LAS VEGAS–Credit unions and CUSOs fixated on the Ubers and Airbnbs of the world as the next threat in payments are likely looking in the wrong places, according to one analyst.
“Most ‘new payments’ create payments business for FIs,” pointed out George Warfel of WesPay Advisors in remarks to the NACUSO annual conference here. “More than 85% of fintech payments are card transactions. Much of the remainder are ACH transactions.”
Credit unions are lucky anytime consumers use “You Name It Pay” because the transaction almost always starts and ends up at a credit union or bank, said Warfel.
“I love when people say ‘Uber is the threat.’ Uber is not the threat we imagine,” Warfel said. “The Uber model wouldn’t work well for general payments. Their business model is a hiring hall. Risk events are seldom, if ever, felt by the firm. Payments are handled by Braintree (owned by PayPal). Never say never, but I don’t see Uber and Airbnb challenging us for payments.”
Instead, the threats come from providers such as CDW Bank in Kansas, a small, unspectacular community bank that can move customers’ payments worldwide in seconds on the debit rails and for just pennies. That bank was bought by an ex-Google engineer with a Ph.D. and his wife, who is a Wall Street Trader.
“I must read an article a week that online lenders are the next to get into payments,” said Warfel. “The business model is to make loans of mainstream banks’ money and immediately securitize those and sell them to hedge funds as CDOs. Without deposits, they have no choice. They are just a trading company, which is not a good business model for payments.”
But what about providers outside the U.S.? Warfel said China Union Pay, which is processed on the Discover network, is worthy of watching, as it has worldwide brand recognition and is issued in the U.S. by The Bankcorp.
“Faster payments is the next big challenge U.S. credit unions and banks will be facing,” said Warfel. “The challenge is more than just hooking up to a new, faster network. The banks on either end are still core processors built up in the 1970s and 1980s. The challenge includes making the internal processing of the payments faster, as well.”
The only two FIs in the U.S. that are able to process payments immediately are BBVA and Santander, said Warfel, thanks to having foreign parents and running on SEPA technology.
“Often it looks like the new thing will work, until you go through the steps,” said Warfel. “The one thing that is in common is to think strategically, and strategy means a business model that makes sense for payments. So if you’re looking for a model, that’s your competitor, whether they are a farm or an airline.”