By John Patton, Senior Payments Advisor
As a member of the CO-OP SmartGrowth Team, I’m constantly asked by our credit union clients what the future of credit and debit spending will look like after the pandemic is over. And it is times like these I wish I had a crystal ball!
Over the past year, my colleagues and I have witnessed unprecedented change in the payments space, from wild swings in credit and debit transaction volume to a surge in digital payments and a complete upheaval of what we might call “normal” spending by category.
One thing is certain, though: to become their members’ primary financial relationship, credit unions must continue to adapt their credit and debit programs alongside member needs. This will be important not only for portfolio growth but also for ensuring they offer the payment products and services that cardholders care about. A great example: a recent study found that one in five consumers say they have made a contactless payment for the first time during the pandemic. [i]
While we can’t know for certain what payment trends are temporary and which are permanent, credit unions can put themselves in a stronger position to drive payments growth post-pandemic by implementing these three strategies:
#1 Stay on Top of “Passive Payments” With a Comprehensive Digital Offering
Even before the pandemic, there has been a steady shift towards “passive” payments, where members are thinking less about which card or payment method they use. They care about the experience being fast, convenient, and secure. COVID-19 took that to a new level as a large share of payments shifted to online and mobile channels.
This is a big reason why we believe digital wallet capabilities and contactless cards will become table-stakes for your credit and debit offering. Comparing payment transaction data from the 1st and 2nd half of 2020, we saw monthly mobile wallet and contactless transactions surge nearly 40 percent. We expect to see another 20-30 percent growth in contactless and wallet payments in 2021. This means that there will be a huge share of passive payments up for grabs… if you can capture it.
That’s where digital card issuance will become incredibly important. Digital Card Issuance enables you to instantly issue or reissue a credit or debit card digitally so that a member can start transacting immediately. It may seem like a small feature, but that will be enormously powerful in securing top-of-digital wallet going forward. Best of all, CO-OP’s forthcoming Digital Card issuance solution will offer the ability to integrate with multiple mobile banking solutions and our existing Digital Wallet Solutions. This means that members can load their cards into their preferred wallet or apps at the click of the button, rather than manually entering their card information.
It cannot be understated that becoming the passive payment method of choice should be at the top of every credit union’s payments strategy in 2021.
#2 Ramp Up Your Portfolio Optimization
Credit unions have rich troves of payment data at their disposal. Having that data is one thing, but COVID-19 really underscored the importance of acting on that data. For instance, credit unions that capitalized on increased spend in categories like hardware and discount stores, online groceries and Amazon purchases saw huge lifts in their portfolio over the past year. Meanwhile, traditionally popular categories like travel and in-person dining saw record low levels of spending.
As we head into the next phase of the pandemic, we can expect to see a slow reversal of that trend; but it is really important for credit unions to dig through their portfolio to see how their members’ spending has shifted as a result of COVID-19.
Not sure where to start? Try this 3-step formula:
- Start by analyzing which generational groups make up the majority of your membership. Recognize that Boomers and members of the “Silent Generation” spend differently from millennials and Gen Z and may need more education to use online subscription services, contactless cards, and digital wallets.
- Next, review your members’ spending behaviors by channel, looking at three primary buckets – traditional swipe and card-present purchases, card on file/subscriptions, and digital wallet/in-app transactions.
- Lastly, analyze spend down to the MCC level to determine where most of your cardholders make their purchases. Compare all of the above data points with the broader market trends to see where your membership is in line with national spending behavior versus where you have gaps.
If you’re wondering how often you should be doing this type of analysis, I would say that it all depends on how valuable it is to your bottom line.
Consider this: our SmartGrowth team was able to partner with OMNI Community Credit Union to help them increase their activation rate by 11 percent, average monthly spend by nearly 10 percent year-over-year, and drive a 15 percent increase in interchange revenue by performing an analysis of their portfolio and developing targeted campaigns based on member spending activity.
We see examples all the time of credit unions overcoming low utilization and activation rates through a deep portfolio analysis and a series of targeted, data-driven campaigns.
(If you’re interested in learning how SmartGrowth can help you do that kind of analysis, reach out to us)
#3 Lean into What you Do Best as Credit Unions
Finally, credit unions must continue to do what they do best: putting the member first. Our “people helping people” ethos really made an impact in the early months of the pandemic. While big banks put their wealthiest customers first during the first stimulus check roll out, credit unions were there to support their members with interest and fee relief and financial wellness tools. Our members won’t forget that; but is incumbent on us now to grow those member relationships through payments.
It’s going to take a big shift in thinking on our part. Start by recognizing that having the lowest credit card APRs on the market is no longer enough to earn a greater share of payments. Instead, credit unions must augment their payment products with compelling rewards and incentives that target members where they shop the most.
My colleague Deb Wieczorek pointed out a great example recently in CU Today:
“Now may be the time for credit unions to look at launching partnerships with local businesses that are popular among their membership, as businesses scramble to try and bring customers back. Credit unions need to go out into their communities now and speak with the mom-and-pop shops. Create an alliance with them. Create deals where if the credit union member comes into the shop they receive some additional rewards points—give them more points than if they would shop at some large retailer, like Target.”
I loved that example not only because it’s a powerful portfolio growth opportunity but because it embodies two pillars of the credit union mission: supporting local businesses and building loyalty with members.
As the payments landscape continues to evolve in 2021, capturing and retaining a greater share of your members’ payments will be critical to long-term success. That is where you can look to CO-OP for support. We see the past year as validation of our product roadmap: from our early investment in the latest digital payments solutions (like contactless cards and Zelle integration) to the modern payments platform we’re building to help our credit unions understand, anticipate, and meet their members’ needs. And if you don’t already process with us: now’s the time find out what you’re missing!
Request a digital copy of CO-OP’s ever-expanding roadmap to discover what CO-OP is building in 2021 to help our credit unions deepen engagement and strengthen operational efficiencies: https://mktg.coop.org/CO-OP-Roadmap-2021