Payment SystemsTheir Strategic Role in Credit Unions

www.synergentcorp.com/DownloadWhitePapers

FORWARD

Payment systems are rapidly changing to meet evolving technology and consumer demand.

We’ve come a long way since the barter system of the prehistoric world to the formalization

of standardized currency under the Greeks and Romans. Gold was displaced by paper currency,

then checks evolved, followed soon by credit cards. In more modern times we have seen the

advent of telephone banking, online banking and PC-based bill pay.

Payment systems are quickly moving into a new frontier. And as a recent Credit Union Magazine

article notes: “The credit union business model is in jeopardy. The culprit: the payment

ecosystem.”

But just what is the payment ecosystem and why is its development so vital to credit unions?

The same article defines it as “a network that moves money between consumer and merchant bank

accounts using computers, software and communication links.”

In other words, payment systems represent a dynamic and fluid world in which the way consumers

pay for anything from concert tickets to their monthly electric bill is relentlessly evolving. Credit

unions ignore this assault on their typical business model at their own peril. Payment systems are

not a tactical issue your credit union faces—it is strategic in nature. Ron Shevlin, Senior Analyst with

the Boston research firm Aite Group, concurs, saying, “As far as a payment systems strategic role,

credit unions must now look long-term.”

In this study we will delve deeply into the vibrant world of payment systems and what it means to

credit unions. We will cover the following topics:

• Whatstrategicroledoesapaymentsystemplayinacreditunion?

• Howcancreditunionsincorporatepaymentsystemsintotheirstrategicplans?

• Howmightpaymentsystemtrendsalterthecreditunionbusinessmodel?

• Choosingapaymentsystemsvendor

• Howcancreditunionsstayaheadofthepaymentsystemstechnologycurve?

• Howmightconsumerpaymentsystemsbehaviorchangeinthenearterm?

Ron ShevlinSenior Analyst, Aite Group

WHATSTRATEGICROLEDOESAPAYMENTSYSTEMPLAY

INACREDITUNION?

“Everycreditunionhasakindofpaymentsystemsprocessinplacealready,”saysJean

DeStefano,AccountExecutiveforPaymentSystemswithSynergent.“Whetherit’sdebitcards,

check processing or something else, all credit unions help their members by facilitating

financial transactions with the members’ funds on-hand. The trick is staying on top of all the

new trends in payment systems and ensuring that members have access to an easy,

convenient and feature-rich platform.”

“Society is now more educated and affluent,” adds Shevlin. “This includes credit union

membership. And we spend more as a society, too. As much as four times what we did just a

fewdecadesago.Managingdailyspendingisthemajorchallengemanyconsumersfaceand

I am sorry to report that most credit unions have not kept relevant products in place to help

achieve this goal.”

These needed products are, primarily, easy and reliable payment systems. For these to work

well and be a true member benefit, they must run smoothly and refrain from sapping too

muchstafftimeandenergy.Executedproperlyandaspartofastrategicrole,payment

systems represent an area for credit unions to maintain near constant contact with their

members. Done poorly, payment systems could represent the downfall of an otherwise sound

member service strategy.

As the Credit Union Magazine article points out, it all boils down to the digitization of financial

transactions. “And like other industries transformed by similar digital trends (travel agencies,

music publishing, book publishing, etc.), financial firms should be concerned about payments.”

PAYMENTSYSTEMTRENDS

RebekahHiggins,AVPofCardServiceswithSynergent,notesthefollowingcurrentpayment

systems industry trends:

• EMVchips(Europay,MasterCard®andVisa®)thatallowsglobalusagesoVisaand

MasterCardcanbeacceptedeverywhereisahottopicintheindustryrightnow

• Customizedcardshavebecomeawayforacredituniontoenticecardholdersto

make a card “top of wallet” (meaning this is the card they gravitate to when making

a purchase)

• Rewardscardshavetheabilitytoincreaseusageandattractnewcardholdersasthey

incent cardholders to use their cards more frequently

• Fraudcontinuestobeamajorconcernforfinancialinstitutions

Jean DeStefanoPayment Systems Account Executive, Synergent

Rebekah HigginsAssistant Vice President, Synergent Card Services

HOWCANCREDITUNIONSINCORPORATEPAYMENTSYSTEMSINTO

THEIRSTRATEGICPLANS?

