Why ‘Knowing More Up Front’ Means Knowing Credit Unions’ Digital Future

It may come as no surprise to readers that, when asked about what influences the use of one payment method over another, credit union (CU) customers said it comes down to convenience and security. It’s an interesting outcome, PSCU’s Chief Risk Officer Jack Lynch noted, since those two preferences have historically been in conflict.

“It is almost like both sides of their brains are telling them conflicting things. I don’t want to experience any friction, but I want full security,” he said.

It’s a challenge, PSCU CMO Tom Pierce agreed, that credit unions have no choice but to address going forward, because customers simply expect both. Looking at the results of the CUs recently commissioned Eye on Payments study, consumers expect more heading into 2019, and meeting those expectations will be about more than advanced technology alone. Satisfying consumers will be about leveraging technology to “know more up front,” and using that data to both protect consumers and customize their experiences.

Making Security Stronger And More Subtle

For all the benefits of the digital age, the endemic breaches have made up one particularly glaring cost. Pierce said the consumer data shows that 13 percent of credit union members have been a victim of card fraud, and 4 percent have had their identities stolen in the last year alone.

Moreover, Lynch told PYMNTS, the fraud is coming across on all channels. EMV has seen a lot of short-circuit card-present fraud, but that still leaves phones, web channels, call centers “and even stuff that people don’t think of as often, like loyalty programs and points exposed.”

In the past, the typical “go-to” was to add more touchpoints for consumers to authenticate their identity. Today, in a post-data-breach world, that approach isn’t very useful. First, Lynch noted, there is a good chance the fraudster imitating a consumer knows more about them than they do. Second, at some point, consumers don’t want an authentication process that involves answering “six identification questions and sending along a DNA sample.”

Instead, he noted, the goal is to find ways that are better at authenticating customers without slowing down their commerce processes.

“For a simple example, one of the technologies we put into place examines incoming phone calls based on 1,300 different characteristics, including things like analyzing the background noise pattern to determine what network the phone call is coming in from,” Lynch explained.

That tech can “see” if a call looks like its signal is bouncing all over the world and coming in from a burner phone that is on the wrong network. That call can be routed directly to the security team. However, for the call that comes in from the right number, directly from the right zip code, that customer can much more easily be waived right to the customer service associate without being forced to answer redundant security questions.

Building On The Relationship Of Trust

In general, credit unions have strong relationships of trust with their smaller and more local customer bases — often, Pierce said, to an even greater degree than what customers reported with their banks.

That trusted relationship is a crucial feature as credit unions expand their offerings for consumers, because building it out and offering it up isn’t enough to persuade consumers to do something new and different. Mobile payments, he noted, are a good example. PSCU data showed that one third of respondents currently use digital payment methods, while 38 percent cited concerns about security as a reason for not using them.

“In many cases, these mobile payments are backed by the same cards they are using in stores,” Pierce said. “So, they are just as covered by fraud liability. But if consumers think they are vulnerable, they will use the thing they know to be safe, which is cards.”

Cards aren’t only perceived as safe, he explained, but as reliable, too. Surveyed consumers noted trying mobile payments and ultimately giving up on them after experiencing a few failures at the point of sale, and decided they preferred their always-functional cards, particularly in-store.

However, credit unions also have a unique ability to make inroads with their customers when it comes to new services because they tend to interact with members more often in physical branches.

“I think there is an education opportunity [with the physical branch],” said Pierce. “Most consumers haven’t used a mobile payment form at the point of sale yet. They are using cards. [The] opportunity [for] the credit union is to educate its members on the safety and security of the mobile transaction.”

Moreover, the executives noted, consumers of all age demographics both like and are comfortable with card payments. In addition, with the emerging pull toward contactless cards, it is possible that consumers may decide there isn’t enough additional convenience or benefit to the phone as a physical payment form factor — and that the real focus of mobile digital transactions will be in app-based payments.

“What we are seeing a clear preference for, particularly among millennials and Generation Z customers, is a robust digital and mobile banking platform,” Pierce continued.

According to the data, these customers, more than any other demographic group, are looking to mobile banking apps as their central hubs for monitoring financial activity. Moreover, particularly among Gen Z’s up-and-coming consumers, there is an additional push for financial management and guidance services — if those services are available digitally through their credit union’s mobile banking platform.

The data also showed that rewards were a strong draw, with 93 percent of CU members receiving some type of reward when they used their credit card, and a majority of users in all demographics reporting that rewards were a strong driver in deciding when and how to use credit.

“What we are also hearing is that what consumers want is more choice around how they can use those rewards,” Pierce said. Instead of choosing between getting cash back, points or travel rewards, he noted, consumers want to be able to vary and focus their rewards based on needs, circumstances and preferences.

Meeting those needs, while keeping transactions safe, is an evolving work in progress. Yet, it is work that credit unions can’t shrug off in 2019 and beyond, Pierce added, because it’s what consumers want, and what those credit unions — that want to remain competitive — will have to offer those consumers to attract and keep them.

“The largest banks in the world are investing tens of millions in enhancing their digital banking experiences,” Pierce said. “Credit union customers value the [personal] in-branch experience, but they are still expecting a state-of-the-art digital banking experience. The credit unions today will have to invest more to keep up, or risk seeing that relationship with their customer diminish or disappear.”