Financial technology (fintech) disruptors and innovators like Dwolla, PayPal, and Starbucks were perceived initially as threats to credit unions’ business models. Instead, it’s worth considering the opportunities they present for credit unions to compete more effectively and win in their markets. The credit union community needs to ask itself, “Who are our competitors, and who are our allies?”
Let us take the U.S. government as an example. Most people would probably not think of it as an ally to the financial services industry. But thanks to government regulations and oversight, the current environment represents a huge barrier to entry for new competitors.
New entrants in the payments space face significant struggles and hurdles when trying to comply with regulations that most credit unions and their providers already know well. In addition, the government is always seeking to regulate new entrants and new products in the financial services space. Innovators like Dwolla face these challenges every day.
Because of the infrastructure they already have in place to manage regulatory compliance activities, credit unions have a distinct advantage over newer payments providers.
Brian Scott, Senior Vice President of Business Alliances, PSCU
In addition to being an innovator in the area of bank transfer platforms and networks, Dwolla also became a disruptor to traditional lenders through a partnership with a group called Lenny, Inc. Lenny developed a microlending mobile app that leverages Dwolla’s white-label API to make small loans to millennials based on their educational background and grade point average. Users pay a small monthly fee to borrow $500 through the app and begin the journey to building a solid credit history as they pay back the loan.
Veridian Credit Union ($3.0B, Waterloo, IA) saw the opportunity Dwolla represented and decided years ago to partner with and invest in the company instead of fearing it as a potential disruptor.
Starbucks’ mobile app has gained phenomenal traction, use and loyalty among coffee drinkers everywhere, but should credit unions view it as a threat? Quite the contrary. While members may use the Starbucks app at the point of sale instead of the credit union’s own app, members may actually be paying their barista with their credit union card, even earning interchange in the process. This example underscores the importance of making sure credit union cards are loaded in app in every place possible. “In app” is the new top of wallet.
Starbucks also earns enduring engagement and loyalty by setting itself apart and having fun with consumers. This is precisely what it did when it recently gave people the ability to tweet someone a coffee during a wildly successful pilot program.
This raises a question about what the gamification of payments might look like.
A Midwestern credit union sponsors a promotion at a nearby university. Members can get a free soda by showing the credit union’s credit or debit card at the university’s book store. While some students may opt to just cash in on the freebie, others will use their credit union card — which they already have handy — to pay for anything else they may be purchasing.
LevelUp created an app for merchants that lets its customers place mobile orders and receive special offers at hundreds of breakfast and lunch spots. It’s perfect for merchants who want to send out offers or giveaways to drive traffic during times when business is slow instead of offering a coupon that is typically used when traffic is high. For example, traffic at restaurants is typically slower on rainy days. LevelUp allows the restaurant to gamify its business by offering discounts, controlled by the merchant, which must be redeemed during specific times. This is a big departure from a Groupon-type offer.
Fintech disruptors should be carefully considered not only for the superficial threat they may appear to present, but also — and more importantly — for the upside of how they can enable credit union success and inspire new ways of thinking about member engagement.
As SVP of Business Alliances at PSCU, Brian Scott partners with industry leaders in payments and community financial institutions (FIs) to create competitive payments programs. Brian helps credit unions position themselves competitively in their own communities and maintain profitability throughout their payments programs. He spent 23 years in the highly competitive consumer payments marketplace and is a recognized leader in payments solutions and innovative technologies. He is a frequent speaker on the future of payments, new payments trends, mobile banking, alternative payments, and how new payments technologies will transform the current banking space.