Disruption and Opportunity Are in the Cards

The payments space is characterized by a high degree of intricacy and detail. Few areas of business present as many complexities or opportunities. 

While the mechanics themselves are challenging, it is the financial and strategic implications that have long lasting effects on your credit union.

There is no avoiding it – payments have become a core competency. The complicated landscape of processors, networks, and associations has been significantly disrupted in recent years. The economy, federal regulation, and competitive pressures have created new challenges and opportunities.

Card Processing

Card processing has long been a go-to category for expense reduction [as contracts expire] but the processing costs are only the beginning. In fact, for many credit unions the card brand and debit network relationships have been under-scrutinized for years. It is easy to see why – the complexity of analyzing the financial impact is tedious. However, there is too much expense reduction and additional revenue opportunity at stake to ignore any longer.

The expense side consists of many line-item billing elements for things such as cards on file, authorization and transaction processing, and cardholder services. In fact, your bill may have as many as 50-100 items or more. While there has always been a need to ensure the best mix of service, product, price, and strategic alignment, core conversions and contactless/digital wallets have found their way into the conversation as well.

The key to success is to approach payments as a core competency and invest in the necessary technology and expertise to remain competitive in the space.

The good news is that there is no shortage of competitors for card processing services, and these vendors are now working harder for your business. And, several of these providers offer both full-service and in-house options that can be configured to suit the level of involvement that any financial institution may choose.

VISA, Mastercard, and Discover

Catalyzed by the growing digital payment space, the competition among the major card associations is intensifying. Comparison between the brands can be complicated. Each has its own mix of costs and interchange revenue to consider, and they are highly motivated to secure the brand affiliation for your credit union’s cards.

It can be confusing for credit unions as they present their product offerings in terms of marketing incentives, fee discounts, and growth opportunities (all while framing the interchange discussion) in a way that is beneficial to their specific network. Too often, executives act, never fully understanding one brand or another’s impact on the bottom line, nor the long-term benefits of each to their members.

Debit Networks

For many credit unions, the merits and competitive advantages of networks like Accel, NYCE, STAR, Pulse and CULiance, and others are challenging to assess. To add to the complexity, signature brands are now competing against the traditional debit (PIN-based) networks in a fight for transaction routing revenue. There is no clear line dividing the two areas as VISA, Mastercard, and Discover have each introduced measures designed to capture purchase volume that would otherwise be PIN-based, and the Debit networks have responded with their own solutions.

How Credit Unions Can Optimize Their Payments Strategy

The key to success is to approach payments as a core competency and invest in the necessary technology and expertise to remain competitive in the space. Initiatives to be considered include the following:

Reassess vendor relationships and contracts: Because of the complexity of the relationship, many credit unions leave card brand and debit partnerships unexamined, taking significant revenue opportunities and expense reduction off the table. When it comes to your payment processor, evaluate based on product offering, expertise, support, compliance, and security. Customer support should be offered 24/7.

Focus on revenue generating over cost cutting: While managing expenses is important, there are limited gains from expense reduction alone. Examine how your card programs can grow and better serve your members.

Implement operational efficiencies: Streamline operations by connecting various banking systems. This can reduce manual errors and enhance overall payment processing efficiency while also simplifying management, reporting, and reconciliation processes. Consolidate payment types onto a modern platform for better data storage, processing, and analysis. Use data insights to inform strategic decisions and improve member experiences. Finally, automate routine tasks like reconciliation and fraud detection. Use machine learning algorithms to identify patterns and trends for proactive risk management.

Adapt to evolving payments trends: Prepare for the shift towards cashless transactions and digital payments. Consider implementing omnichannel solutions and embedded banking options.

With the right partner, your credit union can turn the complex mix of processing, network, and brand decisions into significant financial opportunities. The right partner can guide you through the process; decipher the differences between the various processors, networks and brands; shine a light on the savings opportunities and negotiate for the best value on your behalf.