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Evolving consumer payment preferences: Takeaways for your credit union

By: Keith Riddle, EVP, Enterprise Solutions Development

Reviewing the latest market research is a good way for credit unions to keep a finger on the pulse of what consumers are doing in the financial marketplace. We need this information so we can solve their problems and meet their expectations with appropriate financial solutions. Right now, one of the biggest trends in the financial industry is the continual evolution of consumer payment preferences. Three of the biggest factors driving this evolution are:

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  • The industry’s movement to faster/immediate payments
  • The growth in biller-direct bill pay along with the decline in credit union/financial institution bill-payment platforms
  • The impact Fintech providers have created on frictionless payment experiences, such as person-to-person (P2P) payments

As noted in my recent article, Four digital financial trends and takeaways for 2017, several market trends have been impacting the consumer’s interaction with financial institutions for a variety of financially related tasks. As a brief reminder, here’s what the 2016 Neilson report Channel Effectiveness for Financial Services had to say:

  • 73% of consumers are comfortable using a PC to retrieve basic account information, transfer funds (69%), or pay bills (69%).
  • 33% of consumers use their phones to check balances, transfer funds (24%), or pay bills (21%).
  • All of these interactions are higher than use of the branch, ATM or mail.

Another report from Capgemini titled World Retail Banking Report 2016 reported the following:

  • In 2015, 65.1% of consumers used Internet desktop banking at least weekly. That number fell to 59.4% in 2016.
  • The number of customers using mobile banking weekly increased from 30.5% to 33.3%.

Recent study further reveals/confirms evolving consumer bill-payment trends

A recent study performed by Aite Group and issued by ACI, which analyzed consumer bill-payment trends, uncovered some interesting consumer payments behavior, including the fact that 56% of all bills are now paid online:

  • Generation X (born between 1965 and 1980) and millennial (1981-2000) consumers pay 60% and 61% of their bills online, respectively, compared to 52% for baby boomers (1946-1964) and 42% for seniors.

Much of the information in the Aite/ACI report is related to one of the three factors/categories driving the evolution of payments previously mentioned above.

  • The industry’s movement to faster/immediate payments:
    • According to the study, between 2010 and 2016, bills paid via ACH – a money-transfer method continuing its increase in terms of speed – spiked 10 percentage points, and bill payments made with credit cards doubled to 15%. Bill payments made with debit cards rose from 11% to 15%.
    • The study also found that using checks to pay bills is a habit that declined 20 percentage points between 2010 and 2016 overall.
  • The growth in biller-direct bill pay/decline in financial institution bill-payment platforms:
    • The percentage of online payments made on biller sites grew from 62% in 2010 to 73% in 2016.
    • Financial institution bill pay, on the other hand, shrank from 38% in 2010 to 27% in 2016, the study said.
    • Additionally, the use of banks’ websites represents 9% of all one-time payments made by millennials.

In addition, a recent Credit Union Times article noted that a relatively low financial reinvestment in existing bill pay offerings has led to a stagnant user experience, opened the door to competition, and increased the likelihood that P2P and other money-movement technologies will eventually converge with or absorb bill pay.

So what should we actually take away from the research/data on these bill payment trends?

Below are a couple of practical takeaways we can keep in mind from two specific and ongoing consumer-payment trends:

  • First, due to the popularity of the Venmo P2P platform (owned by PayPal), which accounted for $4.9 billion in money movement in the third quarter of 2016, larger financial institutions are actively getting into the real-time payments space. For example, several are beginning to pilot Zelle, a real-time, money-movement network owned by Early Warning Systems.
    • Takeaway: Credit unions should evaluate the current usage of Venmo and PayPal within their credit union member base, and determine their strategy for offering an enhanced, money-movement solution.
  • Second, real-time payments functionality through the Clearing House (TCH) platform, the new payments infrastructure and message set (ISO 20022) scheduled for beta in the second and third quarters of 2017, will enable a set of payment and money-movement use cases for financial institutions, such as real-time bill payment.
    • Takeaway: Credit unions should evaluate the bill pay transactional shift they have experienced within their membership base. They should use this information to determine the service enhancements and revenue opportunities presented through enabling real-time payments functionality.

I encourage you to continue to monitor updates from Corporate One related to real-time payments functionality, including our recent announcement about obtaining access to a real-time payments testing platform.