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Frictionless Payments
Written by Cyndie Martini
on July 19, 2016

Almost every adult has either lent or borrowed money from a friend or family member. Sometimes these situations arise out of a predetermined plan, such as agreeing that one roommate will pay the cable bill and the other will pay him or her back for half. Other times, it's unexpected, such as when someone forgets his or her wallet when eating at a restaurant.

Regardless of the circumstances, owing a friend money can be stressful. Conversely, knowing that a friend hasn't paid you back yet can be irritating and awkward. These are situations most everyone wants to avoid, and it may be time to look to credit unions for relief.

For some credit union members, paying someone back is as easy as accessing the financial institution's mobile app and scheduling a payment. It's important that credit unions make sure their customers' needs and wishes are at the forefront of their mobile strategy. One growing trend is not just peer-to-peer payments, but the ability to make these transactions in real time, according to PaymentsSource.

When a person makes a peer-to-peer payment, he or she generally receives a confirmation message saying the payment is on its way. At the same time, the payee gets a similar message. While it's comforting to know that the money is headed to the other's person's bank account, it's not as satisfying as making an immediate payment.

Importance of real-time peer-to-peer payments

In some cases, the person getting paid needs to have access to those funds right away. Other times, it's just relieving to have the weight of debt lifted off of one's shoulders. This feeling has driven demand for real-time peer-to-peer payments.

Deloitte reported that peer-to-peer payments are expected to grow to $17 billion by the end of 2019 -  that's an increase of more than three times from the $5 billion in 2014. The report also noted that consumer expectations have evolved in today's technology-driven world. People are growing more accustomed to immediate gratification, and expect it everywhere from their social life to their favorite stores. Credit unions, and paying bills and friends, are no exception.

Because of this expectation, credit unions must strive to improve their mobile presence and the capabilities of their mobile app. Financial institutions that can offer consumers real-time peer-to-peer payments will retain and draw in more members, and can strengthen member loyalty. On the other hand, those that don't adapt may lose members.

How it works

The real-time peer-to-peer payment platforms that are available today work primarily for low-value transactions. The payment request sets the interbank fund transfer in motion. The transaction is posted right away, and both parties receive immediate notifications. They can be made at any time of the day or week.

The four main characteristics, and those that make this system possible and popular, are:

  • Immediate settlement of outstanding balance transfers between banks
  • Certification of the payment
  • Instant availability of the funds
  • Prompt notifications for both parties

Several big banks have announced their adoption of real-time peer-to-peer payments early on in 2016, according to PYMNTS. The payments provider is called the Early Warning's clearXchange network.

"At Early Warning, our vision of faster payments is an ecosystem built by financial institutions to provide consumers the ultimate in convenience, flexibility and safety," explained Early Warning CEO Paul Finch, according to PYMNTS.

What credit unions need to do

Now that other financial institutions are offering real-time peer-to-peer payments, and that consumers are expecting it from their own financial institutions, it's crucial that credit unions act quickly to adopt the service.

However, it's also important that they do it right. Deloitte reported the top five features that the U.S. Federal Reserve wants to see in a peer-to-peer payment platform for citizens are the following:

  • Speed
  • Security
  • Efficiency
  • Global capabilities
  • Constant improvements to meet evolving needs

PaymentsSource pointed out that it would take just one data breach in a peer-to-peer network to dramatically reduce consumer trust and steer away members. Deloitte suggested beginning the process of adopting a back-end solution with envisioning what members want the consumer experience to be from start to finish. Once the customer's need is identified, the credit union can determine what will set its peer-to-peer payment platform apart from its competition, whether that be other credit unions or big banks. By doing all of this with members in mind, the credit union is showing its member base that it cares about their convenience, security and satisfaction.

 

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