Today's consumers want the ability to make payments where and when they want. As we reported in the mobile payments blog
, the pandemic was the transformative force behind much of the move to digital payments, and now these digital payments are here to stay. While consumers expect the process to be efficient and convenient to access, there is a catch. Too many sources can create unnecessary friction and confusion even in the digital channel.
Payments Processed When They Are Due
Consumers quickly gravitate toward technologies that enable them to complete a task immediately. The convenience of processing a payment immediately means that consumers do not have to set up the payment in advance to arrive at the payee on the date the payment is due. The ability to pay immediately also means that consumers can hold onto their money longer and often make a payment after their payroll direct deposit has been posted.
And yet, with all of that convenience, there are some concerns. Often, payees will charge exorbitant fees to process a payment on the same day. They recognize that the lost revenue from late payments (i.e., improperly setting up payments ahead of time) needs to be offset by an alternative revenue stream. Fees. Even the early digital wallet models charge a fee if you want to make an immediate payment or if you receive money and want to move the funds to your account immediately. As the payments landscape continues to see the introduction of non-traditional players, those fee models will be challenged as a competitive differentiator.
But Wait. What about the Friction?
As we mentioned at the beginning of this blog, consumers gravitate toward technologies that enable them to complete a task immediately. The availability of too many technologies or, in this case, too payment options, can create friction. Consider this scenario. A consumer opts to pay all of their utilities direct on utilities' websites and pay their loans either through billpay or ACH deduction from their checking account. With an average of 5.3 accounts
across their financial institution relationships, managing which financial institution to fund those payments can also be a daunting task.
Now add in the fact that consumers have 80+ apps
on their mobile devices and use an average of 9 apps a day
. If some of those apps are various payments providers, there is even more complexity in one’s personal payments ecosystem (What to choose, what to choose...). Not only does the consumer have to manage all their payment choices, but they also have to link funding sources to those payment choices AND make sure those funding sources have money available.
Let's return to the premise that consumers choose immediate payment technologies (providers) to complete their payments because it adds efficiency and convenience. As their use of payment sources increases, the complexity of managing their payments and the availability of funds in their funding sources also increases exponentially. Is managing all of those payment sources and funding accounts efficient and convenient? Probably not. And there is friction in the process. Friction costs time. Lost time erodes efficiency. Lost efficiency erodes convenience.
There Has to Be a Better Way
While the term consolidation may seem counterintuitive to the payments options argument, it is not. Consider a few consumer consolidation processes such as consolidating debt, consolidating account information from multiple sources (aggregation and personal financial management, which will be a topic in a future blog), and credit score/credit report information. Consumers like to have as much information consolidated into one place. Why? Efficiency and convenience. And that's why a payments hub makes sense.
A payments hub offers the consumer the ability to use multiple payment methods (P2P, ACH, billpay, etc.) all in one place. Since the payments hub is typically tied to one financial instution, it also means that there is only one set of credentials to remember for processing payments.
Password management is a HUGE issue when it comes to app usage and fraud. If a consumer cannot remember their username and password for a particular application, they quickly move onto an application that has a username and password they can remember. Unless, of course, they use the same username and password for every application (IT people cringe), which creates a whole new set of efficiency challenges. Just ask anyone who has been a victim of identity theft how long it takes to get that resolved.
Consider music streaming services for a moment. How much time was lost in the past searching for a song on an album or trying to remember the artist who recorded the song? Today, search capabilities are more robust, where you can enter the name of the song, part of the lyrics of a song, or the name of an artist and instantly receive options. Just enter the part of the lyrics that you remember and you can easily access the song you’re looking for.
Similarly, the ability to access large amounts of information and take action based on that information is the beauty of a payments hub model. To ensure funds are available and choose among multiple payment options for immediate funds transfer (or within 24 hours for some payment sources) reduces that friction, thus restoring the convenience and efficiency that consumers were looking for in the first place.
We also cannot stress enough that the ability to use one username and complex password to access the platform for multiple payment types is of paramount importance for today's consumers. Convenience and efficiency do not always equal safety (search the internet for security breaches due to password mismanagement). The security policies and technologies of any payments provider should be verified before usage. We know that financial institutions are heavily regulated to ensure proper security protocols are in place. But many non-traditional payments players are not regulated and, therefore, neither are their security practices/ technologies. Proceed at your own risk.
How Much Coordination Do You Have?
The ability to multi-task is all about coordination. Some people can manage a large number of concurrent tasks without making any mistakes. For the average person, however, the achievement of multiple tasks requires the information to be consolidated in one place (raise your hand if you are reading this on a computer with multiple monitors). At the same time, there is a proliferation of payment sources available today: the more choices, the greater chance for overload and mistakes. That's why technology applications that combine those options into one platform create the efficiency and convenience that consumers want from technology in the first place. At the speed of today's life and the amount of information that bombards a consumer daily, the ability to consolidate multiple tasks into one platform is a move in the right direction. You can now return to working on one of the fifty tabs you have open on your computer.
A payments hub is much more than just a centralized platform. It is a lucrative business strategy that credit unions should adopt to stay ahead of the competition. P2P and RTP will continue to grow, and your members will continue to adopt them as they come along. Offer your members the convenience of having it all in one place, where they are already authenticated with digital banking. All with the added bonus of a single payments view to monitor all their transactions and root out fraud in one place.