payments technology flash forward - co-op financial services · encouraging mobile wallet usage...

Payments Technology Flash Forward

Payments Tech F lashback 2

It took centuries for civilization to progress from barter to metal coins and paper money. But in just the last few decades, payments

technology has begun evolving at an exponentially increasing rate. Sparked by the

mid-century introduction of credit cards, and fueled by a revolution in digital and online

capabilities, payments are becoming more mobile and versatile than imaginable just a

few short years ago. Today, mobile wallets, and mobile technologies like card controls and

alerts, offer credit unions an opportunity to position themselves at the forefront of payments

innovation. Seizing this opportunity demands both foresight and prudent planning, as you’ll

discover in the following pages.

Introduction

9692 Haven Avenue, Rancho Cucamonga, CA 91730 | CO-OPFS.ORG


■■ Mobile Insights

To Take Advantage of Mobile Wallet Technology, Credit Unions Need to Jump on the Bandwagon 4

Give Your Credit Union Members Control 7

■■ At-a-Glance

The Accelerating Evolution of Payments Innovation 9

Contents



“This is a fight for credit unions to win—or lose,” states Mary Monahan, a Javelin analyst.

The Javelin report was made available in September 2013 and titled “Mobile Wallet Game Changers: A Glimpse into 2014’s Projected Winners and Losers.” According to the study, many financial institutions—not just credit unions—have lagged in deploying working wallets while non-bank entities such as PayPal and Google have been steadily growing their usage. “The financial industry narrative is that nobody wants a mobile wallet, but that is not true,” explains Javelin Research Associate Daniel Van Dyke, a study co-author. “There is a strong incentive to get into this now. The mobile wallet space is not static.”

Expectations about the future of mobile wallets are high but confusion is also common and consumer experience at this juncture is likely to be fragmented. In this environment, how do credit unions fit into the picture?

Although there is little time to waste, the first step might be to sit back, take a deep breath, and exhale. While there is a lot of interest and activity

surrounding mobile wallets, this opportunity is still out there for credit unions. The gap between consumer expectation and usage is still wide, which makes this the perfect time for credit unions to stop thinking and start acting.

But how? Here are several recommendations, each with an eye toward early action and manageable involvement:

■■ Get your cards top-of-wallet. Most members probably aren’t using mobile wallets at this time, even though they may be thinking about it. Encouraging them to do so—especially in tandem with using your payment cards—increases the chances that they’ll put a credit union’s cards into their mobile wallets. Getting in on the ground floor is an important first step.

■■ Focus on mobile payments. The terms “Mobile payments” and “mobile wallets” are often used interchangeably. However, mobile payment refers generally to payment made with a mobile device rather than with cash, check or a plastic card. A mobile wallet allows you to store one or more payment

methods (i.e., cards) in a digital format that is accessible on a mobile device. And, the fact is people aren’t adopting wallets as quickly as they are mobile payments. Credit unions should align their marketing and promotion with the mobile payment experience to get members to associate them with mobile wallets in the future.

■■ Keep your options open. CO-OP Financial Services, a credit union service organization based in Rancho Cucamonga, Calif., is taking a non-exclusive approach to mobile wallets with its own foundational products and technology. The company recommends the same for credit unions. Rather than trying to commit to one mobile wallet product, encourage members to choose their own (or try many).

■■ Stay alert. This market is evolving; it’s important that credit unions stay informed and evolve with it.

To Take Advantage of Mobile Wallet Technology, Credit Unions Need to Jump on the Bandwagon

Mobile Insights

continued...

While mobile wallets are gaining traction with consumers, credit unions lag behind banks and other providers such as PayPal™ and Google in offering this rapidly evolving financial services product. To stay on top of the growth curve, credit unions need to make a significant and immediate commitment to jump on the mobile wallet bandwagon or be left in the dust, according to a study by Pleasanton, Calif.-based Javelin Strategy & Research.



