The agreements with Square and TSYS "[fit] into the mobility focus that a lot of members and businesses are going to," says Jim Salmon, vice president of business services at Navy Federal. Navy Federal currently has 57,000 small-business members with more than $390 million in deposits, he says.
Navy Federal is directing members to TSYS for mobile, tablet, e-commerce and retail point of sale services. The credit union also markets Square's mobile card reader, which allows merchants to accept payments from a smartphone or tablet.
The aggressive approach to serving merchants is "terrific" for Navy Federal, and it speaks to a potentially brighter future for credit unions, says Eric Grover, payments industry consultant at Minden, Nev.-based Intrepid Ventures.
"Credit unions as a class have to do more," Grover says. "Community banks, small banks and credit unions have been losing share because consolidation in the U.S. banking system, probably because of Dodd Frank, has been accelerating."
Most credit unions might have a tough time following the path of Navy Federal because they lack its size, Grover says. "But I don't think it is sufficient for most credit unions or community banks to simply just hunker down and say, hey we are small and local, and we are going to survive. They have to be proactive and I hope more credit unions take the lead."
Navy Federal also faces some strong competition from the likes of USAA and Chase, says Brian Riley, senior research director and analyst with Boston-based CEB TowerGroup.
"Honing all of your offerings for that market makes a lot of sense for Navy Federal," Riley says. "Credit unions have a lot more depth than they did 20 years ago."
Navy Federal is recognized as a major player in the military market with more than $56 billion in assets, more than 4.5 million members, 245 branches and a workforce of more than 11,000 employees worldwide. In addition to all branches of service, the credit union serves all Department of Defense and Coast Guard active duty, civilian and contractor personnel and their families.
The Square agreement was vital for Navy Federal because it will help it serve more merchants, Salmon says.
"Our core market and our core membership base, I should say, are these microbusinesses that make less than $1 million in revenue per year," Salmon says. "They love simplicity, they dislike long-term contracts because they're just not sure, and they're very mobile, very tech savvy. And Square fit that bill."
Square has not announced other partnerships of this kind with credit unions, but is "always looking for new ways to bring Square to business owners and entrepreneurs," the company says in a prepared e-mail statement.
TSYS did not respond to requests for comment by deadline.
A version of this story appeared in Credit Union Journal.