Compliance Blog

Categories: Accounts Operations

Member’s Changing Payment Choices Influence Credit Union Products and Services

Over the past several years, the payments landscape has changed dramatically. From the introduction of peer-to-peer payments to mobile wallets, credit union members have myriad choices when it comes to purchasing goods and services. Knowing which payment methods your members prefer can help a credit union predict member behavior, allowing it to better assess the risks associated with that behavior and allocate the resources necessary to manage the associated fraud and compliance risks.

For the second year, Payment Systems for Credit Unions (PSCU) has published its Eye on Payments study. The study looks at a variety of topics including the different choices credit union members are making when it comes to paying for goods and services and factors that influence those choices.

One key finding highlighted in the study was that members were more likely to choose a payment method based on convenience and ease of use. This is in contrast to the 2018 study where security was the main driver of payment choice. Security is still an important factor in 2019, as 40% of survey respondents “agree they make decisions about how to pay for something based in part on which is the most secure.” However, the study noted that security features including enhanced authentication, such as biometrics, and mobile phone alerts likely contribute to members feeling more secure about their payment choices in 2019 as compared to 2018. Offering these types of security features to members can be a useful strategy in maintaining your members’ card usage rates and mitigating fraud costs, including fraud losses and staff time to properly investigate and resolve unauthorized use claims.

Another key finding is the increased preference for debit cards. In 2018, 32% of credit union members surveyed indicated debit cards as their preferred payment method. In 2019, this rose to 48%. The preference for debit cards also holds true when it comes to online purchases. For credit unions, this shift in preference towards debit cards and away from credit cards can mean more time and resources for complying with Regulation E’s error resolution procedures as these rules are significantly more complex than the error resolution procedures for credit cards under Regulation Z.

Choice in rewards is important to members. The study found that cash back is the most common type of reward offered on credit and debit cards but almost 60% of respondents wanted different rewards. Respondents indicated they would like lower interest rates, waiving a fee or points for other purchases. Offering flexibility in how rewards can be used is what members really want. The study suggests that the most successful rewards programs, those that encourage members to use the card more, allow members the flexibility to choose how to receive their rewards. Credit unions seeking to modernize their rewards programs may want to consult counsel as these programs are largely governed by contract. Also, keep in mind that certain changes to credit card rewards programs may implicate the rules surrounding substitute and replacement accounts.

Choice is also important in the card options a credit union offers. While nearly all credit unions have issued EMV-enabled cards. Not many have issued contactless cards. About 25% of respondents indicated they have a contactless card and would like to use it more but not enough merchants have adopted the technology yet. As more merchants adapt to this preference, the study notes credit unions should be prepared to start offering this option to their members.

The study also looked at how preferences differ among generations. Across all generations, 30% of respondents indicated they use a mobile wallet for payments while this doubles to 60% for Generation Z and Millennials. The study notes: “The top reason people reported not using a mobile wallet is because they do not know what it is or how to use it. This presents an educational opportunity for credit unions and other financial institutions to drive mobile wallet adoption and usage.” Credit unions were organized to serve the needs of their members which can include promoting financial education within the communities they serve. Developing a suite of educational offerings on various payment methods and using them securely can be useful, especially for credit unions looking to attract younger members. A well-educated membership is more likely to use these emerging payment methods effectively and timely report any unauthorized use, which can cut down on a credit union’s fraud costs. More detailed information on how payment preference varies by generation can be found in the full study.

Understanding your member’s preferences can help a credit union identify whether it is offering the right payment options to retain and attract new members. Whichever offerings your credit union elects, it is important to know the different risks and compliance requirements associated with each. As your credit union explores new or different offerings, the NAFCU Compliance team is here to help you navigate the applicable federal regulatory requirements.

About the Author

Jennifer Aguilar, NCCO, NCBSO, APRP, Senior Regulatory Compliance Counsel, NAFCU

Jennifer Aguilar, NCCO, Regulatory Compliance CounselJennifer Aguilar, NCCO, NCBSO, APRP joined NAFCU as regulatory compliance counsel in February 2017 and was named Senior Regulatory Compliance Counsel in March 2019. In this role, Aguilar helps credit unions with a variety of compliance issues.

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