Catalyst News

How Can Credit Unions Prepare for Faster Payments?

by Catalyst Corporate | Oct 06, 2020

Faster payments is a fluid concept. It can mean different things to different people. According to the U.S. Faster Payments Council (FPC), “Faster payments can signify a same-day, immediate or instant payment, or even an instant message transfer. And, to some, a faster payment can be a notification that takes place in a speedier manner than a previous process.” Essentially, the definition of faster payments depends on the technology or process used for a transaction and the difference it creates.

Trends and Adoption

Survey results from the FPC's Faster Payments Barometer report show that the U.S. is in the beginning phase of its faster payments journey; 48% of organizations are in an early adoption stage for faster payments. The speedy adoption of diverse use cases accurately illustrates how rapidly faster payments are penetrating the U.S. markets. Peer-to-Peer (P2P) is constantly growing, through apps like Venmo, Zelle, Cash App, and PayPal. In 2019, the U.S. recorded 96 million people (about 40% of the population with mobile devices) using P2P transactions. By 2021, segments like B2B, B2C, and C2B will further grow their share of the faster payments pie, at least by 5%, and will need financial institutions that can support them in this endeavor.

Faster payments are the future of financial services. However, there are a few deterrents for financial institutions – cost of the opportunity, significant resource (financial and human) commitment, unpredictable financial returns, unknown adoption rates, and uncertainty of regulations or mandates. With these challenges and consumers’ growing need for speed and availability, enhanced reporting, transaction certainty, and payment modernization, financial institutions will have to take calculated risks and invest in faster payments.

As credit unions explore these new avenues, they should consider the following approaches: Deeper Understanding of Member Preferences, Collaboration for Innovation, and Use-Case Exploration.

Deep Understanding of Member Preferences

Credit unions should consider systems based on member demand and financial strategy, weighing these factors against the operational burden of tighter liquidity management. Consider both current and future member needs. The consumer-driven need for faster payments can be viewed as more than a service enhancement. It should also be viewed as a competitive advantage for credit unions.

Collaboration for Innovation

Developing, testing, implementing, and maintaining technological capabilities for new payment rails can be the biggest hurdle for credit unions. The process is resource-intensive in terms of time, capital, talent, and certification. Collaboration in the credit union industry is the key to adopting the faster payments ecosystem cost-effectively and ensuring that the industry at-large is benefiting from the opportunity. Traditionally, credit unions have recognized many efficiencies from working collaboratively with corporate credit unions. Now corporate credit unions have an ability to offer similar opportunities in faster payments.

Recently, an alliance was created between Alloya Corporate Federal Credit Union, Catalyst Corporate Federal Credit Union, and Vizo Financial Corporate Credit Union with the acquisition of Aptys Solutions, a payments fintech, to provide the most advanced payment services to its members, including faster payments.

Use-Case Exploration

Based on membership composition, credit unions are exploring use-cases for P2P, as well for account transfers and business transactions. Exploring a diverse set of use cases will help maximize the benefits of faster payments. As credit unions explore use cases, focus should be on member need and member experience. Modernization of the member experience is an equal part of the transformation with faster transactions.

Learn more about Catalyst Corporate's involvement with the U.S. Faster Payments Council here.