TAMPA, Fla. — Digital wallets played a much larger role in the payments landscape in 2013, with players inside and outside credit unions introducing wallet solutions aimed at winning the battle for consumer data as much as interchange.
Analysts pointed out that financial institutions must get on board with a digital wallet offering to remain relevant with their cardholders, maintain interchange levels and - perhaps most important - keep valuable consumer transaction data within the walls of the financial institution.
Credit unions signed on quickly with
In Des Moines, Iowa, Brandon Kuehl, TMG product development architect said, "Since rolling out V.me for TMG financial institution clients, we've seen significant interest from our Visa members. As credit unions look to position themselves competitively in the payments space, we predict most Visa-issuing CUs will sign up for V.me within the next 12 months."
In April, Lake Trust CU became the first credit union in the U.S. to deploy MasterCard's
In August, reasons for CUs testing the digital wallet waters became even more clear as the potential threat from the new Merchants Customer Exchange (MCX) appeared to become more real in the eyes of several analysts, with some suggesting the fledgling merchant-driven mobile payments system could have a bigger impact at POS than PayPal. Their fear: MCX has legs, with backing from major retailers that represent more than $1 trillion in annual payments.
"I give it low odds of succeeding, but if it works it will change everything," said TRK Advisors owner Tim Kolk in late summer, addressing the possibility of an ACH-based closed-loop network that could cut out issuer interchange. "Consumers use this payment network instead of an association network, like Visa, and it will change the nature of debit card processing; not credit cards, because I don't see MCX offering revolving functionality."
Again, what could be a bigger loss, experts agreed, is handing over member transaction data to merchants. Bill Lehman, VP of portfolio consulting at CSCU, recommended CUs learning as much as they can about MCX and pay attention to whether their cards can be part of the new merchant digital wallet.
"The important thing to consider is getting members to place the credit union's card at the top of any of the digital wallets they use," Lehman said in August.
Late in the third quarter, CUs fought back with CU Wallet, a credit union-focused mobile payments system, whose designers have stated a key is to keep member data within the CU community.
The new system is being developed by Paul Fiore, who started Internet banking company Digital Insight; Kirk Drake, founder of Ongoing Operations, the disaster recovery CUSO; and payments industry consultant Richard Crone. Because it will be owned by credit unions as a CUSO, the founders say it will provide the CU community with a differentiated mobile payments infrastructure.
The $695 million One Nevada Credit Union, Las Vegas, led the way in signing on, and late in the year CU Wallet had added 10 new credit union partners since its September unveiling, for a total of 25 credit unions representing three million members across 17 states.
Paul Parrish, One Nevada's CFO, in Q3 emphasized how necessary it is to have a credit union backed wallet. "Our members are going to be pecked away at with offers coming from our competitors."
This month, Sprig by CO-OP, a digital wallet for credit union members introduced earlier this year by CO-OP Financial Services, Rancho Cucamonga Calif., upgraded to enable out-of-network, pay-anyone payments - incorporating the PayNet payment network from FIS of Jacksonville, Fla.
The addition by Sprig illustrates the flexibility and functionality of digital wallets to deliver many new opportunities, such as targeted coupons, loyalty rewards and simpler P2P payments. The wallets also face some small hurdles in that many consumers don't know what a digital wallet is and those who do often fear placing their plastic data on a phone.
But TMG's Kuehl summed up what the year has taught most CUs about this quickly advancing payments option: "Learn how many of your members want a digital wallet. Learn their spending and transaction habits. Don't be afraid to do something - afraid you won't get the perfect solution - and hesitate as a result. Mobile is evolving quickly, so do something and learn from it, because if you don't offer your members a digital wallet, someone else will."
