May 31 2011

Innovations in the Payment Ecosystem

Your business model is in jeopardy. The culprit: the payment ecosystem. This ecosystem is defined as “a network that moves money between consumer and merchant bank accounts using computers, software, and communication links.” While the current payment ecosystem is essentially the same as it was 30 years ago, we now stand at an inflection point where a new wave of innovation is approaching that threatens to undermine the very financial intermediaries that made the payment ecosystem what it is today. Intermediaries like credit unions.

George Hofheimer
George Hofheimer
EVP + Chief Research + Development Officer
Report Number 237

Executive Summary

Like most financial institutions, the credit union system has traditionally taken an “if it ain’t broke, don’t fix it” approach to payment systems. After all, the average plastic card transaction takes just several seconds and is widely regarded as robust, reliable, and secure. Any change to the system requires myriad players to replace expensive, entrenched systems, and historically most felt they had little to gain from this investment. In recent years, however, there has been a surprising uptick in payment-related innovation and the speed at which change in this area has been adopted.

This brief provides the key factors that are driving innovation and an overview of recent examples, plus the risks and opportunities that payment innovations pose for the credit union system. This information is as fluid as the innovation that’s prompting the discussion, so use this brief as a starting point rather than a definitive treatise on innovations in payment technology.