Payments Fuel Model Shift From Life Stage To Lifestyle

If there’s one thing we can all agree on, it’s that the payments landscape has been utterly transformed in the past year. Todd Clark, president and CEO of CO-OP, dives into how credit unions can tap into that transformation by thinking less about “life stage” and more about “lifestyle” when serving their members. Read more in The Connected Economy’s Power Source – CEO Edition.

The transformational impact of payments is already here. In March 2020, members and credit unions alike dropped any remaining objections they had to the digital movement of money. And, as early research indicates, digital payment behaviors shaped by the pandemic will stick around. This is great news for every organization along the payments value chain, especially credit unions. That’s because payments is a key path to engaging members and earning the primary financial relationship with more members.

Enabling the day-to-day movement of money bolsters the sense of trust and reliability members have with their credit unions. Owning more of those everyday financial moments allows credit unions to continuously prove their value and communicate their brand difference to their members. Meeting member moments through a payments strategy requires something of a model shift. Members used to come to their credit unions when they needed to buy a new product or make a transaction.

This sets up the mainstay “life stage” approach to service and engagement. Today, though, members expect credit unions to come to them. And members aren’t all that convinced they even need a traditional institution to meet their financial needs. They can – and do – establish new financial relationships with any brand they like from their devices. Walmart, PayPal, Facebook, Uber – if they trust the brand to pick out and deliver their produce, connect them to their friends and drive them around town, why would they not trust them with their financial transactions?

All this is to say that if credit unions want to fully realize the transformational power of payments, they must flip the script, thinking less about “life stage” and more about “lifestyle.” Being there for everyday moments is the key to building trust and enduring relationships. More pragmatically, engaging in daily transactional, active member service will balance interest and non-interest income opportunities – critical as loan volume has been trending down since 2015, according to CUNA and NCUA reports.

Further, payments represent 80 percent of consumers’ interaction with their financial institutions. Gaining the payments business of more consumers is a $500 billion incremental interchange revenue opportunity over the next five years, according to the Federal Reserve Survey of Consumer Finance and McKinsey Global Payments Report.

We have an opportunity to meet our members where they are throughout their day while improving our noninterest income. The strategy of serving our members in remote and digital ways hinges on the ability to anticipate their needs. Digital banking and payments are effective allies in the battle to be there first. That’s because each generates a trail of digital breadcrumbs that feeds artificial intelligence and other learning technologies designed to prescribe the next best experience for a particular segment or even a particular consumer.

The model shift from life stage to lifestyle, in combination with advanced learning technologies, enables payments strategists to think more holistically (versus individual product-oriented) about the member experience and to personalize service. When we focus here as an industry, it also gives credit unions a market opportunity when 6 percent of their loan portfolio is made up of credit card loans. If we can have more members transacting with the good guys who have their best interest at heart, we’ll see safer and stronger member performance with their credit.

It’s worth mentioning that payments do more than drive transformation for an organization. When strategically tied to a credit union’s financial wellness efforts, payments can drive transformation for the individual as well. By enabling all kinds of financially healthy behaviors – from budgeting and saving to debt repayment and fee-free money movement – payments technology empowers personal development. API-enabled tools literally and figuratively “plug into” a consumer’s daily life, giving them greater visibility into how everyday choices affect their long-term financial goals – and deepening their relationships with the providers who make those insights possible.