There’s lots of talk today about the payment systems war and its impacts for the credit union industry. It is real, it is happening, and it will change the way payments are processed; and that will impact the revenues that credit unions realize from payment processing.
In light of this many argue (including this author) that credit unions should be monitoring what is happening closely and looking for ways to be involved in the game changing solution that will inevitably emerge in the coming months and evolve in the years ahead.
And in fact they should, but…
The reality is that it is probably already too late for credit unions to enter the payment systems war, and based on the way genuine innovation occurs, it is doubtful that any of the current players in financial services will be the winner of this war.
That’s not to suggest it is not important or that there will not be solutions that emerge and create new opportunities for credit unions. In fact there is a very high likelihood that credit unions can leverage their cooperative nature to foster and facilitate the adoption of new payment solutions that serve the needs of their members.
But when one looks back at the true game changing innovations in business there is a key historical fact that needs to be remembered: Game changing, disruptive innovation seldom comes from players within the industry, especially in mature industries like today’s financial services industry.
True game changing innovations are brought to industries by outsiders and entrepreneurs who see an opportunity and discover a truly new way to do something–whether it be adapting a technology or methodology from another industry, or simply seeing a different way to do things because they ask different questions and are not bogged down by all the reasons it can’t work that come quickly to the minds of those who have lived in the industry for a while.
So what are credit unions to do?
Are they simply supposed to sit on the sidelines and watch some innovator change a key component of their business model that connects them to their members AND generates revenues? My answer would be an emphatic “NO!”
Here’s what they should do:
1. Pay close attention to the developments occurring in the payments systems war and look for ways to partner that allow them to leverage their member relationships to facilitate testing, adoption, and enhancement of emerging payment tools.
2. Flip the question around and think about the value proposition behind payment systems to define your next strategic step. It will be helpful to recall the classic illustration from basic sales training: No one who bought a drill really wanted a drill, they wanted a hole. Credit union members don’t want (and never did) a payment system, they want a safe, secure, and convenient way to acquire things they need and want, and they want their data protected when they conduct transactions whenever and wherever it was convenient for them using whatever system they have to in order to gain access to the products and services they wanted to purchase (and they still do, now more than ever).
3. Recognize the very real impact of the revenues you currently receive from payment processing and explore options for replacing those revenues when the game changer gains enough traction to change your bottom line. The bottom line, from my perspective is that several game changing innovations are already far beyond the idea phase–they are being tested, adopted, and implemented. As they evolve there will be opportunities for partnering (such as the recent Starbucks-Square relationship), and there will be consolidation and a narrowing of the choices. Then the game will continue and more innovations will be introduced.
Credit unions are uniquely positioned to be a part of this, but not because they can or should create new payment systems, and not even because they can create collaborations that connect the creators of these new payment tools to the consumers who need and want them. Credit unions are positioned for success because they understand the needs of their members and when they dig deep and really look at what the member is seeking they’ll recognize that it is not now (and never was) about the tools. It’s always been about safe, secure, and convenient solutions for members.
ACTION ADVICE: The challenge here is changing perspective–stop thinking about the drill and become an expert in delivering the holes your members need before they know they want them–how can you leverage your people, systems, location, and other assets to change the game for your members? OK, it’s your turn…what do you think?
Please post a comment and contribute to the conversation.
NOTE: This post was influenced by my reading of Editor Marc Hochstein’s article in American Banker entitled “SWIFT Reimagines Banks’ Role in Commerce for a Data-Driven Future.” It’s a MUST READ for every credit union leader, Board member, and volunteer and should be required reading before your upcoming planning session (and probably every month for the next year to stimulate your thinking about the future of banking).