Credit Union Innovation Hinges on Payment Speed and Security

In an era of rapid technological advancement, there remain certain immutable aspects — particularly for payments.

When it comes to the way businesses and consumers transact, speed, security and convenience are far from ever going out of style.

As Scott P. Young, senior vice president of emerging services at Velera, told PYMNTS for the series “What’s Next in Payments: Payments Modernization,” those three pillars are where the great potential for innovation lies.

Credit unions especially, being known for their community-focused and member-centric approach, are facing unique opportunities and challenges as they navigate the waters of payments modernization, Young explained. Convenience, speed and security, as well as value, are becoming increasingly crucial as end-user expectations evolve.

“Ultimately, we want to meet the behavior that is driving the need for a payment and be there to accommodate different payment rails, while adding value-added services around that,” he said.

A trend in this area is the adoption of pay-by-bank options, facilitated by open banking initiatives.

Young said this method uses open banking and direct debit account (DDA) credentials, potentially reducing the reliance on traditional card payments provided there are sufficient incentives for consumers to make the switch.

The impending mandate by the Consumer Financial Protection Bureau (CFPB) for standardized APIs in open banking could streamline how merchants and financial institutions handle transactions. This regulatory push may foster greater integration and efficiency in payment processes, allowing credit unions to offer seamless and secure payment options directly linked to members’ bank accounts.

Modernizing Payments for Credit Unions

Another critical aspect of payment modernization is the adoption of instant payment systems. Platforms like the Federal Reserve’s FedNow® Service and The Clearing House’s RTP® network are revolutionizing how funds are transferred. These systems enable real-time payments, which can be particularly beneficial for credit unions.

Young cited examples such as real-time payroll, earned wage access and government disbursements, emphasizing that these capabilities can enhance credit union member satisfaction by providing immediate access to money.

And credit unions, with their focus on personalized service, are well-positioned to capitalize on instant payments. By enabling members to access their money instantly, credit unions can offer a level of convenience that matches or exceeds that of larger financial institutions and FinTech firms.

“Building out that 360-degree view of the member that is not just based on credit transactions and debit transactions is paramount,” Young said, highlighting Velera’s acquisition of Juniper Payments, a move that expanded its capabilities beyond traditional payment rails to include ACH and wire transfers.

Emerging technologies like blockchain, artificial intelligence and the Internet of Things (IoT) are poised to play transformative roles in payments modernization. Blockchain technology, for instance, holds promise for enhancing the security and efficiency of cross-border payments by reducing the need for intermediaries, said Young. This can streamline processes and reduce costs, benefiting both credit unions and their members.

AI offers the potential for fraud detection, personalization and operational efficiency. By using AI, credit unions can better predict and prevent fraudulent activities, tailor services to individual member needs and streamline their operations, he said.

Adapting to Technological Advancements

Credit unions are not standing still amid these changes.

“It’s important to treat FinTechs as friends, not foes,” said Young, highlighting Velera’s FinTech engagement program as a “catapult” for continuing to push the envelope and expand into new areas.

“It can be an opportunity for smaller credit unions to get to a level playing field with some of their larger counterparts,” he said. “It enables the credit union to say yes and adopt the technology that much faster.”

Still, despite the promising outlook, the journey toward payments modernization is not without its challenges. Legacy systems can hinder the adoption of new technologies, and the interoperability of emerging payment models like instant payments requires industry-wide collaboration. Young advised that credit unions should assess their current systems and develop strategies to either replace or augment outdated technologies.

By embracing new technologies, fostering strategic partnerships and using data analytics, credit unions can enhance their service offerings, improve member satisfaction and stay competitive in a rapidly evolving financial landscape.