Digital Wallet Warning
Credit unions should take care to protect interchange income when evaluating opportunities to participate in digital wallets, suggested one CUSO executive.
They also need to make sure that members understand to use their credit union debit or credit card in merchant payment apps, said Caroline Willard, EVP at CO-OP Financial Services in Rancho Cucamonga, Calif.
“We all understand it's all about keeping the credit union card as the top of wallet,” Willard said. “And that applies in the digital world as well.”
The equivalent of top of wallet in the app world is to make sure your credit union's card is the one a member chooses to fund the coffee, donuts, home improvement item or parking meter time that they might purchase with a merchant's digital app, Willard explained.
Then, every time a member uses the app, the credit union will still make a small amount from that transaction.
But if a member chooses a non-credit union issued funding source, a credit card from another bank or a PayPal account, the credit union will be effectively cut out of the payment loop on any transactions with that app.
Willard said CO-OP became concerned about how well credit unions understand the different digital wallets and apps options after taking questions from credit unions which merchants had approached about possibly partnering in digital wallet or other apps.
She added that CO-OP had also been involved in discussions with merchants recently about signing on to allow credit union members to pay merchants over Sprig, the CO-OP Shared Branching payment service which CO-OP said it will soon expand.
Willard said CO-OP had declined to sign on, for now at least, because merchants had not offering a sufficiently high per-transaction payment for credit unions’ participation, and CO-OP had not wanted to undermine their interchange income.
“We could have done it,” she said. “With 20 million users, we have the leverage. But we want to bring our credit unions any deal that we didn't believe was fundamentally fair.”
Willard agreed that digital wallets and digital apps enjoyed a high degree of hype right now that could make credit unions feel they need to participate in a digital wallet solution right away, but she urged the credit union executives not move too quickly into deals which may not be good for their institutions.
“They’re really isn't anyone that has a digital wallet solution with a very high consumer demand,” she said, pointing to offerings from such major players as Visa, MasterCard, Google and PayPal.
She added that while individual retailers like Starbucks and Dunkin Donuts have launched payment apps proving popular with consumers, the challenge was one of credit unions educating consumers to make their debit or credit cards the payment option for those services.
Richard Crone, CEO at payments specialists Crone Consulting LLC in San Carlos, Calif., agreed that there is no market leader in digital wallets and that credit unions should be cautious about making any deals.
But he also stressed that more credit unions need to offer mobile or upgrade what they have.
“Those who enroll are those who control,” he said, pointing out that the firm's analysis of 6,000 credit unions found only 6% of them now offer mobile deposit capture, even though mobile deposit capture was the second most highly cited reason for changing financial institutions after fees.
Too many credit union mobile banking apps also lack an option that lets members make any payments over their mobile phones, even utility and mobile phone payments, not to mention payments at the point of sale, Crone said.
“If your members are able to use their mobile banking app to check their balances and transfer money, why would you want them to close that app and open another one to pay for something,” he asked. “It doesn't make any sense.”
Crone, who said his firm has more than a dozen large credit union clients, and Willard agreed that a strong mobile banking application could provide a credit union with a platform it could use to help members migrate to mobile payments at the point of sale. They also agreed that, so far, no one has had a mobile banking application ready to start serving such a role – but that there was a real need to create one.
“Whoever enrolls accounts will control the terms for how they transact business on their mobile phones into the future,” Crone said. “Credit unions want to be there.”