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The Transformation of Payments and Its Impact on Financial Services

By David Dean

SVP, Business Development & Marketing Solutions
CU Solutions Group


The rising popularity of real-time payment systems have transformed how financial institutions, as well as their fintech competitors, view payments. Consumers are expecting faster and more convenient payment methods. The new standard is lightning-fast real time payments integrated through multiple channels: mobile wallet, smart phones, internet, etc. An unprecedented transformation is underway where consumers are now firmly in control of their own experiences, while merchants are struggling to meet expectations. 

This paradigm shift has led to an influx of new technology and ensuing regulation. While the customer-facing part of the value chain continues to see high levels of innovation, credit unions are still grappling with back-end infrastructure enhancements. 

There are new opportunities in the payments industry in terms of adoption of Open Application Programming Interfaces (APIs), growth in digital payments, innovation in cross-border payments and distributed ledger technology. There are also challenges from the entry of alternative service providers (who are impacting the industry in terms of fostering competition), nurturing innovation and enhancing process and system-related efficiencies. Furthermore, banks and credit unions are now tasked with providing value-added services to retain and acquire new customers.
In order to meet consumer demand and foster loyalty, credit unions need to ensure that their systems remain flexible and convenient. 



 Organizations have to stand out 


While the credit union industry is poised toward transformation, non-traditional players are entering the market with solutions that have a quicker time-to-market, thus challenging credit unions to actively devise differentiated offerings. Not only are credit unions now tasked to differentiate themselves from banks - which is nothing new  - but credit unions now also have to set themselves apart from all their competitors in the financial services industry. 

The fragmentation of the global financial services market, coupled with initiatives such as the Payment Systems Directive (PSD II) and open banking, threatens to open up the market to third-party providers and increasing levels of risk and fraud. This drives a greater focus toward the implementation of fool-proof identity and authentication measures for customer protection. Credit unions have an opportunity to manage and protect the federated identity of their members, much like they manage and protect their members’ accounts today.

Previously, financial institutions treated payments as a commodity, the handling of which was outsourced while banks and credit unions focused on core services. Currently however, payments are seen as a differentiator and financial institutions are keenly aware that they need to have a stronger hand in the technologies powering payments. Experts anticipate payments to become even more important in the future, especially due to wealth of data locked inside payment systems.

Credit unions need to establish that their technology is not only safe and convenient, but also connects their members to the same great service that they expect. This creates a habit-building cycle that generates trust and loyalty. 


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