Credit unions explore new avenues for payment strategies and cryptocurrencies

CO-OP Solutions weighed in on some of the technological opportunities available to credit unions

Should credit unions rethink payment strategies? And are cryptocurrencies an opportunity or a risk? These were among questions explored by CO-OP Solutions at a breakout session of the World Credit Union Conference in Glasgow on 20 July.

A co-operatively owned credit union service organisation, CO-OP Solutions provides services for US credit unions, including shared branching, debit and credit solutions, ATM, digital payments, security, and marketing services.

Its latest CU Growth Outlook research, conducted in collaboration with Ernst and Young and the Filene Research Institute, found big market shifts in the needs, expectations and interactions of credit union members. The study included a survey of 1,000 prospective members 2,000 credit unions members to see how they choose they financial institution.

It found that the average consumer has five different financial relationships, and is happy to go from one provider to another. The research also revealed that 36% of respondents expect personalised products while 54% expect digital services. Credit unions are also facing competition from fintechs – the study showed that the most trusted financial brand for credit union members was Paypal (25%), with credit unions themselves coming second as the most trusted brand for 21% for respondents.

Respondents also chose fintechs over credit unions, especially when it came to digital products.

Sam Paxson, chief experience officer at CO-OP Solutions, said that in addition to digital services, consumers want digital tools that improve their financial well-being.

Credit unions can drive an estimated 4.9m in incremental member acquisition with a payments focused strategy, she added, with further benefit possible from blurring the lines between interest and non-interest income. And by working to embed themselves in the lifestyle of the member, credit unions can improve their financial wellbeing.

Competitors are already working to do these things; Paxson said credit unions could respond to this threat by engaging with their members and incorporating digital payment options, using payments to create daily constancy and enabling a daily long-term financial wellness journey.

Another way to differentiate themselves from competitors is by creating financial transparency and helping members take action by developing members data insights, utilising payments to deepen member relationships and enabling member activation and top of wallet status – ensuring their credit union’s card is the first to be reached for when a wallet is opened. 

The crypto conundrum

Dean Michaels, chief strategy officer at CO-OP Solutions, explored the opportunities around cryptocurrencies. He said that 17% of US consumers own cryptocurrencies, mostly millennials. Around 51% of owners of crypto in the US bought it for the first time over the last 12 months. Furthermore, 62% of US adults would consider buying more crypto if they were able to get it through their financial institution.

With the majority of traditional financial institutions still not offering cryoptocurrencies, credit unions have the opportunity to differentiate themselves, he said. They can also look innovative, gain market share and help educate members around crypto currencies.

But there are risks: Firstly, while most countries have a licensing mechanism, crypto regulation is still forming, and crypto transactions are prohibited in China and Mexico. Trust is another issue to look out for – if a member sees a credit union offer cryptocurrencies they will think it is safer to invest. But if the value declines members’ trust in their credit union might be eroded.

In the US, existing regulation allows credit unions with federally insured deposits to provide cryptocurrency services to customers only by partnering with third parties. The Credit Union National Association is working with the regulator to push for changes to allow credit unions to provide cryptocurrency custody services.

Research by Filene confirmed that credit union leaders believe the lack of regulatory clarity and support is the greatest roadblock to offering crypto products to members.

Michaels said there is no one-size-fits-all approach, with a lot depending on the demographics of each credit union. He added that those credit unions looking to explore this avenue should focus on crypto as an investment as it is not yet well developed from a payments perspective.