TAMPA, Fla.—When it comes to payments, there may be no bigger issue for CUs to watch in 2016 than how they are driving member loyalty to their plastic, insists CSCU.
Thomas Davis, SVP finance and technology, is urging credit unions to “incent with a purpose,” as competition for their members’ credit and debit card loyalty is getting a lot tougher, especially with new efforts from merchants.
“Consumer demand continues to accelerate. Credit unions will be challenged to continually evaluate their loyalty programs to ensure their value proposition is meeting the needs of their members and the needs of the credit union’s bottom line,” said Davis.
Davis said that emerging payment technologies will provide new platforms, such as mobile wallets, that will level the playing field and provide new delivery channels for credit unions to deliver loyalty programs.
“Traditionally it has been the financial institutions that have been on the forefront to deliver loyalty on card programs,” pointed out Davis. “However, merchants are starting to provide merchant-funded programs at the point of sale in an attempt to compete for consumer loyalty.”
Other key competitive issues CUs should be watching this year, according to CSCU:
Mobile wallets
Davis noted that the MasterCard Digital Enablement Service (MDES) and Visa Digital Enablement Program (VDEP) have streamlined credit unions’ enrollment in mobile wallets, such as Apple Pay, Samsung Pay and Android Pay. The services improve access to the Visa and MasterCard token services and connect issuers to current and future wallet providers of the issuer’s choice without the need to directly contract the wallet providers.
“In 2016, we expect as more mobile wallets become available from smartphone makers such as LG and HTC, this process will become even more efficient,” said Davis. “As a result, we expect credit unions to be able to enable these wallets faster in a more cost-effective manner.”
Financial institution branded wallets
As credit unions begin to enable their payment products into device-manufactured wallets—such as Apple Pay, Samsung Pay and Android Pay—they’ll begin looking at developing their own branded wallets to compete with other wallet providers, such as Chase Pay and Walmart Pay, said Davis.
“Surveys show cardholders trust their financial institutions more than any other mobile wallet providers,” he said.
Mergers
In 2015, the pace of mergers has continued from previous years, with 260 mergers happening last year.
“The 6,090 credit unions we have today are expected to decline to 5,400 by the end of 2018,” said Davis. “That represents another 200-plus mergers in 2016. The rapid change in the payments landscape will continue to challenge credit unions to look at mergers to attain scale and acquire appropriate expertise.”
Credit unions outperforming banks in 2015
Tom Davis, CSCU
“We expect this trend to continue in 2016,” said Davis. “With the Fed rate hike at the end of 2015, we expect banks will raise their rates faster than credit unions, which could create better loan product value to credit union members. Combine this with the growing demand from Millennials in loan products, we expect loans such as student loans, auto loans and mortgages to show healthy growth in 2016.”
Debit EMV
EMV for credit has gone relatively smoothly, said Davis, adding that CSCU expects 2016 to be the year of EMV for debit.
“As EMV for credit issuance continues, we expect debit will pick up its pace in 2016,” he explained. “The lag in debit issuance was primarily caused by the complexities associated with PIN networks and the AID only associated with debit for EMV.”
Payment fraud landscape in 2016
As EMV issuance expands, card present fraud will decline and card not present fraud will rise, reminded Davis.
“Credit unions will begin to focus on fallback fraud in the card present landscape and will start to look more closely at new technologies, such as tokenization, to combat card not present fraud,” he said.
Millennials
Millennials are getting more mature and are gaining wealth, purchasing more, and are transitioning from renters to buyers, noted Davis.
“They are the largest generation and their impact on the economy will continue to be felt,” he said. “Credit unions will need to focus on lifecycle management products for Millennials, such as student lending, auto loans, and home mortgages—and competitive payment products.”
Blockchain/Bitcoin/virtual currency
“We will see continued development and application of edge technologies aimed at reducing friction and cost within the transfer of assets and the execution of technologies,” said Davis. “Although we don’t expect to see mass adoption of these technologies in the financial sector, we do expect continued investment and development.”
Federal Reserve’s faster and secure payments initiatives
Federal Reserve task forces have delivered the criteria and will begin looking for potential solutions to increase the speed and security of payments both domestically and abroad, said Davis.
“Service and technology providers in the financial space will begin to innovate and partner in order to win approval for their potential solutions,” he said.