By Matt Disbrow, Director of Business Development, PayNearMe

The Federal Reserve’s long-awaited drop in interest rates has brought a glimmer of hope to borrowers and lenders alike—yet it’s still a challenging time for credit unions. 

Operational costs have been on the rise across multiple aspects of business even as return on assets has fallen. In the first quarter of 2024, operating expenses at credit unions rose 6% compared to the previous year, even as return on assets fell to just 0.66%, according to Callahan & Associates.

One cause is greater competition for workers and a rising minimum wage in many states, which has pushed up wages. Regulatory pressures have also played a part, including the NCUA’s adoption of Current Expected Credit Losses (CECL) accounting methods, which require credit unions to maintain larger loan loss reserves as well as cover the requisite implementation and compliance costs.

All of this leaves credit unions looking for avenues to cut costs without compromising the exceptional and personalized member support for which credit unions are known. 

One smart and affordable strategy to meet that goal is updating their payments technology stack. A study by McKinsey found that financial institutions could reduce operating costs by 20% to 30% by modernizing their technology stacks. 

Let’s look closely at four benefits modern payments technology can deliver and some of the tools that make those benefits possible. 

Benefit #1: Enable more self-service and on-time payments

Modern payments technology helps reduce late payment by streamlining the payment process so your members can easily complete the task independently from any connected device.

One way to accomplish this is by sending automated payment reminders so borrowers are prompted to pay on time. In a survey of 1,500 consumers, 41% of all borrowers and 48% of the youngest borrowers (18-29) said they have trouble keeping track of due dates, a common cause of late payment.

In the same survey, more than 1 in 5 consumers (22%) said they have trouble navigating lenders’ websites and about 4 in 10 (42%) struggle to remember passwords. These barriers can be overcome by including personalized payment links in the reminder messages, or QR codes on billing statements, which take borrowers directly to their payment site, no passwords or account numbers required, eliminating friction in the payment process. They simply select a payment method and click to authorize payment. 

When your payments technology makes loan repayment this easy, you help your members pay on time and independently every month. That’s satisfying to them, but it’s also cost-efficient for credit unions. It reduces the personnel needed to field member service calls when members can’t navigate self-payment or miss their payment date. One lender even told us they cut in half the number of late notices they had to send when they implemented these methods.

Benefit #2: Accept more low-fee payment types

Modern payments technology makes it possible to offer your members more payment options. That’s not only convenient for your members but can also improve on-time payment.

In the aforementioned consumer survey, one in four loan repayment members (26%) and more than one-third of young payers said not having their preferred payment types available made payment more difficult. Many also said it was very important or important for them to have alternative payment options such as PayPal (54%), ApplePay (49%), Venmo (44%) and Cash App Pay (43%)—a significant rise from a similar survey in 2021.

We know consumers use digital wallets and payment apps in other parts of their lives to pay for goods and services. They want the same convenience and fluidity in repaying their loans. 

Additionally, we know most consumers (68%) keep a residual balance in digital payment apps that could be used toward loan repayment, according to a NerdWallet study. A modern payments stack can allow borrowers to apply that money to their stored balance and then cover the remaining balance with another form of payment if necessary. That flexibility will be appreciated by your members when they face an especially tight month.

Benefit #3: Reduce costly payment exceptions

While exception payments are part of doing business for credit unions, a modern payments stack can help reduce your risk using logic-based business rules and AI.

Your payments provider may offer advanced data analysis to assess each member’s behavior, looking for prior NSFs, patterns of overpayment, suspicious payment methods, or multiple accounts, for example. Based on its findings, the technology can be configured to automatically implement if/then rules. For instance, it might limit the payment types a member can use or set minimum and maximum amounts based on the member’s loan specifics. You can also establish guidelines for automated retries that recover failed payments before human intervention is needed.

AI can also help by scouring vast amounts of internal and external data to search for signs of fraud and alert the payments provider preemptively. 

By reducing exceptions, your credit union may see sizable savings. Adopting modern payments technology is a proactive measure to keep your risk to a minimum. 

Benefit #4: Automate back-office processes

Traditional payment methods require heavy lifting by office staff. They may have to count and transport cash payments or process paper checks at a median cost of $1-$2 each. Or they may have to manually authorize ACH payments and complete paperwork to remain compliant. 

Modern payments technology reduces or even eliminates time-consuming tasks. For instance, you can enable digital cash payment at popular retail locations for members who prefer to pay with cash. The member presents the cash and a reusable bar code at checkout and receives immediate confirmation while funds are digitally transmitted to your institution.

Similarly, you can digitize disbursements, instantly sending them to members’ digital wallets, debit cards or shared accounts. 

With a modern payments stack, you can also automate tasks such as authorization and reconciliation, reducing the load on your employees.

Quick, Easy Integration to See Results Immediately

Sometimes, credit union executives resist thinking about technology updates because all they can see is a massive expense and significant business disruption: changes to hardware and software, plus more IT support to maintain it. 

That’s not the case when you upgrade your tech stack in partnership with a modern payments provider. Payments tech experts already use the strategies and tools discussed in this article and can offer your credit union multiple integration and implementation options to fit your organization’s needs and objectives.

For more information or to learn about configurable solutions designed specifically for credit unions, visit the PayNearMe website.

About the Author

Matt Disbrow is the Director of Business Development at PayNearMe, where he focuses on driving strategic partnerships and expanding the company's reach in the payments industry. With over two decades of payments experience, Matt is a results-driven leader passionate about helping businesses optimize their payment processes.