It’s time to own the

Adapted from my upcoming Credit Union Magazine article

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IT’S NO LONGER NEWS that payment relationships are a, if not the, wave of the financial services future.Experts have harped on the subject ad infinitum. People like me have harped on it, too.

Part of the message seems to have gotten through loud and clear. Financial institution decision makers are well aware that rising adoption trends attest to demand, and that being slow to supply risks losing business to speedier competitors. It is no idle threat. As mobile options supplant in-person transactions, it becomes easier for once-loyal clients to disengage and defect.

The reader needs no reminder of the value of sticky products, and payment options are proving themselves among the stickiest. Stickiness aside, they offer a wealth of behavioral data sure to make your marketing research people giddy with anticipation. Meanwhile, your CFO will delight in a new, substantial source of fee income, because clients don’t seem to mind ponying up for payment services. They’ll even gladly pay a little extra when they need a premium service like, say, a same-day transaction. I cannot recall another time in our industry when customers actually paid fees willingly.

So if the bottom line matters, you have plenty of reason to offer a full complement of payment services.

But the part of the message that doesn’t seem to have gotten through quite as loud and clear is the urgency not just to offer a full complement of payment solutions, but to out-and-out own the entire payment relationship.

The payments industry is splintering faster than a living room window in a fight with a baseball. And not just credit unions and banks have stepped up to the plate. A growing list of nonbanks like Google and PayPal and myriad merchants and utilities offer easy-to-use payment portals of their own. Every payment relationship a member sets up outside your portal weakens stickiness, and misses profit, longevity, and data mining opportunities.

It’s not too late. Clients still rate traditional financial institutions highest when it comes to payment providers. But that’s fast eroding. In its April 2014 North American Consumer Digital Banking Survey, consulting firm Accenture asked respondents how likely they would be to bank with nonbank companies if those companies offered banking services. Fifty percent said they would bank with Square, 41 percent with PayPal, and 31 percent with T-Mobil. Costco, Apple, Google, Amazon, AT&T, and Sprint all came in in the 26 to 29 percent range. Even at the low end, which isn’t all that low, this is sobering if not downright scary news for traditional financial institutions.

One problem with stickiness is that it works both ways. When a client engages with an outside portal, winning back that piece of the client’s business becomes all but impossible—assuming you even know about it. The best strategy is to enroll members and exceed their demands early, rendering needless all offerings from competing institutions and nonbanks.

I admit that owning the entire payment relationship is easier said than done. It calls for vision, commitment, resources, expertise you may not currently have in-house, and aggressive marketing. But the gargantuan nature of the task does not make it any less imperative.

There remains for financial institutions a small window of time in which set up or purchase and then market payment systems that are easy for clients to adopt and use. Though small, a window it is. I recommend leaping through it poste haste.

 

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