Proceed With Caution, But Don't Wait To Explore Digital Wallets

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Credit unions are seeing strong interest in digital wallets (or e-wallets) by members and especially by prospective members among the young and affluent. The concept is certainly an attractive one and probably an inevitable one–replace cash and leather wallets with a mobile phone enabling members to make payments from their accounts, including new forms of electronic payment such as person-to-person (P2P).

P2P/digital wallets are likely here to stay, and credit unions need to be mindful of potential solutions and how they can help credit unions add new members and forge stronger relationships with existing ones.


Some Definitions

Let’s look at some definitions, therefore, so we can be certain of what we’re talking about; some recent events, so we know where we are; and then look at what we should consider doing next.

 P2P payments consist of moving money between people and their various types of sending and receiving accounts. It includes transferring money from one of my accounts to another of my accounts (Me2Me), from my account to your account (Me2You) and from my account to a merchant (Customer-to-Business, or C2B). Examples include Dwolla, Popmoney, PayPal and AMEX’s Serve.

The need that digital wallets fill in the marketplace is an aggregated view of and access to accounts and payment tools. They also can deliver real-time coupons and offers, loyalty and reward programs to shape consumer behavior. Digital wallets exist in the “cloud” as a remote network service, whereas mobile wallets have data stored on the mobile device.

Integral to our discussion of P2P and digital wallets is NFC (near-field communications), which allows for communication between two devices that are in close proximity to one another. To date, adoption of NFC is spotty. The U.S. is nearly a decade behind the European Union in deploying chip reader terminals at the point of sale, which is impacting both EMV (Europay, MasterCard, Visa) and NFC adoption.

NFC, which involves multiple constituents, including mobile manufacturers, nearly guarantees increased complexity vis-a-vis cloud-based solutions. The clear benefit of NFC technology is that it respects the traditional card issuer/acquirer relationships, which keeps financial institutions involved in the payments value chain. The future of NFC communications as a delivery channel for payments is heavily integrated and dependent on the merchant endorsement and enablement of the technology as part of the payment checkout process.


Some Recent Developments

On Sept. 21, Apple launched the iPhone 5 without an NFC chip, prompting many to wonder aloud if they were leapfrogging that technology. Less than a week later, Bank of America announced it is testing Quick Response (QR) codes for mobile payments, also bypassing chip technology. 

Isis (the mobile carrier consortium) and Google are running independent pilots in Salt Lake City this year. Neither seems to be getting off to a crisp start.  

Walmart recently expressed skepticism over the NFC mobile contactless technology and instead partnered with American Express to announce Bluebird. This alternative to debit and checking accounts includes a digital wallet, P2P payments, mobile app functionality and the ability to control subaccounts for friends and family from a smartphone. 

MasterCard and Visa have had their PayPass and PayWave products for years, and both are working on various wallet products around them. Finally, ClearXchange (BofA, Chase, Wells Fargo) and the merchant coalition are also defining offerings. 


Some Suggestions

As recent developments amply demonstrate, there are no clear leaders at this time. We would advise caution in terms of any near-term decisions regarding products or technologies. At the same time, credit unions need to start planning for a multi-channel technical and marketing strategy with digital wallets as a means to build member loyalty and transaction volume growth.

The good news, indeed, is your members can enroll their existing cards in virtually every digital or mobile wallet scheme available today. 

In the long term, the challenge is to get your members to put your card at the top of their wallet. What’s really important to consider is not only who holds the wallet, but whether the credit union can position their card to be top-of-wallet for usage.

So, for credit unions, the technologies and industry goings-on surrounding P2P and digital wallets can be boiled down to a familiar issue. Positioning your card for top-of-digital wallet usage is essentially the same challenge that credit unions face with card usage at the POS.

Dr. Kathy Herziger-Snider is vice president, product development, at CO-OP Financial Services, Rancho Cucamonga, Calif. ( She can be reached at and 800-782-9042, ext. 2634.

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