It’s a fast-moving world and the Javelin study underscores the velocity of the mobile wallet market momentum. “In the past 90 days, 21 percent of smartphone owners have used a mobile wallet such as Google Wallet or Apple Passbook,” the study says. “When consumers were polled about using a mobile wallet in the future, 30 percent of smartphone owners (22 percent of all consumers) said they were likely or very likely to use a mobile wallet in the next 12 months.”

So the message to credit unions is: They need to begin now to get their cards into mobile wallets. This strategy is not only easy, but it’s smart. Credit unions don’t have to choose the winning technology, at least not yet. They don’t have to create or mobilize their own new technology. Even if things change in the future, there’s no real downside to having their cards in today’s wallets. And, for the record, interchange works the same in wallets as it does anywhere else.

Taking an active role in getting members to try this technology offers several advantages to credit unions. It positions them at the front of this trend, opening conversations about security, card benefits and convenience features, and driving home the message that credit unions are on point with new technology.

At the same time, consider mobile wallet transactions as a valued portion of overall growth of the card portfolio. If increased card usage is a worthy goal—which we all know it is—why not build usage through mobile wallets?

Here are a few ideas to consider for encouraging mobile wallet usage among members:■■ Mobilize. As consumers move toward mobile wallets, credit unions should position themselves as mobile leaders. Don’t wait to offer mobile banking.

■■ Perform a card program evaluation. Are the programs meeting members’ needs? Credit unions should be sharpening their card programs now.

■■ Create rewards tied to mobile wallet transactions.

■■ Run contests to incentivize adoption.

■■ Use content marketing to promote adoption. Showcasing credit union staff or members who are road-testing wallets and reporting their results might inspire members to follow. Additionally, remember that keeping a credit union card top-of-wallet in the mobile sphere is largely the same as it is anywhere else.

■■ Promote. Consumers are using credit again. Credit unions need to remind members of the things that make their cards competitive.

■■ Use analytics. Credit unions should use analytics to track interest and usage. Knowing what members are up to is one of the most important advantages that credit unions have to promote their institution and new products.

Engagement: How Will Wallets Take Off? Credit unions can and should pursue mobile participation now. But that still leaves very important questions: How and when will mobile wallets truly take off? How will they go from being an emerging technology to an everyday tool?

Historically, changes in the payments area happen slowly. EMV card technology has been in existence since 1994, but it’s only beginning to gain acceptance in the U.S. The payments system has so many moving pieces that large-scale change takes time.

Fueling the transition to mobile wallets along with mobile banking in its entirety is the increasing clout of Gen Ys. The Javelin study says that Gen Y’ers are the most productive age group to target for potential mobile wallet users, which consists of consumers between the ages of 25 and 34. Of that group, the study notes that 34 percent of Gen Y’ers said they

continued...

Mobile Wallets30 percent of polled consumers said they were likely or very likely to use a mobile wallet in the next 12 months.

Source: Javelin Strategy & Research, September 2013: Mobile Wallet Game Changers: A Glimpse into 2014’s Projected Winners and Losers.

$Source: “Mobile Money Transfer & Remittances—Business Models & Monetisation Opportunities 2011- 2016” – Juniper Research

Digital Wallets

2016 9.4 million users



Average number of active mobile users making domestic transfers in the U.S. and Canada is expected to more than double between 2011 and 2013. By 2016, that number is projected to nearly double again.

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were likely to adopt a mobile wallet in the next 12 months, compared to all consumers at 22 percent.

Additionally, the study found that 28 percent of consumers making more than $150,000 annually indicated they are likely to adopt mobile wallets in the next year. “One in three will use a mobile wallet in the next year and if their financial institution does not offer one, they will go elsewhere,” Monahan warns.

That said, there’s plenty of other evidence that mobile wallets could catch on quickly once the stars are aligned. Many of the elements that make a mobile wallet of value are already in place—and in use:

■■ Mobile banking, including mobile P2P, is available at many credit unions already.

