidly, making it another area ripe for disruption,” he adds. “A lot of credit unions are shying away from online gambling because of the inherent risks, so each credit union will have to evaluate if they want to enter this space. Consider that while this is still a small volume of overall transactions, the growth in this space is significant.”

Scott continues: “All credit unions have the ability to determine if their cards­—credit and debit—will work for members’ online gambling. Traditionally, financial institutions have not allowed their credit cardholders to use credit for any sort of gambling. Credit unions that are focused on members’ financial well-being especially have not allowed members to use credit for gambling of any kind. On the other hand, since debit transactions use funds already in the account, a majority of financial institutions allow gambling transactions on debit cards. Some may place some restrictions around velocity and daily dollar amounts as a fraud prevention measure, however.”

Ultimately, credit unions are all still focused on how to remain top of wallet. 

“While this is certainly important, being top of digital wallet is even more important,” Scott says. “If credit unions want to play in that space, they have an opportunity to secure a spot at the top of the digital wallet by enabling personalization and self-service options.”

Brian Scott
Chief Growth Officer
A consumer may want to use their credit card for part of a transaction, debit card for another part and a BNPL option for the remainder. The way in which people choose to pay is becoming a bigger, more relevant trend.

Making Payments Easier

Since the start of the COVID-19 pandemic, the number of online purchases done at home has gone through the roof. This has triggered a lot of innovation in the payment space, including how to make it easier for consumers to input their data into various fields within an e-commerce channel. 

“Online retailers have prioritized the integration and enhancement of various card-on-file solutions, all in the name of eradicating the slowdowns and frustrations that have characterized e-commerce in the past,” says Tom Church-Adams, SVP/pay products at CUES Supplier member Co-op Solutions, Rancho Cucamonga, California. 

“As most every U.S. adult with a credit or debit card has experienced, it’s extremely inconvenient to update card data with all necessary merchants and billers when that card is changed, either because of a mass reissue or an individual lost/stolen circumstance,” Church-Adams says. “Push-to-merchant enables the seamless, invisible-to-the-member carryover of new card details to replace the outdated ones.”

Since credit unions, just like merchants, want the smoothest transactions possible, both online and in physical channels, secure card-on-file solutions are in high demand among credit and debit issuers, Church-Adams notes. That also goes for real-time issuance programs that put the ability to transact into member hands before their physical cards arrive in the mail. “There is a big push for credit unions to keep transactions flowing,” he says. “They can’t afford disruptions to the member payments experience.”

To stay competitive in the shifting landscape, Co-op is currently participating in several payments pilots, one of which is testing the ability for consumers to secure their payments with biometrics. 

“As a culture, we made a big shift from paying with plastic to paying with wearables,” Church-Adams says. “The next question is whether we’ll now shift away from using payment devices altogether in favor of things like fingerprints and eye scans. For this to work, banking details will need to be tied to even more personal data. Therefore, I expect to see a lot more integration between biometrics and payments.” 

Making this shift will require dedication to cybersecurity and a responsible data strategy, he says. Such innovations as biometric payments are a reason Co-op established its Ethical Data Use Council. This group considers the impacts of data collection, outputs and decisioning, including any possible or perceived unintended bias. 

“It’s common for credit unions to be focused on what has been considered their bread-and-butter products, such as mortgage loans, rather than building out teams to support growth or dynamics in their payments portfolio,” Church-Adams says. “Meanwhile, fintechs are acquiring payment accounts at a breakneck pace because that is their singular focus—the transactional account. Why? Because that is how you cement user relationships—by owning the day-to-day financial moments of everyday life. These fintechs are not worrying about milestone moments that generate huge mortgage portfolios. They are worried about lifestyle moments.” He believes credit unions that hope to retain member trust and loyalty will need to take a similar approach. 

For credit unions to stay at the top of the game in the payment space, they should work with payments partners that can connect well with other sides of the business, whether that be core processing or digital banking. 

“The idea is to strategically improve integration of payments with the overall infrastructure of the credit union,” Church-Adams says. “Members expect credit unions to know every facet of the relationship and to interact with each of their financial concerns in one place.” 

Ultimately, the short-term wins from mortgages and loans are not sustainable. “Credit unions must see the value in their payments portfolio as a way to maintain a healthy, vibrant membership,” Church-Adams says. “The ROI of payments is not always apparent in the balance sheet, but it unequivocally is the path to growth.” 

Competition and Profitability

What’s the top takeaway from Libby Calderone, president of CUES Supplier member Envisant, Naperville, Illinois, from the shift to e-commerce and online transactions during the pandemic? It’s important to set up your payments parameters properly.

“Debit transactions grew dramatically, often at the expense of credit transactions,” she says. “Some of this was due to government stimulus payments during COVID-19 that were deposited into transactional accounts. Some of this was due to credit transactions not being as attractive due to reduced travel (especially credit cards that gave rewards in airline miles, hotel nights or other travel-related benefits). Debit transactions typically have a lower interchange rate, thus reducing credit union income. And [the transactions] were a smaller amount of money.”

The rapid growth of BNPL is primarily taking away transactions from credit, but debit versions of BNPL are offered too. 

