This post was provided by Co-Op Financial Services, a financial technology organization supporting thousands of credit unions in the United States, and an associate member of World Council.
As Americans hunker down in their homes, changing everything about where and how they spend money, credit unions are entering uncharted territory.
However, one thing is certain: credit unions must continue to be a compassionate banking alternative: delivering the financial support that consumers and small businesses need now and in the face of an uncertain future.
Big banks are going to do what they always do: put profit before people. Just this morning, for instance, thousands of small business owners voiced their anger on social media after being denied from Bank of America’s Paycheck Protection Loan Program. The bank stated it would only offer relief to customers that have an existing credit card or lending relationship with the bank.
While Bank of America reversed its decision only after massive criticism, the initial policy demonstrates the clear connection they draw between the payments and lending side of their business and that, for them, these decisions are purely transactional. Credit unions can stand as the compassionate financial alternative, leveraging payments to support members’ immediate financial needs while building long-term relationships with them.
There are three upcoming trends that CO-OP recommends credit unions prepare for, ensuring members have continued access to the financial tools and products they need, while outshining Big Banks.
Trend One: Migration from Debit to Credit
While cash and debit cards are the two most preferred payment methods among U.S. consumers, we may see a significant shift to credit over the coming weeks.
“In the last recession, people were hesitant to use credit,” says BJ Brisbois, Senior Vice President, Sales Operations, at CO-OP. “This time, everything has happened so fast that people had no time to prepare financially or emotionally. As unemployment numbers increase, members will look to purchase more necessities via credit. Given the multiple layers of uncertainty most consumers now face, even members who have not lost their jobs may want to conserve their cash now.”
Best Practices for Debit to Credit Migration
In order to stay ahead of the debit-to-credit migration trend, proactively reach out to your credit cardholders with special offers. Brisbois recommends offering some member incentives to help drive credit card activation and usage, such as:
- Skipped payments
- Relief from interest and fees
- Spend and get on essential items with a statement credit
- Outreach to activate inactive cards
- Low-rate promotion with relief language: for example, 0% for six months
- Credit line increases, where strategically appropriate
Recently, CO-OP introduced three portfolio-level programs that enable our Full-Service Credit clients to offer skipped payments, interest relief, and fee relief.
Deb Wieczorek, Vice President, Strategic Advisory and Portfolio Growth at CO-OP adds that this is a prime opportunity to deliver financial support to your members and remind your current credit cardholders of the benefits of carrying your credit card. CO-OP’s SmartGrowth portfolio consultants have been working with credit unions to develop customized campaigns that help their members during this unprecedented time. “Now is the time to get creative,” adds Wieczorek. “Your members are looking at whoever can give them the best financial incentives.”
Trend Two: Forward-Facing Risk Mitigation
At the same time, credit unions must be prepared for increased risk of account delinquency and fraud, says Tom Church-Adams, Senior Vice President, CO-OP Pay Products.
“As credit unions prepare for an increase in credit card purchases over the coming weeks, the risk of payment losses will also rise, either through fraud or cardholders unable to make payments. Credit unions will need to balance the risk of mitigating fraud while avoiding a spike in unnecessary declines and ensuring cardholders have access to their funds.”
Best Practices for Risk Mitigation:
In addition to more closely monitoring fraud at the transaction level, credit unions can leverage tools like CO-OP Payment Defender (available to CO-OP Full Service Credit clients) to help minimize payment fraud losses. Payment Defender allows a credit union to identify cardholders who are most likely to have the next payment returned and allows for management of potential risk associated with that cardholder. The payment float feature ensures that a cardholder’s available credit is not increased when a payment is made until a certain number of float days have passed. Payment Defender allows the credit union to create specific actions to take based on various risk and fraud criteria of the cardholder and/or their payment history (ex. payment frequency and size relative to a card holder’s balance and/or credit limit). The number of float days and float amounts are customizable based on relative potential risk.
Trend Three: Digital Payment Adoption
Digital payment adoption will likely grow exponentially over the coming months. An RTi Research survey of consumers found that 33 percent reported ordering groceries online for the first time, and of those, 54 percent planned to continue this behavior after COVID-19. For those still shopping in-store, 30 percent used a contactless payment method for the first time and 70 percent of those people planned to continue using that technology. 1
Best Practices for Digital Payment Adoption
As COVID-19 accelerates digital payment adoption, credit unions should use this opportunity to bolster their digital payment options.
“Offering integration with the major mobile wallet providers – Apple, Samsung, and Google – is key,” says Church-Adams. “At the same time, contactless payments will help put members at ease as they conduct POS transactions without having to worry about pulling their cards out and risking physical interaction.”
Credit unions should also be thinking about strategies to achieve top-of-digital-wallet status. In general, the more sticky products you have within your mobile banking suite, the more likely members are to use them. Mobile card controls and alerts, for example, is a powerful way to keep members more engaged with their digital banking products and give them more incentive to load their credit and debit cards into the app. P2P services like Zelle will become another essential channel, helping members quickly send and receive money digitally to people in their social networks while maintaining social distance.
While COVID-19’s long-term economic impact remains unknown, your payments portfolio is a powerful means of maintaining regular interaction with and support for your members. As Big Banks continue to put profits before people, Credit Unions have an opportunity to demonstrate our strengths. Modifying your payments strategy to deliver continuity and financial relief will help you maximize the benefit to your members and in turn, increase loyalty.
“Credit unions are showing a lot of interest in helping their members get through this difficult time; it’s not about increasing transactions,” says Wieczorek. “This is a time when the people-helping-people message really hits home.”