■■ Proprietary payment cards and apps, such as those being used by Starbucks and Dunkin’ Donuts®, are popular.

■■ Digital loyalty cards, apps, coupons and e-receipts demonstrate an obvious advantage over their conventional counterparts.

■■ Electronic ticketing for air travel, public transit and events is fast becoming the standard.

■■ Geolocation native to smartphones has all but replaced the standalone GPS.

With so many pieces already in place, rapid, widespread adoption isn’t hard to imagine—and if it does happen, expect the transition to be pretty

much seamless. Think of how consumers made the switch to smartphone photo galleries.

Back in the day, if someone asked to see a picture of your kids, you would pull out printed photos from your wallet. Sometimes these photos would be outdated. But now, nearly every smartphone user has a gallery of photos, new and old. The transition didn’t happen deliberately, or with effort. It happened organically because smartphone photo galleries are simpler, easier, more accessible, convenient, available and fun.

If the same advantages of use applied to mobile wallets, would consumers make a similar switch? It’s hard to imagine why they wouldn’t.

Cooperation Brings EngagementRight now, the best move for credit unions is to get members to actually use mobile wallets and at the same time sharpen card programs to keep cards top of mind and top of wallet. Credit unions must also continue to watch all forms of emerging payment types, as not every solution will ride the card rails. So, it is important for credit unions to adopt mobile technology enthusiastically but stay flexible; the strategic demands placed on credit unions are likely to change.

For individual credit unions, trying to keep up with what’s happening in the developing technology marketplace can be difficult. Actually deploying those technologies in a timely and productive manner without some form of collaboration can be even more challenging.

Industry alliances are vital. The risks and costs of developing individual solutions in the mobile wallet space are beyond prohibitive. Add in a large factor of difficulty (remember, Google is still struggling with its mobile wallet product) and the best way forward becomes clearer. Leveraging the cooperative model—and leveraging cooperative technology—is the only viable way for most credit unions to compete and succeed.

In a field where disruptive innovation is not only possible but likely, the best defense credit unions have is to take extraordinary measures to deliver what their members need: Excellent, secure, leading-edge payments and access from a trusted financial partner.

Taking an active role in getting members to try this technology offers several advantages to credit unions. It positions them at the front of this trend, opening conversations about security, card benefits and convenience features, and driving home the message that credit unions are on point with new technology.

About the Author

Amanda Smith is Manager of Emerging Products for CO-OP Financial Services.



Once used primarily for balance inquiries, mobile

banking now encompasses an ever-growing

variety of financial transactions. Members now

have the ability to make direct person-to-person

payments and conveniently accessing all their

accounts in a single portal, including accounts at

different participating credit unions.

This expanded use and functionality of mobile

devices for banking presents credit unions with

challenges to keep up with consumer demands,

particularly for greater individual control of mobile

services. It also presents them with opportunities

to enhance their net income, through reduced

fraud and increased transaction volume.

One emerging solution that puts the member in

the driver’s seat is mobile card controls and alerts

technology. Consumers today need and want to be

more vigilant than ever to protect their card usage

and data. And credit unions will have services

that differentiate them from competitors so that

members reach for their cards first.

The technology is not yet available inside or

outside the credit union movement, but it will be

in 2014 from CO-OP Financial Services. Controls

can be set by the cardholder so that specific

types of transactions are immediately denied and

the cardholder is alerted about any potentially

fraudulent use.

Controls and alerts technology also enables credit

unions to introduce advanced new card payment

programs that will be attractive to some key target

audiences, like affluent cardholders, high-volume

users and young, first-time card members. These

consumers place a high value on mobile banking

tools that promote self-service and empowerment

through useful, timely and accessible data.

Once they know about the value of card controls

and alerts technology, members will not only be

attracted to credit union card programs, they

will be more willing to pay a premium for their

substantive advantages.

