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Crystal Ball Needed To See Payments' Future
UNCASVILLE, Conn. (10/15/13)--Not even a fortune teller can forecast exactly which revolutionary new payment model might supplant "good ol' 1960s era card swipe technology," but George Hofheimer says the crystal ball will deliver the answer in a riddle:

Click to view larger image Filene Research Center's George Hofheimer tells a credit union audience that they would need a crystal ball to predict the next big thing in the payments system. (CUNA Photo)
What system's faster, more accurate, and secure, most likely adheres to the existing "payment plumbing" of liability custody, and passes muster with the five transaction touch points: Consumers, merchants, issuers, acquirers, and card associations? Whatever fits that profile is likely to pull ahead of the pack.

Clearly, the barrier to acceptance is steep, Hofheimer, chief researcher and innovator at Filene Research Institute, told Community Credit Union & Growth Conference attendees at a breakout session on the future of payments. The annual conference was held Oct. 8-11.

"In the short term, we're probably not going anywhere dramatically different anytime soon," Hofheimer said.

He asked his credit union audience to consider the hand-wringing over the 2015 liability deadlines for conversion to EuroPay, MasterCard, and Visa (EMV) chip technology. EMV doesn't even fundamentally upset the apple cart of swipe technology, which remains "absolutely dominant," and its debit and interchange fees upon which many credit unions rely.

Essentially, the new payment models "haven't taken hold because the technology we have today is good enough," Hofheimer summarized. "Consumers like it, and merchants for the most part like it, despite the fees."

That said, Hofheimer subscribes to Bill Gates' philosophy on futurism. In the Microsoft founder's words: "We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next 10."

Credit unions closely monitor developments in the payments sector but generally concede that because they pale in size compared to megabanks, they're better positioned to act as fast-followers than as first-adopters, according to Hofheimer. Two-thirds say they'll actively consider new payment providers in the next 24 months.

Investigate what systems megabanks use, since they're industry leaders, advised Hofheimer, and don't base your decision on consumer polls.

"Consumers are extremely fickle," Hofheimer said. "When you look at consumer data on how they want to pay in the future, what they say and do are two very different things. And generally, the answer to which system they prefer is, 'I really don't care. I just want to buy stuff.'"

With a long-range view in mind, Hofheimer suggested a few strategies for credit unions:
  • Capitalize on physical assets. Consumers aren't comfortable with managing their financial lives in the way they're comfortable bypassing other old standbys like the record store or book store. They always need a safety valve, and that's credit unions.
  • Leverage payments data. Take stock of the information you have in hand, make sense of it, and use it to deepen relationships with customers and merchants.
  • Focus on commerce. Go beyond payments and attempt to develop partnerships in your community. Explain to the local gas station owner (using data you've mined from your credit union) that your members spend $3 million a year there, and ask to forge a relationship.
  • Experiment with small bets. Invest in a start-up or fledgling payments technology firm with an amount of money that won't break you.
  • Collaborate with other credit unions and with vendors. This could be a coalescing moment for credit unions. They might be too small to solve the situation individually but could band together to find a solution--similar to how banks forged together on Visa to advance past the cash-and-check era. "In the worst case scenario--if interchange went away--wouldn't you wish collaboration would've happened 10 years earlier?" Hofheimer asked.


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