Tech Time: Driving Credit Union Growth With Mobile Wallet Payments

Digital transformation is a top trend this year for credit unions, and that includes enabling mobile wallet payments to improve the member experience and drive growth.

Supporting flexible payment experiences that include digital wallet apps (like Apple Pay, Google Pay, PayPal, Venmo and Cash App) is critical to help credit unions stay competitive and relevant, particularly with younger members. Mobile wallets make it easy for members to send, receive and manage money from different funding sources (checking accounts, payment cards, gift cards, etc.) all in a few taps from their smartphone.

For credit unions, enabling mobile wallets is about more than keeping pace with consumer demand. As the most frequent banking interaction, payments are a vital source of revenue and member engagement—and they should be a focal point for any credit union’s digital strategy.

Here we’ll take a deeper look at the impact of mobile wallets, why they are so popular, and how enabling mobile wallet payments can help credit unions improve growth and liquidity.

Rising Growth in Mobile Wallets

For purchases and peer-to-peer payments, wallet apps from tech giants dominate consumer usage, seizing a sizable portion of the market from traditional financial institutions.

How big is the market? According to McKinsey, as of late 2022, 89% of U.S. consumers now use digital payments, with 69% using payment apps and 60% expecting to have a digital wallet within two years. By 2026, it’s estimated that 5.2 billion people worldwide—more than half the world’s population—will use digital wallets.

The popularity of digital wallets is largely driven by ease, convenience and trust in biometric security. People also enjoy the flexibility to store funds in mobile wallets as an alternative to using payment cards or even as a substitute for a bank account.

In the U.S. market, fintech wallets rule the day, but megabanks have been trying to catch up. A few years back, a consortium including Bank of America, JPMorgan, Wells Fargo and others, released Zelle, a P2P payment system that institutions including credit unions can embed in their digital banking platform. However, the cost and complexity of implementing Zelle can put it out of reach for many community and regional credit unions and banks.

To further challenge the fintechs, the consortium recently launched a digital wallet called Paze, which provides the Zelle app. It remains to be seen whether Paze will gain traction, as “the big five” fintech wallets continue to surge in growth.

Why Wallets Matter for Credit Unions

The digital payments market is projected to reach $9.46 trillion in total transaction value in 2023. Given the stronghold of fintech wallets, it’s estimated that up to $31.4 billion of revenue is at risk for U.S. financial institutions over the next couple years. In 2021, a Credit Union Innovation study from CUESolutions provider PSCU and PYMNTS indicated that 45% of members would consider switching financial institutions for innovation such as mobile wallet payment options.

Implementing the latest payment capabilities is not only a business imperative—it can help credit unions achieve substantial wins:

• Improve lending profitability. 65% of lenders are seeing a rise in delinquency. It’s a pivotal time for credit unions (especially those managing a large indirect portfolio) to make it as easy as possible for borrowers to pay. Enabling bill pay via mobile wallets—using either a linked debit card/bank account or a stored balance—is an effective way to collect payments, particularly from members who have a loan but no deposit account with the credit union. Providing more flexible options can help improve on-time payments and reduce default risk.
• Drive top-of-wallet revenue. If members can easily connect their credit union debit and credit cards to their preferred payment apps, those cards may become the top-of-wallet choice for purchases, which can enable credit unions to earn revenue from interchange fees.
• Increase retention and acquisition. Providing compelling digital experiences is now crucial for attracting and retaining members. Many credit unions are facing a crisis of “aging out,” as the average age of members is 53. Offering the latest digital capabilities can provide greater competitive advantage to build and keep relationships with new generations of members, particularly digital natives like millennials and Gen Z.
• Reduce declines and chargebacks. In many mobile payments, funds must be available in order for the transaction to post successfully. This approach reduces the likelihood of rejected payments. Additionally, biometric verification helps minimize unauthorized or fraudulent payments that can result in chargebacks.

How Mobile Wallets Benefit Members

Modernizing the payments experience also delivers important benefits members:

• One-stop-shop convenience. Members can run all payments through their mobile device, using a variety of funding sources. As a proxy for a card, bank account or cash, digital wallets let consumers make payments in person or online, easily manage P2P money transfers in seconds and store cash for future use.
• Simplicity. With apps like Apple Pay or PayPal, there’s no need to remember or type in card or login details for every transaction. Users can simply authorize payment in the app, using biometrics or a pin to complete the transaction in seconds.
• Security. Along with reducing the risk of carrying or losing plastic cards or cash, users gain extra levels of security like tokenization and biometric authentication. In most cases, account and transaction details are stored in the cloud, not on devices, to help safeguard a member’s personal information. An added factor is that leading wallet apps are backed by tech giants that consumers have grown to trust with their sensitive financial information.

Accelerating the Path to Mobile Wallet Payments

Transforming digital payment experiences can be a powerful driver of growth and a critical way for credit unions to improve their bottom line. Yet even when digital transformation is a high priority, many organizations face huge barriers due to legacy systems and limited resources.

How can organizations speed progress toward enabling mobile wallet payments? More and more credit unions are exploring fintech partnerships. This strategy can enable organizations to make targeted improvements in the digital member experience—and do it faster and more cost-efficiently. As the GITNUX Marketdata Report 2023 says:

“Credit unions are partnering with fintech companies to boost innovation, deliver seamless banking experiences, and meet the evolving needs of members.”

Fintech innovators like PayNearMe enable credit unions to offer members a full range of payment options, all within a single mobile app. It’s the ultimate in a digital wallet experience, supporting “the big five” mobile wallet apps (Apple Pay, Google Pay, PayPal, Venmo, Cash App), cards, ACH and even cash payments at retail locations.

Jill Conrad is senior director of sales at PayNearMe. She partners with lenders to help automate the payments and collections processes, as well as increase self-service and customer payment satisfaction by allowing their customers to pay how, when and where they want. Conrad spent 21 years in mortgage servicing solving problems within the payment processing space and continuing to drive up self-serve transactions while driving down operating costs. Since that time she has spent roughly 10 years working with clients on their payment processing needs.