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SW Lending Conference: Practical Strategies for Changes in Payments Technology
Friday, May 19, 2017 6:15 AM

Kent Potterton

At Thursday's Southwest Lending Conference in Austin, Kent Potterton, VP solutions consulting for PSCU, gave a talk on practical strategies for changes in payments technology and retaining up to 30 percent of your income.

Potterton says the payments landscape 10 years ago was far less complicated than it is in 2017, in part because new technology shares so much of the mix now. There's always been change in the payments marketplace, he says. The key is getting the transaction. He notes that points of sale are everywhere. The question is, how can credit unions ensure their debit and credit cards are in the position for members to choose them over other card options?

About 20 percent of your members are using your debit and credit cards, Potterton says, and that presents an opportunity. "We need to focus on owning the transaction."

He notes the risks of missing out on the transaction include:

  • Attracting and retaining members
  • Credit card transaction portfolio withers:
    • 4 percent to 7 percent of assets
    • As much as 30 percent of a credit union's net income
  • The largest component of non-interest income (NII) is debit card interchange comprising 24 percent of NII

So what do we do? Payments considerations include product decisions, wallets/mobile payments, default cards for automatic or recurring transactions, ACH and debit decisions, and taking advantage of research and making incentive offers like rewards for transactions.

Potterton says the latest apps and online sites will help with shopping and allow consumers to compare product information, get reviews from others, and offer additional solutions to assist in the checkout process (e.g., Amazon, Starbucks cards, beacons).

He says that because of EMV cards, credit unions have been able to charge back $7.5 million to merchants. So why would you not want to offer them?

Premium cards are part of the decision making as well. These premium cards—distinct from cards known as "platinum" and "gold," etc.—demand higher-end concierge services and offer better rewards and features. MasterCard and Visa call these "signature" cards. Big banks upgraded their premium members to signature cards automatically.

Credit unions have to balance the benefits of reward cards versus premium cards, which are intended for affluent members. Potterton says the more practical credit unions should focus on premium cards for those who are a credit union's "best" members, depending on what "best" means to them.

The industry hasn't seen a lot of volume yet through wallet products, Potterton says. To complicate things, ApplePay signup forms change every day, making it more difficult for consumers and credit unions alike. But credit unions want to be able to say they have the same things Chase does and show thought leadership about staying competitive.

Tokenization is part of the future because it keeps cards and transactions more secure. The projection is that we'll see an 80 percent increase on in-store wallet transactions, and credit unions need to get prepared to take part.

Regarding default cards, the initial paperwork is a pain, Potterton says, but after that, purchases are simplified and a breeze, which makes transactions a more compelling experience. Credit unions can reward members for using their credit cards on places like Amazon, which means that card is in Amazon's system, and that translates to a quick and easy purchase that the member never thinks about. It's a "set it and forget it" scenario because the card is always in the system. The problem is that the card remains "hidden" and credit unions must work to ensure members remain aware that it's your card they're using.

Bill pay. Look for incentives to give members for using their credit or debit card to pay for things like utility bills. Set it and forget it by uploading card info to the billing site, and the card on file—your credit union's card—is always being used automatically.

Potterton says, "Where you know your members are buying most is where you want to offer the incentives."

The only difficulty comes when card verification codes and expiration dates change. To fix this, credit unions can move to an automatic update of account information. This would ensure the updates are already in place when the member needs to use the card to pay bills. If fraud becomes an issue, with a member alerting the credit union, you can systematically flag an account and block the vendor being used to defraud.

ACH and debit decisions. Visa and MasterCard wanted a bigger share of the pie, so one thing they did is partner with PayPal. Eight banks comprise 80 percent of all consumers, Potterton notes. Those eight got together and, instead of routing through ACH, they developed their own code and routed through something called Zelle to transact directly with each other.

Potterton pointed to payments from the government being paid by check, and says it takes lots of work to do this for everyone, and ultimately costs about $10 per check overall. He urges credit unions to move to accelerated payments—from fast to faster to real-time transactions—and to change the behaviors of people still using checks. Write a campaign to incentivize members to use their debit and credit cards. Reward them for practicing "good" behaviors.

What else is on the horizon?

  • Voice-controlled transactions are not just in the future; they're already here. For instance, Amazon's Alexa can process orders from your kitchen counter just by you telling Alexa to do it. And it only takes seconds.
  • Beacons. For example, Amazon Go concept stores. Using beacons, as you pick items off the shelf, your connected phone records every item you take and it calculates costs. You don't even have to stop at a register before leaving the store. It's all automatic.
  • Block chain and bitcoin. Infrastructure that supports bitcoin is the blockchain structure. But they're not the same thing. There are many use cases.
  • Don't want to lose your brand because it's hidden behind a wall or uploaded for prepaid transactions, etc., so we need to be careful to keep promoting use of your cards and promote how it's better than others. Set alerts and controls that you can consume in your mobile programs.
  • Pinging in real time of a member's phone to alert of any suspect transaction. Better to have a false positive and have consumer confirm a payment is good.
  • Order-ahead features. Taco Bell has this. Using their app, you place your order and pay for it. When you tell the app you've arrived at the store, the food is then made. Taco Bell simply passes your order to you at the pick-up window. Research shows that ordering this way allows consumers to feel less rushed and more inclined to customize the order, which results in the quantity and cost of orders going up 30 percent.

Where's the plastic in all this? Again, it's behind the scenes, so credit unions have to make sure members know it's your card they're using. Remind them and offer incentives, Potterton says.

He also advises credit unions to leverage research—their own and their card processor's—to see what members are purchasing and how.

Engage members and employees to test new technologies. There are always those who want to participate. Target all age segments. This shows thought leadership, as well, when you announce these things in your newsletters. is a great site for getting new articles on the latest in payments.