The financial ecosystem’s landscape is prone to disruptions and changes. These changes are the only permanency credit unions are familiar with. However, the credit union industry has proven time and again that it doesn’t bend under pressure; instead, it weathers the storm with unwavering resilience and strength. This is a tenet of the cooperative spirit under which the industry was founded.
Case in point: the Durbin Amendment.
This challenging legislation rattled the financial sector and put credit unions on edge, predicting the catastrophic termination of interchange income. However, a decade later, interchange income for credit unions dropped only about 20% and most have endured. Credit unions demonstrated resilience, navigating the changes.
A similar situation emerged with the advent of Apple Pay, igniting fears that left credit unions doubting their ability to compete with technological giants. In reality, the combination of Durbin and Apple Pay has reduced credit union interchange by about 20% over the past 10 years.
Fear of Apple Pay led credit unions to prematurely abandon CU Wallet’s QR code technology. Today’s reality, however, paints a different picture. With NFC chips integrated into cards by leading manufacturers, surprisingly slow mobile wallet adoption, and QR code technology embedded in providers like Quilo, Toast Tab, and even Google Pay, the apparent David and Goliath battle between CU Wallet and Apple Pay didn’t grip the industry as feared. Unfortunately, our fear negated an effective collaboration that had the potential to put credit unions at the forefront.
We now find ourselves facing new challenges marked by the Consumer Financial Protection Bureau’s (CFPB) proposal to eradicate non-sufficient funds (NSF) and overdraft fees. As credit unions face a potential threat to traditional sources of non-interest income, the immediate reaction may be apprehension. However, let’s remember that challenges are intended to be painstakingly tackled and not dreaded.
There are progressive enterprises such as DoubleCheck Solutions, another credit union-owned CUSO, that are reinventing the wheel with innovative alternatives that safeguard revenues via increased transparency and consumer choice. This approach masterfully satisfies regulatory norms while nurturing trust in financial institution—a necessary equilibrium in these trying times.
NCUA Chairman Todd Harper notes, “If your credit union is going to maintain an overdraft program, you should work to ensure that it is well crafted.” This suggests creating conscientious and transparent solutions that credit unions are historically known for. Give members the choice of what to pay, how to pay it, and when. Avoid the one size fits all approach that most core systems support today.
In reality, consumers tomorrow will still spend money they don’t have. Credit unions will still be there to help. Driving consumers to pay day lenders will not help consumers. Credit unions must rise to the challenge by innovating and developing comprehensive solutions to help consumers. Such measures can also protect non-interest income over time, ensuring institutional resilience.
So here is my call-to-arms for my fellow credit union industry professionals:
Learn from the past. This change won’t be as painful as you imagine. Embrace the change early and help your members now—and help yourselves tomorrow—when the legislation changes. Even in adversity, there lies an untapped opportunity to innovate, elevate, and redefine traditional industry solutions while improving transparency and choice for consumers.
Let’s embrace the opportunity to redefine decades-old approaches that were technically and imaginatively limited. Improve member service, focusing not on the disruption our industry faces, but the potential it unravels as we adapt and innovate. After all, our inherent industry strength stems from the unique ability of credit unions to remain steadfastly in tune with their members’ needs and adapt to serve them better—even amidst disruption. Because that’s what we do best: we put our members first, regardless of the circumstance.