May 21 2015

Emerging Payments and Communities: Reimagining Trust and Mutual Finance

 In 2004 Facebook was an anomaly. As one of the pioneers in social networking, it originally limited access to Harvard students, offered basic functionality, and served as a centralized directory that connected people across the university. While its core user group was exclusive, the message was clear: Facebook wanted to revolutionize the way we connect with one another. Today Facebook has over 1.23 billion active users and is the number one social networking site in the world. To the victor go the spoils.

Financial services are facing an interesting revolution of their own in payments. Every aspect of how consumers manage, spend, and borrow money is undergoing a transformational shift. Disruptive innovation is decentralizing money. Now you can buy a cup of coffee or pay bills with the click of a button on your smartphone. Our very perception of monetary value is changing. In the same way community led to the rapid rise of Facebook, community is a key aspect of emerging payment systems.

This research is an expanded view of the current payment landscape as it continues to be shaped by technological innovation. It is based on more than a year of research that included ethnographic fieldwork among payment industry experts. Additional archival research and data collection come from payment industry conferences, consulting documents, and reports.

We start by highlighting the diverse options available for moving, storing, and keeping track of monetary value. No longer are financial service providers the only players in this space. Just as Facebook revolutionized computing and mass media, systems such as PayPal and other digital services have redefined how we interact with money. From mobile payment to the sharing economy, the report focuses on the nontraditional payment infrastructures that are reshaping how consumers conduct financial transactions. Moreover, we reflect on how these payment developments are sometimes framed as “alternatives” to the mainstream economy. As digital wallets, cryptocurrencies, and multichannel banking become more accepted—particularly in retail and commerce—it is important to understand what the new business of money will look like.

As a legacy player in banking, credit unions must be mindful of the disruptors that are gaining considerable market share. New entrants are challenging the dominance of card networks and offering new rails for payment. Trust and sociality have traditionally been hallmarks of cooperative finance and, ironically, these characteristics forge the foundation of an intersection between financial transactions and communities or “publics.”

Fortunately for credit unions, many of the key payment disruptors are, at their core, technology companies. They may face challenges related to consumer protection and regulation as well as consumer confidence in their service. With direct and trusted access to members, that leaves many credit unions well positioned to respond to the commercial applications of new payment technologies. While there is a potential for conflict, credit unions can quell this friction by working with new financial service providers to offer members a reimagined framework of money and banking. The everyday credit union member can benefit greatly from utilizing electronic or mobile payment systems that promote convenience and efficiency. Members can also benefit when credit unions make community and connections a key part of payments.

This research will be available as a slide deck and text document. 

Filene thanks our generous supporters for making this important research possible. 

Report Number 363