The year 2020 will be remembered as one of the most transformative years on record for most industries, including the credit union industry. While the long-term impact of COVID-19 has been wide-reaching and is still not fully known, one thing is known – the events of the past year have underscored the importance of payments as both a catalyst for member engagement and a critical lifeline for financial wellness.
“Payments cut right to the core of the member relationship,” said Tom Church-Adams, SVP, Pay Products, for CO-OP Financial Services (www.coop.org). “We saw that in the early weeks of the pandemic when financially-struggling members reached out to their financial institutions for interest and fee relief; and now we’re seeing it manifest in the behavioral shifts within our members. Payments have become their lifeline to financial wellness, as well as a means by which we can offer them the safe, secure and frictionless service they’ve come to expect.”
As credit unions enter a new year, they can use some of the lessons learned during 2020 to help center their payments strategy around deepening member engagement and designing a modern payments platform.
#1: Members Will Continue to Shift Between Credit and Debit Spending
Payments volume as a whole took a big hit in the immediate onset of the pandemic in March. Comparing year-over-year transaction amounts in the CO-OP Credit and Debit Portfolio, credit dropped nearly 20 percent in April as worried members cut back non-essential spending and most of the country shifted into stay-at-home lockdowns. At this point, many credit unions wisely took advantage of payment relief programs, choosing to lead with compassion while larger banks prioritized businesses and their wealthiest clientele.
The arrival of stimulus checks via the CARES Act in mid-April gave credit and debit spending a quick boost, and most of that was in essentials-spending with debit cards. Spending within traditionally popular merchant categories like travel and entertainment was and still is significantly lower than in 2019, yet members began to increase spending in categories such as online groceries, electronics and home improvement projects.
“This was our first clue that consumer spending was undergoing a significant shift,” said John Patton, Senior Payments Advisor for CO-OP. “Members began hunkering down in anticipation of prolonged stay-at-home guidelines, stocking up on the essentials but also spending more on those DIY and home improvement projects they may have put off. And since they couldn’t or preferred not to travel in-person, most of that spending happened online.”
Patton added that the shifts between credit and debit throughout 2020 highlight the big divide between how various member segments have been impacted by the pandemic.
“We might have anticipated that credit would consistently outperform debit in 2020, but that’s not the case,” said Patton. “Instead you have certain member segments that increased debit spending when they received their stimulus checks and then immediately shifted over to credit; others tried to consistently keep their credit spending down as a precaution. It just goes to show that when it comes to credit versus debit, we can’t paint with a broad brush; members are going to spend differently month-to-month and it’s valuable for credit unions to understand these shifts.”
#2: The Big Moment for Digital/Touchless Payments Has Arrived
Credit unions and other financial institutions have long been awaiting widespread adoption of digital payments. In 2020, they got their wish (and then some).
According to a September survey from PaymentsSource, 4 out of 10 U.S. consumers adopted contactless cards or mobile wallets in the months following the start of the pandemic. In addition, fully 30 percent of respondents to that PaymentsSource survey have changed their primary method of in-store payments since the onset of COVID.
Credit unions in the CO-OP ecosystem experienced a similar trend in 2020. Comparing average monthly mobile wallet transactions (via Apple Pay, Garmin Pay, Samsung Pay, etc.) in the first half of the year to the second half of the year, total transaction volume increased 44 percent and dollar transaction amount increased 71 percent.
Contactless payments similarly saw average monthly volume and dollar amounts grow 40 percent and 61 percent respectively in the second half of the year compared to the first half.
“What’s clear is that digital payments aren’t going away, even when the pandemic recedes,” said Beth Phillips, Director of Strategic Portfolio Growth for CO-OP. “Members are integrating these tools into their daily lifestyles. Before the pandemic, some members might have felt anxiety about pulling out their phone or a contactless card at the point-of-sale; now they’re gaining more confidence and that’s leading to increased usage.”
#3: Use Data as the Roadmap to Payments Growth
When it comes to growing their payments portfolio, COVID-19 has shown that focusing only on the top-line metrics like transaction volume and interchange revenue can lead credit unions to overlook major opportunities. Credit unions must look for the stories within their payments data that they can use to build a deeper understanding and relationship with their members.
“Looking at your spending portfolio, some of the data will be obvious: travel, dining and in-person entertainment have been consistently down,” said Patton. “If you’re running card promotions in those areas, members aren’t going to respond to that. But in 2020 we saw unprecedented month-over-month growth in categories like hardware stores, car rentals and subscription services. Those are huge top-of-wallet opportunities, if you identify them early.”
One need only look at the results of Amazon Prime Day in 2020 to quantify how big those opportunities can be. With a 51 percent jump in year-over-year credit and spending, the credit unions that had their cards top of wallet leading up to Prime Day not only generated greater payments revenue but also gathered a trove of important spending data about their members.
Equally important is identifying the payments data credit unions are not seeing and coming up with a strategy to fix that.
“If your card utilization rates are low or you are seeing certain member segments not represented in your portfolio, that’s a big chunk of data that you’re missing and is needed to make informed decisions,” said Phillips. “Credit unions can use self-service tools like CO-OP Insights Center to get that overall portfolio view and then drill-down metrics like activation and card usage. They can then come up with campaigns and promotions to help improve those metrics or leverage the CO-OP SmartGrowth Team to help them create highly-customized, targeting campaigns.”
Looking Ahead to 2021
The year 2020 was an unusual one for payments, yet it set an important precedent going forward: Payments continue to be at the intersection of financial wellness, member engagement and growth. Credit unions should feel confident that this is a big opportunity for them. By delivering the payments products and services their members want and anchoring those solutions behind a platform built on insights, security and integration, credit unions have a strong opportunity to become their members’ Primary Financial Relationship.
- View on-line version of “An Unprecedented Year in Payments”: https://insights.co-opfs.org/payment-trends/payments-year-in-review
- Access all 2020 CO-OP spending reports: https://insights.co-opfs.org/payment-trends
About CO-OP Financial Services
CO-OP Financial Services is a payments and financial technology company whose mission is ensuring the success of the credit union movement. CO-OP payments solutions, engagement services and strategic counsel help credit unions optimize member experiences to consistently provide seamless, personalized multi-channel offerings, while delivering secure, sophisticated fraud mitigation service. For more information, visit www.co-opfs.org.
Bill Prichard, APR, Director, Public Relations
CO-OP Financial Services
(909) 532-9416, Bill.firstname.lastname@example.org