The Future of Payments: Research Sneak Peek
View from Mountain America Credit Union
In recent years, digital payments have garnered extensive press coverage and interest from companies both in- and outside the traditional financial services landscape. In May, Filene gathered 100-plus bright minds at Mountain America Credit Union’s beautiful Salt Lake City facility for a full-day Future of Payments Colloquium. Not only was the hospitality impeccable, the insights were priceless.
Look for a full Filene report in the coming months detailing colloquium content, and in the interim, here’s an overview of the day.
Experts from McKinsey & Company outlined factors that are likely to tilt consumers from paper to electronic payment channels. Critical undercurrents driving an increased acceptance of digital are: growing consumer and merchant demand, better and more affordable technology, and the increasing embrace of digital by businesses of all types and sizes.
The question is, how can credit unions leverage these emerging payment opportunities? McKinsey’s experts believe success depends on the ability to make account and card services more attractive through positioning credit unions as a resource for better money management; developing better ways to deliver plastic; using big data more effectively; and making a deeper dive into the still-evolving digital wallet.
Although there are some critical differences between Canadian and US credit unions—including a smaller Canadian population base, an increased role for government, the use of near-field communications (NFC) and EMV chip-card specifications, and the fact that credit card processing is largely outsourced—Stephen Fitzpatrick, vice president of corporate services and CFO for Credit Union Central of Canada, showed many opportunities for us to learn from each other. Key shared issues include the growing threat to payments providers from outside the financial services industry, the challenges an increasing governmental regulatory burden presents, and the importance of building merchant relationships. Our continued partnerships with our Canadian brethren are widely appreciated for their value to both sides.
The audience had an opportunity to grill a new group of industry experts: Steve Shaw, vice president, strategic marketing at Fiserv; Bob Hackney, president of Card Services for Credit Unions (CSCU), Fredda McDonald, executive vice president at Payment Services for Credit Unions (PSCU), and Caroline Willard, executive vice president, markets and strategy from CO-OP Financial Services, plus one of our morning speakers, Stephen Fitzpatrick. Glen Sarvady, moderated a lively Q&A. We discussed why the new payments business model will be built around data, not interchange income—and the potentially terrifying consequences for credit unions; if credit unions can compete when price, not service, drives the decision about which payments option to use; why credit unions must embrace collaboration; and why it’s critical to do more to invite merchants to the party.
Then the tables were turned and the audience became the presenters. McKinsey created four likely future payments scenarios built around how quickly payments technologies would be accepted and whether there would be many providers or just a few. McKinsey reported that this group showed the clearest alignment around one scenario that they’d ever seen—what they called “A Thousand Flowers,” a future in which adoption is rapid and providers are many. In second place, though quite far behind, was "Walled Gardens," a scenario in which the market is changing quickly—adoption is happening now—and there are one or two winners who dominate the payments space. Audience members shared their thoughts on the two prevailing scenarios and what they perceived as the opportunities and challenges of each.
The colloquium made two things abundantly clear: The payments space is changing and credit unions will have to change along with it to remain competitive.