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    How Payment Preference Should Dictate Payment Acceptance

    Think back to a moment when you’ve left a restaurant, a hotel, maybe a store, and you witness a high-quality customer experience. It could’ve been a small detail or several small details, that when added up provided you, a very different experience. It’s these little experiences more and more retail shops are embracing to stand out from the crowd. The demand for high-quality experiences has spilled over into the financial services market in recent years, thanks to increased competition from traditional and non-traditional financial institutions. Now, more than ever, consumers have a wide range of banking options including loan payment options.

    In the latest Federal Reserve Payments Study, of the 82.6 billion payments made, debit cards made up 66.9% of card payments in 2017. That's equal to 55.2 billion card payments! It's safe to say that debit cards are the preferred form of payment when completing transactions and that debit cards could be considered the “normal” method of payment.

    Let's take a look at a few factors that could help you determine why accepting debit cards for loan repayment makes sense.

    1. Member Satisfaction and Growth

    Annual credit union membership continues to rise adding 4.9 million new members, according to 2018 third-quarter data from Callahan & Associates. While the numbers are encouraging, financial institutions shouldn't rest on their laurels. When researching new features to deploy, critically evaluating consumer experiences across all channels could be the difference to sustaining membership growth and beyond.

    In a 2014 EY Global Survey, 41% of consumers cited a positive user experience as the reason they opened an account with a financial institution. User experience is often tied to meeting the demand of borrowers, and right now consumers want to use debit cards.

    2. Self-Service

    SWBC’s online self-service payments grew three times as fast as live-agent payments; almost half of that activity came from mobile devices.

    The term self-service continues to be in just about all conversations when talking payments, and for good reason. Borrowers want options. The borrower of 2009 is vastly different from the borrower of 2019. They want flexibility and expect a seamless process when it comes to paying their bills, especially their loan payments. And often times, borrowers don't know their account information such as full account number and routing number. In the payments world, the fewer hoops a borrower has to jump through to make a payment, the better.

    Your financial institution wants to be paid on time, of course, and your borrowers don't want to incur any late fees. Offering flexible payment options, like accepting debit cards for loan payments, provides the choice borrowers assume will be available when they open an account or initiate an auto loan. A Tsys study found that for paying recurring and one-time bills with a debit card was the preferred payment method of choice, 33%, and 35%, respectively.

    By providing the self-serve features users are requesting, your financial institution benefits by reducing the amount of seven and a half minute long calls your call center is taking. As utilization of self-serve services grows, your call centers will become more efficient and can focus on the more complex borrower issues. A prime example is SWBC’s online self-service payments offerings. Our self-service payments grew three times as fast as live-agent payments; almost half of that activity came from mobile devices!

    3. Age is Just a Number

    For many years, debit cards were seen to be used only by early adopters—younger members. In recent years, studies show that debit cards are the preferred payment type for many age groups. A 2016 Tsys study found that 18–24 year-olds (47%) and 45–54 year-olds (45%) preferred debit card payments over cash and credit card. Even the 55–64 year-old age bracket preferred paying with a debit card to the tune of 35%.

    Debit card payments are no longer limited to just the young-aged, but also the young-at-heart. Adding debit card payment acceptance into your arsenal of options isn't just for millennials. It'll benefit nearly your entire membership base.

    4. Loan Growth and Payments

    A Callahan & Associates infographic shows that total loans across U.S. credit unions grew by 9.5%, hitting $1 trillion in Q3 2018. Across the credit union space, auto loans represented 35% of the loan portfolio. Loan growth, depending on its origination, may trigger your institution to consider the fact that some of your new members may have never interacted with your institution before originating their loan. For example, indirect loan growth or even the growth of loan applications directly from your website or banking app could mean few are actually entering the branch.

    Borrowers with no past experience with your credit union will need to be educated on how they can make their auto loan payments. If you deploy welcome messaging (email and mail), including a "quick-start guide to making your car payment" will go a long way in providing a high-quality borrower experience. Additional benefits to your institution include driving new borrowers to self-service channels and informing them of convenience features your institution may offer—such as text-message payment reminders.

    Of course, having a pay-by-debit-card option for that new borrower will be just another feather in the cap for your institution by offering flexible payment options. Additionally, you could enable the ability for that borrower to fund their share-account with that same debit-card when they’re going through account opening steps of your loan application.

    With so many consumers using debit cards for paying bills and for making everyday purchases, they expect to use their debit card to make any and all payments in their lives. Deploying a strategy to accept debit card payments will align with your borrowers' payment preference and contribute to providing a high quality experience.

    Recap: Key Article Takeaways

    • Embracing the customer demand model means credit unions should provide what borrowers want—easy and seamless loan payment options.

    • 2017 saw 55.2 billion debit card payments making up nearly 70% of all payment transactions.

    • A Tsys study found that an average of 42% of people between the ages of 18 and 64 prefer paying with a debit card—card payments no longer limited to early adopters.

    • SWBC's online self-service payments grew three times as fast as live-agent payments; almost half of that activity came from mobile devices.

    • As auto loan growth continues to rise, having flexible payment options in place for borrowers is a win for everyone.

     Click here to download our whitepaper: affordable debit card options for borrowers

    Jason O'Brien

    As SVP of Payments for SWBC’s Financial Institution Group, Jason is responsible for developing and launching new products and services that address financial institution needs and provide a myriad of benefits.

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