Are We At A Payments Inflection Point?

On-site coverage at BAI’s Payments Connect 2014.

The powers that be at BAI’s Payments Connect 2014, taking place this week at the Mirage Hotel in Las Vegas, are not beating around the bush. First session of Track 1: Who’s Afraid of Paradigm Change? Let’s be honest, the answer should be everyone. Even for those who see a paradigm shift as an exciting opportunity to seize advantages, try new approaches, and better serve members, a degree of caution is healthy.

But the session didn’t answer the question of who’s afraid? It addressed whether mobile payments is a paradigm changer. Some say not.

The consensus at this week’s conference is that mobile payments is big deal, but it’s only a new paradigm if financial institutions let it become one. At the moment, and for the foreseeable future, financial institutions remain critical to every transaction. The ability of FIs to generate interchange income from that role is changing, but that’s been happening for a long time. New rules and new technology have now lowered the barriers to entry, and the financial services industry must adjust to this reality.

But even if it’s not a paradigm changer, mobile payments does threaten a credit union’s direct relationship with members and the businesses that serve them. Although that might not change the underlying process that keeps FIs in the middle, it does create challenges for credit unions. The key, say numerous panel participants, is to understand those challenges.

Disruptors are successful because they focus on solving limited problems in spaces they understand well. They also are willing and able to take more risk. From Starbucks to Square, the disruptors have a laser focus on their targeted market space and the behavior of their core customers in that space. They don’t try to meet an expressed need; they find opportunities to make processes and activities easier, faster, cheaper, and more fun.

Therein lies the lesson for credit unions. Financial institutions are historically slow adopters, and credit unions are among the most conservative of this conservative breed. Still, they can keep up with incremental change as long as they stay focused on their core member-owners and how they behave not what they say they want, but how they actually behave and what that behavior says about their needs. Focus on meeting those needs in ways that are faster, easier, safer, less expensive, more intuitive, and yes, even more fun and accommodating the challenge of mobile payments becomes less scary.

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