BROOKFIELD, Wis. — Despite the slow adoption of point-of-sale mobile payments in the U.S., credit unions should begin preparing today for when the payments method takes off.
Industry experts and analysts say it's time credit unions choose a mobile wallet solution and then combine the mobile payments and home banking apps.
Delaying these moves could be risky, they warn.
That's because CUs could see interchange, valuable payments data, new revenue streams and even relationships heading to aggressive financial institutions and emerging payments players eyeing mobile for more than just interchange.
Ginger Schmeltzer, SVP of emerging payments at Fiserv, acknowledged that mobile payments at the point of sale are not where many in the financial services industry thought they would be by now.
"The last year or two we have heard it would be the year of mobile payments, but each year it did not happen,' Schmeltzer said.
Point-of-sale mobile payments represent a small percentage of total U.S. POS transactions. What continues to delay greater acceptance are consumers — because of fragmented mobile POS payments options — don't yet see any greater convenience in pulling out their smartphones over swiping their plastic.
Merchants also don't have enough reasons to change.
"Until mobile reaches a lot more merchant terminals and in some uniform fashion, it won't take off,' said Kari Anne Arnosk, consultant at Advisors Plus, a division of PSCU, St. Petersburg, Fla.
One Statistic Of Note
Here's one statistic of note: according to a recent study by Javelin, mobile retail payments totaled almost $60 billion in the U.S. last year, but only $3 billion — or 5% — of these payments were made at the point of sale. The remaining 95% were made remotely with a smartphone.
But this year mobile retail payments should climb, and bring many more mobile POS transactions along, according to Juniper Research.
The company predicts global payments via mobile devices will reach close to $507 billion in 2014, a rise of nearly 40% year over year.
How much of the increase will be picked up in the U.S. remains to be seen. However, experts hold hope for mobile POS increasing due to near field communications (NFC) capability being included in many terminals merchants are adding to prepare for EMV, as well as consumers becoming more accustomed to managing more of their daily tasks with their mobile devices.
Mobile For 'So Many More Things'
"We are using our mobile phones for so many more things today,' said Caroline Willard EVP, markets and strategy at CO-OP Financial Services in Rancho Cucamonga, Calif. "We turn on and off our home security systems with our phones, and more consumers are expecting to manage features of their cards — such as security — via smartphones.'
Brian Scott, VP of sales at The Members Group in Des Moines, Iowa, believes combining the mobile payments app with the mobile banking application gains traction for both.
"What percentage of members are accessing your home banking site from their mobile device, 10% to 20% — certainly not much above 25% or 30%?' offered Scott. "Everyone talks about mobile now and how can we get a lot of enrollment in members using mobile banking. Well, one way is tying in the payments side — so mobile banking, mobile bill pay and mobile payments all in one. It makes the mobile banking app more valuable and migrates members to mobile payments at the point of sale.'
Richard Crone, CEO and founder of Crone Consulting LLC., San Carlos, Calif., questions why members should have to use one app to check a balance or transfer money, close it, and then open another for payments.
"If members are checking their balances, paying their bills, transferring funds — managing their entire relationship through your mobile interface — you don't want them closing that app and opening up a Google or PayPal wallet to make a payment,' said Crone. "You will lose [payments] data and the opportunity to deliver value-added services.'
Analysts point to Starbucks as an example of a successful mobile payments app. The company pulled in $1 billion in mobile payments last year.
But what the coffee giant is doing best is building loyalty among customers with a mobile app that provides a great deal of utility and rewards.
"Starbucks lets you see your account history, load money, make payments — so it's one app for viewing and interacting with your account and making payments,' explained Scott. "I think only a short while ago mobile payments made up 3% to 4% of Starbucks' total payments and now that figure is 10% to 15%. It is steadily increasing.'
Crone pointed out that "whoever enrolls, controls,' and more than just digital swipe income.
Mobile wallets can be a new revenue source for CUs — working with retailers, consumer packaged goods companies and product manufacturers to deliver geo-triggered advertising and offers to members, and in return receiving revenue for driving members to these businesses.
Crone advised that a new revenue source is needed to replace interchange, which is not only slowly eroding for institutions exempt from the Durbin rules, but being eaten up by networks offering merchants methods to route transactions over new lower-cost rails.
"If credit unions think they don't have to do anything and ride the interchange train off into the sunset, they are mistaken,' said Crone. "Mobile can replace interchange revenue. We have determined that through ads and offers members can opt into, not SPAM, credit unions can make $300 to $500 per member for proven net new sales to businesses.'
'It Comes Down To Convenience'
Brian Day, senior product manager for The Members Group, thinks consolidating coupon swiping, loyalty rewards and payment into one step will help migrate consumers to mobile payments.
"It comes down to convenience to make consumers change,' said Day. "Today, at the register, I have to have coupons scanned, give the cashier my phone number for rewards and then swipe my card to pay. All three steps could be digitized into one with the mobile phone.'
Fiserv's Schmeltzer thinks the Merchant Customer Exchange (MCX), when it gets going, could have a big impact.
"What will tip the scales to some kind of critical mass acceptance? I don't have a crystal ball. But could it be that MCX comes out with a wallet that offers consumers such a great experience, integrates offers and more, and consumers flock to it? Maybe.'
Crone advises credit unions to keep an eye on MCX, and be aware that not all emerging digital wallet solutions will be able to be used across a wide range of merchant POS platforms, and as a result, a number will not survive.
"For example, CU Wallet is using the same platform and technology as MCX — Paydiant is the backbone provider for both,' explained Crone. "Credit unions need to be aware of what MCX is doing. MCX has the leading merchants in the nation on board.'
(CU Wallet is a digital payments network formed by credit unions last year. Its founders, who include Crone, have said this model is key to keeping member data within the CU community.)
Consumers Prefer To Do Business With FIs
Of all the reasons to pay attention to mobile payments and take action today, Schmeltzer thinks the most important could be the fact that consumers prefer to make mobile payments with their financial institution.
An Ovum study indicates financial institutions have an advantage over nonbank competitors as the mobile banking and mobile payments user experiences converge.
The report shows consumers are becoming more comfortable making financial transactions through the mobile channel and they most often cite their financial institution as the most trusted service for making mobile payments.
"A lot of consumers trust their financial institution and want to do their mobile transactions through their bank or credit union,' said Schmeltzer, cautioning that the advantage can slip away. "That security and trust of their FI is what consumers want now.'
