Credit Unions Use Payments to Build Primary Financial Relationships

There are two ways to consider consumers’ spending lives, according to Bruce Dragt, chief product officer at CO-OP Financial Services.

As he told PYMNTS, the first way is to think in terms of milestone purchases, like buying a home or sending a kid to college — big spending events that tend to demarcate life stages. But the second way, Dragt said, is to look at all of the everyday spending that happens in between those big purchases.

The pandemic has had a massive effect on that second category, as almost all consumers had to rethink their everyday purchases nearly overnight. That has created both challenges and opportunities for credit unions (CUs), as payments “are an important part of that lifestyle change,” Dragt noted.

Citing a study this year by the Filene Research Institute and commissioned by CO-OP, he said that 83 percent of consumers prefer to use as few financial institutions (FIs) as possible — a number that jumps to 87 percent when looking at just CU members.

“And we found that 90 percent of consumers are looking to obtain their financial services from that provider with the payment link,” Dragt added.

In other words, payments are the pathway into CU members’ daily financial interactions, and thus the path to becoming customers’ primary financial relationship.

Dragt said what these members want is pretty obvious: financial services that are “easier, faster, more seamless, more secure and more directly integrated into what they’re doing.” He said that CUs need to “move alongside our members,” providing them with the services they want, where they want, thus capturing the accelerated opportunity that COVID-19 has created.”

But Dragt said CUs that don’t take that route are at risk of losing members to the growing number of competitors who are lining up to seize the opportunity.

Moving From Insights To Action

Dragt said that CUs have a great track record of helping members with big, life-stage purchases like buying homes. But he said the pandemic has created a much tighter focus on financial wellness questions such as, “How are we going to meet members’ day-to-day needs?” and “What are the things we need to really translate from insight to action to be able to make those changes?”

CUs must focus on building out the quality of members’ experiences, Dragt noted, although what that means could vary from CU to CU. For one CU, it might mean funneling stimulus money to individuals or small- to medium-sized businesses (SMBs). But for another, it could mean debt forbearance or modifying rewards programs on card products to more closely match what members want during the pandemic.

But while upgrades and other efforts might vary, Dragt noted that what’s been common across the industry has been a much faster pace than normal. No one is considering innovations that they want to get around to “someday.”

“In these COVID times, we’ve seen that the concept of just talking about doing lots of things has gone away,” he said. “These days, if we’re talking about it, we’re doing it. That commitment is new, and credit unions are needing to do specific things to make that happen. It also has been exciting to see how it has propelled some things forward that in the past have just not moved as fast because that focal point related to them hasn’t been there.”

But while such a focal point hasn’t been there in the past, it’s clearly there today for many CUs. It’s pushing CUs to build out their innovation roadmaps based on the data they have about what their members want, need and are seeking. It is also why CO-OP is purposefully investing in its ecosystem of products and financial technology services that will help CUs close some of those digital and payments gaps he spoke of.

Creating A More Confident CU Member

It’s no exaggeration to say that 2020 has been tough for everyone, which is why it’s more important than ever for consumers to have smooth commerce journeys that they can consistently rely on and feel safe undertaking.

Dragt said that such a rollercoaster environment hasn’t been the best incubator for consumer confidence, given all the seismic shifts the pandemic has triggered. And that doesn’t even take into account the veritable tidal wave of fraud attempts the crisis has encouraged as many consumers switch to digital-only commerce.

But Dragt said the question CUs must ask themselves (particularly going into the holiday shopping season) is: “How do we keep our members confident through this?”

That means creating a system where members know they can pay how they want, when they want and wherever they want when they’re transacting digitally. And they must know they’re the only ones who can use their credentials.

Dragt said fraud alerts and card controls can help, as they put lots of power into members’ hands. Equally critical are artificial intelligence (AI) and machine learning (ML) tools, which can evaluate transactions nearly instantly in the background and get better at locking out fraud over time. Dragt said those solutions can make the member’s security feel truly effortless.

But the competition to provide effortless, frictionless tools for members’ everyday spend and the rest of their financial lives is heating up. FinTechs and other alternative banking players are increasingly intruding on the margins, looking to capture members.

However, Dragt said CUs can still have the advantage if they put fully integrated and innovative solution sets into place.

“Within credit unions — that have a great ability to provide other financial services like mortgages and auto loans — there is now a way to connect with members and enhance their everyday lives.”