Can it be that it was all so simple then? Or has time re-written every line?
By Frank J. Diekmann
The lyric above from the song “Memory” was written by Andrew Lloyd Weber for the musical Cats, and would became a hit for Barbra Streisand. The lyric, of course, was Weber’s prescient foresight into what would eventually happen in the payments channel. Perhaps the musical was originally titled "Herding Cats." It was all so simple, and then…
A year ago I sat down with Bob Hackney, CEO of CSCU, and while there was much to talk about in the card processing/payments business, one issue overshadowed all: the then 18-month countdown to the liability shift in credit cards from merchants to issuers, if the issuer didn’t convert their portfolio to EMV, or chip cards. Would everyone make it? Would anyone? There were rumors of card stock shortages and fraudsters hacking EMV.
The deadline for conversion and the rumors remain. And yet all that seems so 2014.
The New Debate
Now the debate over plastic cards is how to unplastic them, to digitize those cards and get them top of wallets. Wallets used to be something you made as a kid in a leatherworking class and when you got older, if you’re a man, something you don’t like to change until even the duct tape is useless. Now it’s all about digital and mobile wallets.
A year ago with EMV it was essentially about who was going to pay. Now it’s about Apple Pay. And Loop Pay. And Samsung Pay. And pay-to-play. Like TV, the payments channel has gone from three channels to choose from to the Dish. It’s not easy to know when to put down the remote and pick a channel strategy. CSCU’s Hackney readily admits it’s a lot for a payments processor to keep track of, to say nothing of the challenge to the average credit union.
But first, let’s begin with that old but still new issue, EMV. CSCU announced in February it would pay the entire $11-million enabilization cost for all of its member CUs to convert to EMV. But there is still plenty for those CUs to do, beginning with the fundamentals.
“With EMV, question now is how many are educating employees,” said Hackney. “You have to have employees who know how to train the member. You have to get your employees on board first.”
Hackney said its member credit unions aren’t in it alone; it is providing statement messages, videos, and more about the transition to EMV. The video, created by Visa, is all about the “dipping” process. Think that has something to do with “chew?” You should probably watch the video.
There are still tasks remaining for credit unions beyond just education, noted Hackney, most especially the strategy for card reissuance. When it comes to reissuing all the cards in a portfolio, CUs must decide with which members to begin (international travelers, heavy users, etc.), and that’s just with credit cards. FIS, through which CSCU does its processing, also has three different credit processing platforms that will affect when cards get reissued.
CSCU made that pretty bold announcement earlier this year with news that it would be covering the $11-million enablement-related costs for its member-owner CUs (the check cleared on the first day of its recent Solutions conference, Hackney noted). That represents a substantial cost savings for those CUs, but they must still cover the actual cost of the plastic itself, beginning with credit, followed later by debit.
“I’m not sure if everyone will get cards reissued by October,” said Hackney.
That decision to pay the $11 million enablement cost is one that was made by CSCU’s board some four years ago, even if it was announced just a few months ago. It has been “socking away” the funds over those four years. Hackney said CSCU realized that many of its CUs, especially those that are smaller and really feel the budget, resources and manpower strains in all aspects of their operations, were going to need some help.
“It’s difficult enough for us to keep up with all this stuff,” he observed.
CSCU spent six months working with FIS on the mass enablement. “Actually, it was easier for them, too, if everyone converted at once.”
The Big Issue
Hackney said a few credit unions have opted out of the offer. Should those CUs, or any CU, miss the EMV compliance deadline their mag stripe cards will work as always. The issue, of course, becomes that the liability shifts to the least secure point in the payment chain, which in this case would be the non-EMV-card issuing CUs.
With October just six months away, Hackney said for credit unions making the move it’s all tactical now when it comes to EMV.
The big issue remains much more strategic is finding a place atop all the competitors housed in those devices everyone is carrying now.
“You need to put together a mobile or a digital strategy,” said Hackney. “It’s ‘How do I get my debit card and credit card loaded in their open wallets’ so that when a member picks the card they want to use to pay, they pick the credit union’s.” I think that is going to require some loyalty points to get members to do certain things. If you don’t, and if MCX (Merchant Exchange) ever gets its act together, they will be offering big rewards.”
Given all the developments, getting one’s “arms around” payments is a little like attempting to hug a river, Hackney acknowledged.
“We, as an organization, are starting to get our arms around it, but anyone who says they do have their arms around it is lying,” he said.
Hackney had earlier stressed the importance of credit union employees understanding payments so that they, in turn, can educate members. That’s a reality he said also applies to CSCU, which this summer will launch a plan to ensure its employees are knowledgeable.
“We have a core group that does understand this, but two-thirds of our employees are client-facing, so we are getting our arms around the process. Our first step is getting everyone educated,” he said.
'If We Don't Grow It, We Don't Get Paid'
CSCU is also preparing to roll out a number of enhancements to its suite of portfolio consulting services that are aimed not just at reducing the management burden for credit union management, but improving bottom lines.
“With all that is going on in mobile and EMV, the question is what about running a portfolio when you just don’t have the resources or expertise,” said Hackney. ”Our approach is a suite of services where CSCU can take on more and more of the management. We can already see the differences in performance between credit unions that consult with us and those that don’t. This has to be consistent. Credit unions need to focus on their card strategy, and turn over all the other stuff to us. It’s not rocket science. You have to go to your membership a few times per year and sell them on your cards. Once they have your card, you need to get them to activate the card, and there are ways to drive activation. And once they are active, you need to increase usage.”
Hackney said credit unions are outsourcing many other aspects of their operations, and credit cards, the highest-performing asset for most CUs, makes complete sense for outsourcing if expertise is available.
“It’s all just basic blocking and tackling,” added Hackney, who played football for the Florida Gators. “We have the experience to do it.”
That new suite of services came out of a planning session where everyone agreed there are great opportunities to help credit unions to grow their portfolios, he said.
Credit unions should like the price: CSCU will take a revenue share of any income growth based on benchmarks established at the beginning of the program.
“If we don’t grow it, we don’t get paid,” he said.
Frank J. Diekmann is Cooperator in Chief at CUToday.info and can be reached at Frank@CUToday.info.