In a not-so-distant past, digital payments revolutionized commerce. Today, however, commerce is poised to revolutionize the way money is moved. From manual and paper-based, payments are speeding toward automation, paperless, cloud-based solutions to simplify the buying and selling process.

As more digital payment solutions emerge and take center stage, it's imperative for credit unions to stay informed of changes. Doing so can best position your credit union to meet the unique needs of your members. Let's take a closer look at key trends redefining how money is transferred. 

Payment Methods Are Getting Smarter

We have smartphones, smart TVs, smarter cars, smart appliances, etc.—it should come as no surprise that payments are also getting smarter. And this is a welcome improvement, considering the complex nature of payments. Many businesses dedicate significant resources to processing and aligning payments with accounts receivable. When you add in payments for more than one invoice at one time or partial payments, the complexities become more pronounced. This usually relegates accounts receivable professionals to investigating why X dollars do not align with the ledger. To further complicate processing, certain payments—such as automated clearing house (ACH)—have remittance data that arrives in a separate file, which makes it more difficult to match payments to the right account. This is where smart payments can help. 

Simply put, smart payments bind dollars and data together, which helps the account receivables team reconcile payment data, speed up the flow of cash, and substantially reduce manual effort. Online payment portals are one type of smart payment gaining steam. Online payment portals allow the submission of payments with a few clicks. And while more information is being transmitted digitally, smart payments have advanced security protocols in place to protect the information, which makes it a safer alternative compared to other digital payment vehicles.  

Banking Is Becoming Decentralized

For several decades, centralized systems have been the primary focus of personal and business banking. And the traditional, centralized system has worked fairly well, allowing the relatively easy remittance of payments and transfer of funds. Previously, the only alternative to writing a paper check was transferring through an automated clearing house (ACH).

Today, however, decentralized banking solutions are reshaping the industry and world. Decentralized banking or decentralized finance (DeFi) represents an emerging financial technology based on secure distributed ledgers like those employed by cryptocurrencies. Decentralized finance utilizes technology to circumvent centralized finance models. Two examples of emerging decentralized finance technologies include peer-to-peer (P2P) financial transactions and cryptocurrency.

Direct Digital Transfers Are In

As decentralized banking continues to upend the traditional way things are done, one unmistakable victor has been direct digital transfers and real-time payment options. Popular P2P applications—such as Zelle, Venmo, and Paypal—are so common among consumers that they have become verbs, such as "Zelle me $20.00 for lunch". These solutions allow users to digitally transfer funds from one member to the next with no or minimal fees. Until now, the P2P, real-time-payment trend has been largely enjoyed by consumers. 

However, P2P payments have tremendous potential for businesses as well. The instantaneous transfer slashes processing times from days or weeks to hours. It can bolster cash flows by circumventing major delays in payment processing. And P2P use by businesses is on the rise. Businesses started adopting Zelle in 2021 for different applications, which drove a 162% year-over-year increase in payments sent by small businesses. Moving forward, you can expect the increased adoption of P2P payment services in the business space. 

Flexible Payment Solutions Are Back

Although a large number of credit union members prefer traditional payment methods like credit and debit, flexible payment solutions are reemerging into the market. Flexible payment methods represent a viable way to drive growth while securely mitigating the risk of bad debt. Examples of common types of flexible payment solutions include:

• Skip-a-pay allows the member to slow or postpone a loan payment on qualifying loans.
• Autopay is where the payment is automatically deducted from the account. 
• Deferred payment plans involve tailoring the terms of the repayment, such as making no payments for the first 90 days.
• Step payment plans are when payments gradually increase over the life of the contract. 
• Seasonal payments are more tailored to the business's cash flow changes by season.

Another point worth mentioning is that businesses are beginning to reintroduce early-payment discounts to incentivize clients to remit payments faster. 

Offer Advanced Digital Payment Solutions with FLEX 

In today's world of hyper-digitization, it's imperative for your credit union to offer your members the advanced solutions and flexibility they desire. However, if your core technology isn't up to the task, this can prove to be timely, expensive, and more like a game of whack-a-mole. Fortunately, FLEX offers credit unions of all sizes access to state-of-the-art digital account services and solutions. Consider taking a look at our Digital Account Services eBook to get started bringing these trends to your credit union.