The COVID-19 pandemic has pushed credit unions in Ukraine to finally start implementing digital services for members—something they have been putting off for years.
The Cabinet of Ministers of Ukraine (CMU) shuttered all credit unions in mid-March, along with other non-bank financial institutions and service providers, in response to the pandemic.
Since credit unions in Ukraine could not operate remotely because they did not offer online services, the shutdown was having a negative impact on their financial performance and their members.
While a joint advocacy effort paved the way for those credit unions to reopen, the industry saw the writing on the wall—it was time for credit unions to move online and start providing digital services.
The All-Ukrainian Association of Credit Unions (VAKS), an associate member of World Council, sent out an IT survey in May to its member credit unions to determine how to start moving in that direction. The consensus was that the effort should start with allowing for remote payment services. But VAKS does not have an IT infrastructure set up for that or a license to offer payment services. And because building such an infrastructure will take both time and money—the transition has begun with several credit unions choosing a more non-traditional route.
How does it work?
Since Ukrainian credit unions cannot issue debit cards due to government regulations, members are given a debit card issued by a bank or payment service provider. Members can then use that debit card to make their credit union loan payments remotely.
While that may sound confusing, it is clearly a service that credit union members wanted all along. Kredyt-Soyuz, a credit union in the Cherkasy region of Ukraine, is already processing more than 100 online payments each week. With close to 10,000 active loans, they expect that number to only go up. Many members who have paid online once said they would continue to do so, preferring it over going to a branch location to make their payments.
Cost is a concern
The downside for the credit unions is the cost associated with using a payment service or bank. A fee of 1.5% on each payment goes to the service provider. Some credit unions are paying that entire cost, while others are splitting it with their members.
Credit union associations know the long-term solution to that problem is to develop their own payment systems. But since that step is still years away, their credit unions have decided they must do what is necessary to start providing services to members no matter where they are.