Consider the following statistics:

• Mobilebankinguserswilljumpfrom17millionin2010to59millionin2013

• Since2002,totalInternetusershavegrownfrom360millionto1.7billion

• Cellphonepenetrationhasleaptfrom35%to89%

Clearly, consumers are on the go and turn ever more readily to mobile payment systems to handle

daily business transactions. What’s the key to working a payment system platform into a credit

union strategic plan?

“Payment systems must connect seamlessly to the existing credit union strategic plan,” says

DeStefano.“Whencreditunionsintegratepaymentsystemsintotheirstrategicplans,theyexhibit

proactive and positive thinking that will greatly benefit their members in the coming years.”

Shevlin echoes this sentiment, adding, “Credit unions must start with the tough questions of ‘what

is most important to our members?’ and ‘who do we want to be to our members?’ To members, it’s

all about helping them manage the money they spend. The question then becomes, how can the

credit union price payment systems products in such a way that they are profitable and affordable

for the credit union?”

These are all strategic questions the credit union must answer.

HOWMIGHTPAYMENTSYSTEMTRENDSALTERTHECREDITUNION

BUSINESSMODEL?

Inaword,“drastically.”Itmayallboildowntolegislation.Higginssays,“Theimmediateimpactis

due to the provisions within Durbin regarding how merchants and networks are routing transactions.

EMVchip(Europay,MasterCardandVisa)willalsoimpactthismodelasitwillbeinterestingtosee

iftheaddedexpenseofthistechnologyisoutweighedbythedecreaseinfraudlossesorifnew

methods of fraud are developed as a result. There are several other factors such as mobile technol-

ogy and the looming threat of large merchants such as Apple and Google becoming financial

institutions that offer debit card services. I think younger generations trust in these entities and

basedonnamerecognitionalonetheycouldberealthreatstoexistingfinancialinstitutions.”

According to a recent Credit Union Journal article, “Some credit unions are beginning to integrate

clevermarketingcampaignsinordertofurtherengagethelargelyGenXandYdemographicthat

lives on mobile. Credit unions are ready to pounce on a mobile payment solution, once payment

processor and merchants can agree on viable payment technologies.”

CHOOSINGAPAYMENTSYSTEMSVENDOR

Since finding a payment system vendor to work with your credit union is so critical,

it makes sense to look at several key areas to focus your search.

What should credit unions look for in a payment systems vendor?

Vendorcommitmenttoacreditunionanditsuniqueneedsandmembershipiscritical.

Above all, a vendor must be reliable. Close consideration must also be given to service

level and cost-effectiveness. “Payment systems are a small spoke in the big wheel of

overall credit union operations,” adds DeStefano. “But they must work smoothly or the

entire wheel can grind to a halt. Credit union staff simply cannot afford the time and

hassle to trouble-shoot issues every day with payment systems.”

How important is vendor service?

Service is a hugely important factor when considering a payment systems vendor.

Being able to reach a live person when necessary, and knowing that person has the

expertiseandcustomerservicededicationtohelpsolvethechallengeiscritical.

It’s also a plus when the payment systems vendor has proactive answers on hand for

customer calls.

What is the importance of having a strategic payment systems partner?

Credit unions work hard on day-to-day types of member service issues (like compliance,

lending,deposits,etc.).Yourfront-lineandbackofficestaffplatesarefull;theythere-

forecannotspendtimeonpaymentsystemsissues.Youneedtotakepaymentsystems

off their to-do lists and rest assured knowing that payment systems are being handled

by a reliable vendor. This strategy is an enormous relief and frees your staff to better

accomplish their mission-critical core functions. Credit unions need a payment systems

vendor that doesn’t just talk about customer service, they deliver it.

