Payments: the new trust factor

A new definition of consumer confidence is emerging in the financial services industry, and it could mean the difference between which credit unions come out on top and which ones lose.

Here’s a telling and alarming excerpt from a new white paper on growth prospects from Co-op Solutions CU: “Consumers don’t trust their credit union to meet their digital payment needs. Consumers trust fintechs more than credit unions, based on an emerging new definition of what trust means for today’s financial consumers.

While traditional loan and savings products are critically important, they are passive products that do not offer financial institutions the opportunity to regularly engage with their members/customers and deepen their relationships. However, 80% of consumer interactions with their financial institutions are through payments, and fintechs are winning in this area because their payment solutions facilitate frequent interactions with consumers who box deepen relationships.

Fintechs are growing faster than all other types of financial institutions and are capturing the primary financial relationships (PFRs) of credit unions. From 2021 to 2022, PayPal increased its relative PFR growth fivefold, Chime increased its growth 18x, and Robinhood and Mint quadrupled the number of respondents who identified them as their PFR, according to the Co-op report.

Moreover, these fintechs quickly became major competitors for credit unions last year, overtaking traditional competitors (regional and national banks), according to Co-op research. And fintechs have doubled down on their takeover of the financial services market with a greater emphasis on placing payments at the center of everything they do.

The Rancho Cucamonga, Calif.-based co-op has partnered with global consulting firm EY to uncover how the behaviors, preferences, challenges and activities of consumers and financial members have changed over the past year. . Working with Co-op, EY conducted market research with 2,000 current credit union members and 1,000 prospects in all regions of the United States. to assess current credit union challenges and opportunities for growth.

Here are the main results concerning:

  • Sixty-six percent of consumers said they use some form of digital payment, but only 16% say they do so directly with their credit union.
  • Seventy-eight percent of respondents said they don’t expect their credit union to offer the digital payment options that are right for them.

Primary payment relationships for credit unions fell by 3% between 2021 and 2022, which is statistically significant, while primary payment relationships for fintechs, national and regional banks, wealth investment companies and online banks remained stable or showed growth.

Fintechs were the PFRs in all digital payment products including P2P, virtual wallet, contactless payments, social media payments, investment/trading accounts and cryptocurrency.

In what may also be a telling concern for credit union CEOs, even more evidence has shown that the new trust factor is apparently bleeding into member satisfaction. The US Customer Satisfaction Index showed that, relative to banks, credit union consumer satisfaction has been declining since 2019. In 2021, credit union consumer satisfaction score was 76, out of a scale of 100. For banks, the customer satisfaction score was 78. Additionally, Co-op research showed that 41% of respondents would consider leaving a credit union because the products do not meet to their current needs.

Carrie Stapp

While this research may lead to the conclusion that credit unions are in trouble, Carrie Stapp, Co-op’s vice president of integration marketing and merchandising, said she sees things differently.

“I think if [credit unions] keep doing what they’re doing – just looking at the loan side of the house and not seeing the importance of the payment strategy – so I think the answer is yes, they’re in trouble,” said said Stapp. “However, I think there is a significant opportunity in front of them right now. I think [credit unions] need to evolve quickly. They need to see their place in consumers’ lives a little differently. And I think they need to quickly recognize that maybe [credit unions] don’t know our members as well as we think.

For decades, credit unions have successfully provided all types of competitively priced consumer loans and checking and savings products. And while these offerings are still essential, they don’t allow credit unions to interact frequently with members and prospects.

“I don’t interact with my mortgage. I don’t interact with my auto loan, but I interact with managing and spending my money coming into my account and money going out of my account,” she explained. “We have to understand that we can’t ride on what we have always been. It must be about, who does [consumers] need us now? And what they say is, please bring us these [payment] tools to help us in our daily lives. They need someone to be a hub for them in their financial services life.

She pointed out that credit unions are always looking to help their members achieve financial wellness, but then asked, how can they be truly strong providers of financial wellness if they are not present in transactions? daily payment of their members?

“I don’t balance the proverbial checkbook anymore, and so when I try to balance my income against my expenses and long term [financial] goals, it’s now about helping me manage my day-to-day finances so I can save for retirement, so I can save for my child’s college, so I can afford to take that vacation, or anything,” she said. “Because [consumers] have to work on it every day, and if we’re not there in the world of payments, we’re missing out on a huge opportunity to really be what consumers want us to be.

Christie Kimbel

Christie Kimbell, chief product officer of Filene, which leads the organization’s research incubation communities and events teams, said a checkout strategy yields a valuable combination of a higher frequency of interactions. and engagements with members, as well as a rich source of transactional data that can help credit unions determine what is most important in the financial lives of their members, opening up opportunities to deepen those relationships.

For the white paper, Filene interviewed credit union CEOs and other senior executives.

An experience manager at a billion-dollar credit union said its payment strategy won’t necessarily be a source of revenue because other companies will offer cheaper or free payments.

“Instead, we will monetize transactional data. Maybe we don’t need exchanges and we don’t need fees, because when someone joins they bring enough with them for us to understand what they need,” explained the executive.

Another vice president of a $3 billion credit union said, “I want stronger data. Then I can really segment the market to make sure we get penetration in all parts of the market, and then ultimately personalization. This is the end goal.

Traditional banking assumes that the complexity of each member’s financial needs will increase over time, but this approach may not be as effective as it has been because less than 50% of young consumers have the products they need to a life event, according to co-op white paper.

To address this challenge, credit unions can consider a multidimensional segmentation strategy that includes traditional market segmentation based on demographics, such as gender, age, wealth levels, marital status, and geography, associated with needs-based segmentation for life events. , lifestyles and a mix of solutions.

According to the white paper, payment products such as contactless payments, P2P, and mobile wallets drive more engagement and form the center of these active transactional relationships.

“The key lies in activating a lifestyle activation strategy – creating active, daily engagement with your members aimed at serving their financial well-being,” reads the whitepaper.

There were 18 top use cases that emerged from the 2021 research.

According to Co-op, when credit unions offer the first eight core characteristics, it will bring them to parity and loyalty with their members. The eight core features are exclusive premium content to help manage financial plans, offering all financial products and financial health advice in one place, annual health check with a financial advisor, credit theft protection identity, access to a certified financial planner or in-person banker, detecting and protecting against fraud, offering relevant products at the right time, and providing relevant content, education and information .

In addition, based on Co-op’s research and analysis, 10 additional features can be added to the basic features listed above to help credit unions establish members with PFR status: personal data control, virtual access to a financial planner, up to $10,000 in instant financing, white glove loan service, relationship price discounts, digital identity removal services, advice on securing personal information, products/services freebies and promotional discount periods.

“When credit unions offer both basic ‘table stakes’ functionality and impactful additional features at little or no cost, they can achieve increases of 34% in member market share and 40% % among prospects,” according to the white paper.

Sara R. Cicero