Cash and cards are increasingly being replaced by tap and swipe. Like most people, instead of digging around for my wallet, I now reach for my smartphone. I use it to catch an Uber ride, grab a cup of coffee or send money to my daughter in college. With the process of authorization, settlement and notification happening in nearly an instant, real-time payment options have set a new standard. We have come to expect, even demand, fast, convenient and efficient technology that makes our lives easier. There is one area however that is lagging behind – our payments system.
The Federal Reserve’s Faster Payments Task Force, of which CUNA is a member, released a report that calls for a U.S. payments system “that is faster, ubiquitous, broadly inclusive, safe, highly secure and efficient by 2020,” but did not outline how this would be accomplished. A growing chorus of voices including Senator Chris Van Hollen (MD), a member of the Senate Banking Committee, and the U.S. Treasury Department, are urging the Federal Reserve to implement faster adoption of real-time payments to help Americans better manage their finances.
Better money management
For millions of consumers cash flow is a daily challenge. According to the Federal Reserve Board’s Survey of Household Economics and Decisionmaking, over 40 percent of adults faced with an unexpected expense of $400 would have to cover it by borrowing from family or friends or simply not pay.
Electronic payments that don’t take place in real time, can turn into real-life, financial hardship for a large number of U.S. families. Debits process virtually immediately when you spend, while deposits to cover those expenses can take days to process. That lag time can cost consumers in unintentional overdraft or late fees or force them to resort to costly high-interest payday loans to make ends meet. Knowing how much money is coming in and how much is going out in real-time makes money management more predictable and less stressful.
More engaging member experience
A more efficient payments system will drive credit union innovation and help credit unions develop stronger member relationships and offer a more satisfying member experience. Credit unions will have the opportunity to build on well-established relationships with existing members and attract new ones through enhanced processing capabilities. Credit unions’ ability to offer cutting-edge payment services will enable them to remain highly relevant in the face of fintech competition.
Greater financial inclusion
The unbanked, which according to the Federal Reserve in 2017 represented 5 percent of the U.S. population, could benefit from real-time payments by enabling people to access their funds immediately instead of relying on check cashing businesses or incurring penalties for last minute bill payments. It’s an opportunity for credit unions to bring more people, both the unbanked and underbanked, into the digital economy and in the process introduce them to financial products that can lead to greater financial inclusion.
Greater financial well-being
As credit unions, the financial well-being of our members is our top priority. While implementation of a real-time payments system presents challenges, the payoff for consumers and credit unions is significant. As the original disruptors in the financial services marketplace, it’s in our DNA to shake things up to benefit of our members and consumers.
The MD|DC Credit Union Association is continuing to work with Senator Chris Van Hollen’s office to monitor progress as the Federal Reserve works to make the payments system faster and more secure. Implementation will help our member credit unions locally and systemwide to better serve members’ needs. As leagues, our priority is advocating to improve the operating environment for credit unions.