“This reduces interchange income and potentially credit card balances, thus reducing finance charge income,” Calderone says. With BNPL “being offered at point-of-purchase, credit union debit and credit cards aren’t even getting the opportunity for the transaction. Some of these transactions could have become revolving credit balances, earning a credit union finance charge income, but that income is lost if the transaction goes to BNPL.” 

She notes that BNPL has lots of concerns, including that transactions done through the new strategy are starting to be reported to credit bureaus. Time will tell how this will impact credit scores. “I suspect the CFPB may weigh in on this product as more consumers use it, more become DQ (delinquent) in their payments and more complaints are registered,” she adds.

Another shift Calderone has noticed is that faster payments are gaining traction. “When the Fed launches FedNow ( in 2023, even more transactions will shift to this channel,” she predicts. “These transactions will run on the ACH rails and will take away interchange income.”

P2P transactions have also grown exponentially, and it’s not just friends reimbursing each other for lunch. “Many small businesses now accept Venmo, Cash App and the like. Not only does this take away a potential transaction from debit/credit (and its related interchange), but deposit disintermediation is happening. Users of various apps are maintaining significant balances on these platforms. While credit unions may not care today because they are flush with deposits, they will care when they are looking for deposits in the future,” Calderone says.

The pandemic also sparked the need for contactless cards, but issuing them is expensive, since each card now has to include a stripe, chip and antennae to allow swipe, dip and tap transactions. Calderone notes that credit unions are hesitant about the cost. A digital wallet is an easier option that continues to grow. 

“Credit unions may be hesitant to adopt these wallets, but given their ubiquity, they need to add this capability,” she says. Credit unions should also make strides in digital issuance because when consumers want a new payment card or need a replacement, they want it immediately. 

“Issuing it digitally and having it tokenized to a wallet will be fast and easy for the consumer,” she adds. “For card controls, consumers want to be able to control the card with little friction. They want immediate alerts on activity, the ability to block a card, monitor spending and limit certain activities like international transactions.”

Immediate rewards is another growing consumer demand. “Some cards now provide immediate rewards, like a fuel-cost reduction at the pump,” Calderone says. “This will increase credit union costs to offer such rewards programs and could lead to credit unions having to charge higher APRs on credit or add annual fees. How would changes like that affect a card program to the members?”

To stay competitive, Envisant has pushed client credit unions to adopt contactless cards and tokenization as tools in the fight against fraud. “These are almost table stakes now,” Calderone says. “We work with our credit unions to monitor activity to spot fraud trends and shut it down. And because we see fraud activity across hundreds of credit unions, we are able to share those trends and look for similar fraud at all of our credit unions, stopping it before they experience losses. For our prepaid customers, we now offer virtual and tokenized cards. This allows for immediate issuance of a card, thus speeding up the time to begin transacting on the card.”

In response to customer demand, Envisant is pushing adoption of digital issuance. Additionally, it has partnered with fintechs to provide the payment card for their products, particularly for unbanked and underserved segments. “We are launching a credit builder loan product with Cambio so that consumers can boost their credit scores and gain access to prime lending opportunities, rather than having to go to subprime or payday lenders,” Calderone says.  

For credit unions to stay competitive, they need to adopt these technologies. “There are costs for setting up new offerings, and credit unions may be hesitant to take on the costs,” Calderone says. “Do an analysis to see how quickly you can recoup your one-time and ongoing costs by calculating the volume lift you need to break even. All these changes create confusion and angst, so credit unions can be the trusted advisor to offer these enhancements and products. Lean into this trust.”

Tom Church-Adams
SVP/Pay Products
Co-op Solutions
Members expect credit unions to know every facet of the relationship and to interact with each of their financial concerns in one place.

Contactless Cards and Instant Issue

Heavy focus on contactless technology for institutions big and small is the most recent notable change in the payments space, according to Nicole Machado, VP/product management, card solutions at CUES Supplier member Vericast, San Antonio. 

“We have seen financial institutions put greater urgency around their migrations to contactless technology,” she says. “The pandemic only fueled cardholders’ desires for quick and easy touch-free payment vehicles. Customers have spoken, and financial institutions are responding.”

Credit unions that want to keep up with the marketplace should speed up their migration to contactless technology, Machado says, adding that she believes the lag on this in the credit union industry could be due in part to processor readiness.

“Credit unions should be reaching out to their processors and card providers to discuss their migration plans in order to ensure they will be able to meet their members’ desires for this technology and remain top-of-wallet,” she says. 

In addition, Machado thinks instant card issuance is on the verge of being imperative as credit unions sort out what is the right balance of digital delivery.

“While instant issue is now quickly becoming a must-have for financial institutions, there are still a large number of credit unions that do not offer instant issue as part of their product offerings and are missing a key component in their member experience and engagement strategy,” she says. “With software-as-a-service models, instant issue is a solution that can be implemented and managed in a cost-effective way by any size institution. I would encourage those credit unions that are not offering instant issue today to seriously consider it.”

It’s clear that digital will continue to gain momentum, but the question—and challenge—is how digital payments will evolve. 

“Is it push-provisioning, digital instant issue, digital card management tools, digital checks?” Machado asks. “The term itself can mean many different things. While there is a lot of talk about digital payments, it is still a space where financial institutions can be challenged to figure out how they can engage due to the complexity and number of players involved.” cues icon  

Celia Shatzman has penned stories on topics ranging from beauty to fashion, finance, travel, celebrities, health and entertainment.

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