ST. PETERSBURG, Fla.-The fight to get the credit union's plastic to the top of members' wallets is heading to a new battleground: the mobile space.
Credit unions must start discussing now how they will transition their credit and debit cards to mobile payments and get them to the top of members' digital wallets, card processors and analysts told Credit Union Journal, as mobile-payment-enabled smart phones and merchant terminals become more commonplace within the next 12 to 18 months.
Discussions also have to focus on how credit unions will create greater value for their virtual cards as new competitors, such as PayPal, reach merchants with the emergence of the new point-of-sale terminals that also connect to the Internet, opening the door for more alternative payment options. Sources say some new players will arrive without as great a need to generate interchange revenue, and will come armed with new kinds of consumer offers.
"The mobile channel will open up more opportunities than we have ever seen," said Denise Stevens, VP of innovation and product development for PSCU. "With all those opportunities will bring more competitors for payments. We are already seeing these disruptors, the non-traditional financial service companies. Their motivation for being in the payments space is a little different from banks and credit unions, which could well change the payments game. Some will be in it for payments and some for data but simply have to do the payments first."
Paying With Facebook Credits
Within the next three to five years many more consumers will become accustomed to having numerous choices for how they will pay at POS. Dom Morea, SVP and division manager for First Data Advanced Solutions and Innovations in Atlanta, believes that eventually merchants could accept Facebook credits. "That could well happen as consumer demand begins to drive more of what merchants accept as payment. There just will be much more choice as the offline and online payments worlds merge."
Certainly PayPal will be there, said Rick Oglesby, senior analyst at the Boston-based Aite Group, who sees mobile expanding the competition to include global players. "We could very well see the likes of some of the international payments networks like Alipay, the PayPal of China. There is a big trend among merchants looking for growth internationally, due in part to our extended low GMP state."
Experts project that later in 2012 near field communications (NFC)-enabled smart phones will hit the market in a big way. Oglesby noted merchants, especially big box, are getting NFC-enabled POS terminals today, and expects that to ramp up as consumers start to buy the NFC smart phones. For widespread acceptance of mobile payments to happen, however, mid-sized and small merchants will need to get NFC-enabled terminals, sources stated.
"When will mobile become broadly accepted? Maybe three to five years," said Oglesby. "When will it become the standardized way people pay? Probably eight years."
But Oglesby pointed out that widespread consumer acceptance of mobile doesn't have to happen for merchants to begin catering to mobile payments. "Lots of folks think there will be this bright line, when we go from zero to 100 miles an hour with mobile. Of course that won't happen. This evolution will follow a more traditional adoption. We will have 10% to 15% of consumers become early adopters within the next 18 to 24 months. But do you think merchants want to turn down 10% to 15% of their customer base while waiting for greater acceptance? That is the sort of tipping point financial institutions should be focused on."
When that tipping point arrives, credit unions have to be ready to expand their offerings associated with their cards to meet the capabilities of smart phones, said First Data's Morea. He said new payments providers will be working with merchants to offer, for example, instant discounts. "There will be many new propositions wrapped around mobile payments. Maybe consumers get a text message in the store for a price cut, or they may tap their phone on a chip-enabled poster to save 10% on a certain product."
Jeff Russell, senior advisor for The Members Group in Des Moines, Iowa, while acknowledging the appeal of mobile, said merchants won't just jump straight over EMV chip cards to mobile. He thinks the next five years will be a mix of mag-stripe, chip, and mobile. "The plastic card will be around for five years, at least, whether chip takes over or mag-stripe stays around. It took Canada four to five years to move completely from mag-stripe to chip and the government mandated it."
What will not spell good news for plastic is the fact merchants will be looking for alternatives, especially as more payment options arrive, offered Russell. "I think we are moving beyond the swipe for payments today. Merchants are saying. 'We don't think the swipe is as valuable as it used to be. We want that interchange number to go down.'"
Sources agreed that if MasterCard and Visa move into the mobile space that will benefit financial institutions, making the transition to mobile for FIs simpler. However, if mobile phone providers-such as AT&T, T-Mobile and Verizon that have launched mobile payment network Isis-win in the mobile space, the shift to the digital wallet by banks and credit unions may not be as easy. "And what about non-traditional players," said Russell. "You have Apple. What happens if some day iTunes becomes the primary payments method?"
Can't Sit On The Sidelines
One thing CUs can't do is wait to see who wins in the mobile space, explained Tom Berdan, VP of product management at Harland Financial Solutions, Lake Mary, Fla.
"You can't wait for the next generation of payments to come along. Get started on what you can do today. Look to account-to-account payments, and P2P, those platforms can be adopted today. You have to increase awareness among your membership of alternative ways to pay, and that the credit union is taking part in emerging payments. You can't sit on the sideline and wait for emerging threats to take over the payments space and potentially outflank you in your cards relationship with your members."