Give Your Credit Union Members Control

Mobile Insights

Mobile banking and payments are becoming a mature component of the banking landscape, with surveys showing nearly 50 percent of smartphone owners having engaged in mobile banking in the past 12 months.

continued...



A 2011 user survey by Javelin Strategy and

Research found this technology can reduce

per-member support costs. It costs a financial

institution $19/year less to service members who

regularly receive mobile alerts and an additional

$9.22/year is saved through interactive alerting.

The study further estimates that this technology

can reduce fraud expense by up to 50 percent.

This is because card controls available to the

cardholder enable them to prevent fraud before it

happens. They also have the ability to be alerted of

fraudulent card transactions in real-time.

How exactly do the controls work? Controls can

be set in any number of ways:

Location. The cardholder specifies a geographic

region where the card can be used, with transactions

denied when used outside the parameters. So if

they never travel abroad, they can set their card to

not work there. The cardholder could also set up

a “follow-me” travel itinerary to reduce fraud and

service denials.

Transaction. Again, the cardholder, parent or

business specifies allowed transaction types,

such as in-store, online, recurring or ATM cash

withdrawals. Other types of transactions, such as

card-not-present, can be denied in real-time if the

cardholder has selected this control. They can also

set a limit on the transaction amount and then turn

that same parameter off when they’re standing in

line to pay for a flat-screen television, for example.

Merchant. Merchant categories can be limited

to gas, hotel, travel, restaurants, groceries and

electronics—whatever the cardholder mandates. A

specific merchant can also be authorized solely for

a single transaction if the cardholder has concerns.

Dependent. Businesses can set controls per

employee based on their location and corporate

rank, while parents can set controls for themselves

or their kids.

On/Off. The cardholder, be it a parent or business

administrator, simply turns the card on or off, with

transactions denied if the card is off.

It costs a financial institution

to service members who regularly receive mobile alerts.

$19/ year less $19/ year less

About the Author

Caroline Willard is an executive vice president at CO-OP Financial Services, Rancho Cucamonga, California.

An additional

is saved through interactive alerting.

$9.22/year $9.22/year



The Accelerating Evolution of Payments Innovation

At-a-Glance

20001990

1990s–2000sMobile Banking Accelerates Rapidly1

REFERENCES:

1 Wikipedia: http://en.wikipedia.org/wiki/Mobile_commerce; Wikipedia: http://en.wikipedia.org/wiki/Mobile_banking; Wikipedia: http://en.wikipedia.org/wiki/Mobile_app

2 Wikipedia: http://en.wikipedia.org/wiki/Online_banking; "Stanford Federal Credit Union Pioneers Online Financial Services." (Press release). 1995-06-21.

• Sprig®

• Card Controls and Alerts (coming soon)

TodayContinuous Innovation Empowers Consumers in New Ways

1999Mobile web enhances user experience.

$Stanford Federal Credit Union becomes the first financial institution to offer Internet banking services to all its members.

1994Online Banking Logs In2

2010

2008Mobile apps turn smartphones into indispensible tools.

1997Basic text-based

mobile banking introduced.

DEPOSIT $10.00

ALERT!

ALERT!

Your

account

balance

is at 5%.

The accelerating trend toward greater mobility, flexibility and convenience in payments technology has primed consumers to expect more from their financial institutions. Solutions such as Sprig® by CO-OP, and coming soon Card Controls and Alerts by CO-OP, can position credit unions for leadership as the evolution of payments innovation continues.

To learn more about Sprig by CO-OP, arrange a conversation with a CO-OP Sales Representative by visiting http://info.co-opfs.org/SprigProduct_Contact-Me To keep posted on the latest information for this developing product of Card Controls and Alerts visit http://info.co-opfs.org/10-21CardControlsAlertsAwareness_Landing

02062014CF1434

CO-OP Financial Services 9692 Haven Avenue

Rancho Cucamonga, CA 91730CO-OPFS.ORG

http://info.co-opfs.org/SprigProduct_Contact-Me.html?LS=COOP&LSD=eBook4

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