United States

A truly holistic payments strategy for banks and credit unions

FINANCIAL INSTITUTIONS INSIGHTS  | 

When determining which payments products and services to offer customers, banks and credit unions have more options than ever before. Financial institutions offer paper checks, debit cards, credit cards, online bill pay, money orders and any of several newer mobile applications and gadgets, just to name a few. But how should banks and credit unions decipher the nuances of all of the options and make decisions about which payment options to offer their customers? Rather than simply "keeping up with the Joneses," financial institutions would be well served to think more holistically and strategically about their payment strategy. Here are the 4 Rs – and one very important D – to consider when creating a comprehensive payments strategy to guide your institution, your brand and your customers into the future.

  1. Relevancy. Before you can ensure your payments options are relevant to your customers, you have to truly understand who your customers are. Are you a smaller-market institution with an aging customer base? Are you primarily serving high-net-worth individuals and small businesses, who want safe investments and traditional services? Is your brand focused on the underserved, who may not have access to the newest technologies? Or are you striving to engage a younger market in new and innovative ways? The product portfolio you create and maintain should be dramatically different depending on your customers' financial needs, lifestyles and preferences.
  2. Revenue replacement. As interchange fees evolve, financial institutions will need to identify and implement ways to recover that lost revenue. Are you optimizing revenues from your payment options? Studies show that Generation Y account holders use expedited bill pay more than any other age group. If you have a significant percentage of customers in that generation, are you pricing expedited bill pay appropriately? 
  3. Risk. Risk abounds in the payments space. There is security risk. With every new innovation, there is a new opportunity for fraudsters to infiltrate systems. There is regulatory risk. As regulators strive to craft rules and guidelines to make our systems and our data safer, we struggle to keep up with a complex and ever-changing set of compliance requirements. Finally, there is adoption risk. What if you invest the time, money and resources necessary to create a new payment solution, but your customers aren't interested? Careful analysis and planning can help you to understand, mitigate and avoid the unique risks you face in your market.
  4. Relationships. Consumers today show affinity toward certain groups or pastimes, and those affinities can drive buying decisions. Can you capitalize on those trends and create products that cater to that desire for a common bond – even if it that bond lives in the virtual world? Would customers find your payment platform more compelling if they could join – or even create – groups of people with common interests? What about creating a partnership with merchants who have strong customer loyalty and would appreciate a payment solution that offers them relevant rebates or rewards? Some payment systems even give consumers the option to redirect rewards to charity or other causes they support. These are all ways to increase the value of your products and loyalty to your brand.
  5. Data. Every transaction a customer executes through your organization gives you new information about that customer – what they buy, when they buy it, where they buy it, how they buy it, how much it costs and what other purchases they make at the same time. The market for that data is relatively new and is still evolving, but banks and credit unions have a profound opportunity to plan their strategy around that data. How can you monetize the data in a way that benefits you,  benefits your customers and ensures that you avoid what is possibly the most critical error of all – triggering your customers' privacy concerns? And how can you couple this wealth of purchasing data to help you understand and capitalize on the relationships concept discussed above. Can you use your customers' data to help them identify potential affinity groups of which they weren't even aware?

To be sure, the payments space is complex and evolving. We urge our financial institution clients to consider concepts like these and craft a holistic payments strategy that is consistent with their brand, their mission and their overall strategic plan for the future. Please contact Mary Beth Jameson, Director, McGladrey LLP at marybeth.jameson@mcgladrey.com or 612.629.9683 if you would like to have a conversation about your institution's payment strategy.