Synergent’s Management Team meets regularly to discuss industry issues and trends. Left to right: Ben Jordan, AVP, Technology Services; Rebekah Higgins, AVP, Card Services; Doug MacDonald, Manager, Direct Marketing Services; Tim Gilman, AVP, Operations; Dawn Paquet, AVP, Check Processing & Support Services.

HOWCANCREDITUNIONSSTAYAHEADOFTHEPAYMENT

SYSTEMSTECHNOLOGYCURVE?

Higginsnotesthat“Creditunionsneedtobeonthecuttingedgeoftechnologyandneedto

understand that the latest and greatest products are key to competing with larger financial institu-

tions.” To do this she advises working closely with a payment systems vendor that works hard to

knowwhat’sgoingonsocreditunionsdon’thaveto.“Ourbusinesspartnersdoanexcellentjobof

researchingnewtechnologyandintroducingnewproductsandservicestoourcreditunions.Most

of these items get the most bang for the buck when they are new as cardholders tend to gravitate

towards technology and ease of use. Researching these products and services may allow a credit

union to offer a service at the ground floor versus reacting to products that have already become

mainstream and are necessary to remain competitive.”

HOWMIGHTCONSUMERPAYMENTSYSTEMSCHANGEINTHE

NEARTERM?

DawnPaquet,AVPofCheckProcessingandSupportServiceswithSynergent,says,“Weare

seeingmoreATMsbeingreplacedbynewATMmachineswithimagecapabilities.Homecapture

and mobile deposit capture, especially mobile, seem to be what all financial institutions are talking

about.”

Higginsadds,“Consumerbehaviorwillchangeindifferentwaysoverthenextthreeyearsdepend-

ing on which generation a cardholder is from. I think that older members will start gravitating

moretowardsdebitcardsversuscashandchecks.”Shegoesontosay,“Youngergenerationswill

gravitate towards convenience by not carrying a separate plastic, but instead using smart phones

as a tool for several different items including a plastic. I think that in situations where technology is

offered it will be utilized, which will propel mobile technology in the near future.”

Higginsalsonotes,“AstechnologyisintroducedthatallowssmallbusinessownerstoacceptEFT

transactions with limited resources such as smart phones, you will see less and less acceptance of

cashandchecks.This,combinedwithincreasedparticipationinPersontoPerson(P2P)transactions

and online bill pay, will put more emphasis on plastics than other payment methods.”

Dawn PaquetAssistant Vice President, Synergent Check Processing and Support Services

CONCLUSION

The writing is on the wall for all those that dare to read it. It’s also there for those that choose to

hide their heads in the sand. A rapidly developing world of payment systems, especially mobile

payment systems, is upon us. If credit unions don’t opt to start building their product and service

offeringaroundthesenewpaymentsystems,expectstagnationatbestandextinctionatworst.

As stated in the Credit Union Journal article,“Moremembersarelivingamobilelifestyle,somany

credit unions … are moving mobile projects to the front burner and turning the flame to ‘high’.”

Payment systems will continue to play an increasingly important strategic role in credit union

operationsandmembersatisfaction.Lookingnowforaproactiveandmember-serviceoriented

payment systems vendor/partner can go a long way towards addressing this evolution.

Doug MacDonald, Manager, Direct Marketing Services and Dawn Paquet, AVP, Check Processing & Support Services, discuss member training in our Operations Center.

www.synergentcorp.com

800.341.0180PO Box 1236, Portland, Maine 04104

SYNERGENT offers solutions and services exclusively to credit unions to compete in today’s marketplace. Our delivery is designed to increase operational EFFICIENCY, CAPITALIZE

on credit union growth opportunities, ease regulatory compliance, and enable

the electronic services your members are demanding. We are a single

organization composed of different service divisions, all located UNDER

ONE ROOF, in a state-of-the-art facility in Westbrook, Maine.

WhitePaper11/8/12